Like spring follows autumn or cats pounce on mice (even under the snow!), now seems to be the season for people to discuss mandatory supra-national reporting standards. Without going into too much detail, here is a selection of last week’s activity for you to peruse at your leisure.
EU may legislate on corporate, social and environmental data
This story was reported by Responsible Investor (RI). In effect, the EU is keeping the door open for future ESG legislation, but the period within which any decision will be made is rapidly narrowing.
In May 2010 the European Parliament passed the resolution “Delivering a single market to consumers and citizens”. This highlighted “the importance of establishing a green single market for emerging low-carbon and environmental technologies, services and products” and insisted that “the use of conformity assessments to gauge social environmental and economic impact at both EU and national level” should be ensured.
The European Commission, the EU’s executive, broadly agrees with this opinion and describes the need for a Single Market Act as urgent. Consequently, it now aims to have a Single Market Act passed and implemented by the end of 2012 with a draft scheduled for publication in early 2011.
Of further note in the RI article the report the commission is considering a review the status of “foundations, corporative societies and mutual associations”. If the EU were to start to legislate to put these forms or corporation on even an equal footing as traditional businesses it would change the ESG dynamic overnight.
Full disclosure of SRI data “would boost the market”
This story comes from CityWire, an independent publication a quarter owned by Reuters, and reports on the views of the European Sustainable Investment Forum (Eurosif).
Matt Stevens, Eurosif’s executive chairman, is quoted as saying “A purely voluntary disclosure scheme does not guarantee significant, relevant and comparable data from all issuers.”.
However he is at least partially contradicted by Steve Waygood, former Chair of UKSIF, who says “I am not convinced that the potentially ossified regulatory hand on all issues is the right one .. (however) .. there is definitely a need for much better guidance on what should be disclosed”.
In his role as Head of Sustainability at Aviva Investors, Waygood prefers the approach of asking stock markets to make ESG part of their listing criteria. While not regulatory, this is still a form of mandatory ESG disclosure.
Are businesses ready to accept more carbon legislation?
Yes, is the surprising answer from Carbon Guerilla’s chairman Les Hayman, as reported by Business Green.
Hayman believes many companies are tapping into carbon accounting as a way of lowering costs and cites an example of someone who chews through up to £40/day in carbon credits purchased from a mobile phone provider.
He says: “I think governments are only just starting to realise that this area is an incredible one for taxation, and one that allows them to look like really good global citizens.”
The idea of carbon allowances for individuals and corporations isn’t not a new one but unfortunately, and unwittingly, Hayman also points out the flaw in such schemes.
“Think of carbon as a debit or credit card, so you spend something you have or something you pay for in the future,” he says. ” (This) makes people aware that it’s a limited commodity like currency.”
Except currency isn’t a limited commodity, as fans of quantitative easing will all too happily point out.
The accountants are coming
Sustainability reporting is often linked with financial reporting because, as George Monbiot recently said, “the way in which nature is being squeezed into a column of figures in an accountant’s ledger .. may be necessary. What else will induce the blinkered, frightened people who hold power today to take the issue seriously?”
With this in mind there are there’s one other story which is worth keeping an eye on.
The US SEC is considering the adoption of the International Financial Reporting Standards (IFRS) as a replacement for the Generally Accepted Accounting Principles (GAAP) and will continue to report upon measures required throughout 2011.
In the meantime, IFRS is already the norm in the EU & South Africa and will be integrated into accountancy rules in India, Russia, Japan and Canada from 2011.
Although an agreement on accountancy rules between erstwhile competitors such as the US, Russia, the EU and India will be unprecedented, such worldwide agreement will make the integration of sustainability concerns into financial calculations much easier.
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