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Finance & Investment
“The Corporate Reporting Dialogue Is Looking for Alignment, Not for One Common Framework”

Sustainable Brands recently talked to Wim Bartels, Program Lead at the Corporate Reporting Dialogue (CRD) about key issues and initiatives around the further development of corporate reporting.

Sustainable Brands recently talked to Wim Bartels, Program Lead at the Corporate Reporting Dialogue (CRD) about key issues and initiatives around the further development of corporate reporting.

Could you give us a quick outline of the CRD's goals and objectives?

WB: The CRD was originally initiated by the International Integrated Reporting Council (IIRC) back in 2014. It was a response to market demands for better coherence and comparability between the corporate reporting standards and frameworks. Today, the CRD consists of the Global Reporting Initiative (GRI), the Sustainable Accounting Standards Board (SASB), the IIRC, CDP, the Climate Disclosure Standards Board (CDSB), the International Accounting Standards Board (IASB), the International Organization for Standardization (ISO), and the Financial Accounting Standards Board (FASB) in an observing capacity.

How does the CRD address the discussion about a perceived competition between some of these reporting frameworks?

WB: All frameworks share the same purpose despite their differences: to facilitate better decision-making and long-term value creation – financial or “non-financial” – through transparency. The CRD is determined to better communicate how frameworks actually work together, identify overlaps, harmonize common reporting criteria like materiality, and align with SDGs as common founding principles. To this end, the CRD provides an online Landscape Map that shows how the frameworks are aligned and complement each other. Its members also published a Statement of Common Principles of Materiality, which guides companies on how materiality is similar between the participating frameworks. The CRD is also in the process of aligning their frameworks with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).

Preparers and users seem to be confused by a complicated terrain of corporate reporting formats, frameworks and regulations. While some regulators allow for experimentation and a gradual alignment based on best practice, others envision a single international standard or framework for non-financial reporting. What is the CRD’s view on this?

WB: The CRD is looking for further alignment, not for evolving into one common framework. Our aim is to harmonize their definitions and potentially their principles. So, when a company reports on carbon emissions according to SASB, for example, it would be in the same way as with GRI or CDP. So far, the CRD hasn’t experienced a lot of pressure from regulators to unify their frameworks. The biggest demand comes from preparers and a little from users. Preparers are asking: “Why don’t we have just one single framework to ease our lives”? Users wonder why there are so many different frameworks, how they go together, and which ones to focus on for informed decision-making. These are more practical questions.

Having said that, CRD members are aware that they need to get closer together, but also that each of them has its own focus and objectives: IASB and FASB both are for financial reporting only. And SASB is initially designed for US-operating companies. GRI is focusing on the impact of companies on the environment in broad terms, while SASB is focusing on risk from sustainability to investors and therefore focusing on the annual report. If you take CDP compared to SASB, CDP focuses on institutional investors and has an in-depth questionnaire for several topics like carbon, water or biodiversity. This differentiates them from SASB, for example, which is looking at risks and opportunities in financial terms for the broad spectrum of sustainability topics.

We have to recognize that there are established standards for historical financial information alongside specific, “non-financial” reporting frameworks that inform investors on ESG or sustainability-related future risks and opportunities. While CDP is more looking into past performance, IIRC and GRI provide for forward-looking material information in their respective frameworks. The same goes for the CDSB or the SASB, since they are focused on potential risk and opportunities, but with different terms than the IIRC, for example. The IASB, on the other hand, is not prepared for long-term, future-oriented information at all.

Considering the fact that the frameworks are quite complex and diverse in their perspectives, objectives and governance, there is a common understanding that on principle, one global, “non-financial” reporting framework would be very challenging to achieve.

Financial stakeholders increasingly take into account environmental, social and governance (ESG)-specific parameters. So, wouldn’t it make sense to have an overarching framework that helps preparers disclose both financial and pre-financial information in one single report?

WB: The most logical institution to host one single framework would be the IASB, but they already have a sufficient number of issues with their current financial reporting standards to deal with, and we know how long it takes to solve them. They have said explicitly they would remain focused on financial reporting and will not step into areas of “non-financial” reporting ventures. Also, from that perspective, one single corporate reporting framework is hard to imagine at the moment.

