Technology can improve ESG reporting

According to a recent report, companies can use technology to improve their environmental, social and governance reporting.

The policy briefing explains how technologies such as blockchain and artificial intelligence, together with a common, global system of taxonomies that transcends national and regulatory boundaries, can make the reporting process more efficient and verifiable for investors and supervisory authorities, while at the same time reducing many manual tasks.

“Basically, the work is to look at what we call the corporate information ecosystem, or financial information, the active data that becomes accounting information and see it as part of a larger ecosystem,” said Shari Littan, director of research and Corporate reporting policy at the Institute of Management Accountants who wrote the briefing. “From an accounting point of view, every data element has a transaction that led to the data and is created within a company. At some point it has to get to a user in a summarized form. This is where the concept of digital reporting comes into play. Think of it less as creating a single document and more as submitting a data set with parameters and definitions. The strength of this could be that the data itself can be reformatted. “

She compared it to Extensible Business Reporting Language (XBRL), which the Securities and Exchange Commission now requires for financial filings from public companies and other types of issuers. XBRL uses a common data tagging format to make it easier for investors and analysts to compare different companies and industries. It is also part of US GAAP Financial Reporting Technology issued by the Financial Accounting Standards Board and the IFRS Taxonomy of the International Financial Reporting Standards Foundation and the International Accounting Standards Board.

“For example, it’s similar to XBRL, which has tagging and metadata discovery so that data can be integrated and summarized in different ways,” Littan said. “The power of this is to communicate to a user at some point so that the power of technology can reformulate the same information into different reports for different users in different jurisdictions.”

With ESG funds growing in popularity with investors, the SEC and financial regulators in other parts of the world are calling for more uniform standards for ESG reporting. Last week, the Sustainability Accounting Standards Board concluded its merger with the International Integrated Reporting Council and is working with the Global Reporting Initiative, the Climate Disclosure Standards Board and the Carbon Disclosure Project on a closer harmonization of their various standards (see story). In the meantime, the IFRS Foundation has proposed the establishment of an International Sustainability Standards Board, with which many of the existing ESG standard-setters will work together as part of a technical working group.

“Many of these standards-setting organizations are reaching out to their technology teams right now to learn how to harmonize from a digital perspective in an effort to better align,” Littan said. “I was told that the data aggregators will also be part of the solution because they are the digital users of that information.”

The SEC asked in March for comments on the obligation of companies to provide more detailed information on climate change. The American Institute of CPAs and the Center for Audit Quality recently submitted comments supporting such disclosures (see story). The IMA and the International Federation of Accountants also submitted comments this week showing their support.

Disclosure requirements must be clear about the intended user, suggested IMA President and CEO Jeff Thomson in his letter to SEC Chairman Gary Gensler. “The SEC has a specific mission to help investors,” he wrote. “With respect to climate and other ESG disclosures, we urge the SEC to abide by this mission. We would like to point out, however, that not all users of corporate reporting or even financial reporting in the narrower sense are the same. The markets work not only for short-term investors with an investment horizon of just a few days or months, but also for long-term investors such as pension funds, life insurance companies and fund managers, who have portfolios for asset owners with decades of long horizons. We understand the challenge of developing disclosures that take into account the needs of these different investors. “

He noted that some of the global ESG initiatives are unclear as to who are intended to use certain reports. “This lack of clarity can make it difficult to operationalize new regulations,” noted Thomson. “Additionally, impact accounting is still an emerging area in terms of key indicator identification and measurement. All ESG disclosure regulations, whether from the SEC or its counterparts worldwide, must be absolutely clear to the intended user for certain information. “

IFAC CEO Kevin Dancey recommended the SEC uses a “building block approach”.

“As policymakers consider the best path to develop a new global system for climate and other sustainability-related disclosures, US support is more important than ever,” wrote Dancey. “We believe that companies that have an ‘integrated mindset’ – insights that management and those in charge of running the company derive from both financial and sustainability information, including climate-related issues – make better decisions and can also deliver superior financial returns to their investors and take into account the value for customers, employees, suppliers and societal interests. “

Littan believes technology can help with ESG reporting if incorporated into future standards. “Traditional financial reporting came into being on paper with the definition of human language, and now we have the ability to build a digital default into the system from the start,” she said.

Thomson discussed the use of data analytics technology during the IMA’s annual online conference on Tuesday. “The new science of winning is data analysis, data mining, identifying and anticipating the needs and wants of your customers and even future needs and wants,” he said. “Analytics should not be equated with analytical information technology. It’s the human and organizational aspect of analytical competition that really sets it apart. The technology is incredibly exciting – blockchain, RPA, etc – but it’s the people and the processes that make the technology buzz. “

According to Hirav Shah, director of data analytics at IMA, all of the latest technology buzzwords are trying to achieve a common goal. “They are able to understand the customer and what the customer preferences are,” he said. “This is where data analytics really creates value. It used to be very difficult, but now with all the processing of terabytes and terabytes of data in a matter of seconds, it has become possible to understand each and every customer and their preferences. “

Comments are closed.