If preparers keep producing separate reports to specific stakeholders based on different frameworks and in different formats, where does this leave the user? Rather than sifting through multiple reports, wouldn’t an integrated report be more convenient for them to find relevant information?

WB: The CRD does not have a common position on integrated versus multiple reporting. I think members like GRI, SASB or the CDSB are not pushing for an integrated reporting format, but for a medium that enables users to report on the information they’ve built their frameworks for. The IIRC has initially suggested that there should be a separated integrated report. From recent discussions, I sense that they move away from this position in saying that there might be other forms of integrated reporting that would meet their vision, so they advocate the IR concept, rather than their framework. One of the options would be to make your annual report an integrated report. Another option would be the “Core and More” concept designed by Accountancy Europe, where financial and pre-financial information relevant for a wide range of stakeholders are disclosed in a concise “Core” report, whereas further details for specific audiences are published in additional reports. One could even think of producing a website with all kinds of reports for specific stakeholder groups.

From a communications point of view, the importance is to provide specific audiences with the information they need in the appropriate format. I remember the example of BASF who, about 11 years ago, moved away from a proper sustainability report that was heavily downloaded by their employees, to one integrated annual report. That initially created quite some issues as the employees were interested in specific information and didn’t want to download and search a 300-page PDF document.

Companies like Shell or packaging company Smurfit Kappa had different types of communications for different audiences. Smurfit Kappa, for example, had an online environment where you could go and look up information. They also had their printed sustainability report for customers that were really interested in all the details. They also had a briefer report for their employees, plus a 4-page folder that their salespeople could take to their clients to discuss sustainability issues at the appropriate level.

Speaking of “online environment”: Despite the practical advantages digital disclosure formats such as HTML provide in terms of accessibility, usability, timeliness and processing of information, many users such as accountants, assurers and financial investors keep preferring corporate reports in either PDF or printed formats. Why is that?

WB: We haven’t explicitly discussed the concept of digital reporting within the CRD, as it is focused on frameworks and not formats. If users like accountants prefer working with printed formats, we will accept that. While the CRD remains neutral on this, none of the frameworks is against the idea of online formats with interactive features, for example. Some of them are even promoting it for the sake of better information and communication with their readers.

I’m not necessarily against digital reporting formats. However, imagine if you read a book in HTML and each chapter is on a different web page. You don’t want to go back and forth; you want a full book. It can be digital but then you want to use an e-reader and not click to open each chapter. PDF and print give you the full story. That’s why when I need to analyze a report, I never go to HTML. On the other hand, to analyze carbon emissions, for example, you don’t want a full report on that and print it. You just want to go to the website and take a look at the page on carbon emissions.

In your career, you have been helping companies prepare and assure corporate reports for many years now. Do you know of any investors who prefers digital integrated reporting formats over print or PDF? Is there an example of an annual report that largely meets their demand?

WB: It’s true that I’ve seen quite a number of integrated reports, most of them being PDF. The one web environment I really like is the one of SAP. I think they’ve come a long way in implementing their integrated reporting thinking also in terms of communications.

We all get used to digital reporting formats. On the one hand, I haven’t heard users saying they specifically preferred digital reporting over PDF. On the other hand, I would be surprised if an investor said, “I only go with PDF, I don’t want digital.” Sometimes, when they are looking for a specific information from a company, they simply go to their website, find the right page and take it from there, rather than downloading a full PDF to search for it. So, it’s also a matter of accessibility and efficiency. What I do see, and this is not different from 20-30 years ago, is that investors are looking for standardized, structured information, mostly from external data providers like Bloomberg.

Many of these third-party data providers use advanced machine reading, Artificial Intelligence (AI) and analytics technology to extract and process data from public disclosure. How do you see this development from the perspective of an assurance practitioner?

WB: I would agree that corporate reporting is changing and that technology-based disclosure is becoming part of the full suite of reporting. There are applications where Internet-focused analysis is used to drive reporting; for example, to identify potential material issues to report upon in public disclosures. However, I do not see yet relevant and valuable actual disclosures based on AI or Big Data; and honestly, I would not expect it at any large scale in the next 2-3 years. I believe it is of critical importance that AI algorithms become subject to formal assurance to guarantee accurate and relevant results.