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The Future of Sustainability Reporting Needs CPAs

Joanne S. Barry, CAE

One of the challenges in this new era of “big data” is how to process, parse, and leverage the more than 2.5 quintillion bytes of data that, according to IBM, are collected every day from the Internet, smartphones, satellites, cameras, software, and all of the other various data collectors at our disposal. Some organizations have used the data they've collected with success—President Barack Obama's successful reelection bid arguably resulted from the way his campaign not only analyzed the data it collected on individual voters over time, but also how it leveraged that data to obtain an identified favorable result. As journalist Sasha Issenberg wrote in the December 2012 issue of MIT Technology Review, “The campaign didn't just know who you were; it knew exactly how it could turn you into the type of person it wanted you to be” (“A More Perfect Union: How President Obama's Campaign Used Big Data to Rally Individual Voters”).

What may be of particular interest to CPAs regarding big data is how it intersects with a practice that was born out of increasing investor interest in socially responsible investing (SRI): integrated reporting. The International Integrated Reporting Council (IIRC)—a global coalition of regulators, investors, companies, standards setters, the accounting profession, and nongovernmental organizations—explains integrated reporting as a “concise communication about how an organization's strategy, governance, performance and prospects lead to the creation of value over the short, medium and long term” (http://www.theiirc.org).

In other words, integrated reporting means presenting information to investors and other stakeholders about a company's financial health, along with information about its environmental, social, and corporate governance (ESG) performance, which, according to proponents of this reporting structure, make up as much as 80% of market capitalization. The challenge in moving toward an integrated reporting approach is identifying what information is material to stakeholders and how to make it comparable across industries. That's where the Sustainability Accounting Standards Board (SASB) comes in.

Integrated Reporting and the SASB

The SASB, a newly established 501(c)(3) nonprofit organization funded by grants and donations, plans to create sustainability accounting standards for use by publicly listed corporations across 88 industries in 10 sectors over the next two-and-a-half years. This will enable companies to disclose material sustainability issues for the benefit of investors and the public. The SASB, which intentionally set out to complement FASB's standards-setting work, believes that creating such standards will provide context for companies' current ESG reporting by offering a defined basis for comparison.

CPAs who might be wary of complying with yet another set of accounting standards should be aware that the SASB is attempting to create industry-specific sustainability accounting standards appropriate for use in standard filing instruments, such as Form 10-K and Form 20-F. In fact, CPAs have the opportunity to take part in the standards-setting process right now. The SASB is looking for individuals and corporations to join its industry working groups (IWG), groups that review the SASB's sustainability accounting standards and provide feedback. Membership in the IWGs is free and no travel is required in order to serve, because members convene virtually and provide feedback on material issues and key performance indicators through a self-paced online survey that takes approximately four hours, according to the SASB. There are 35 IWGs that will weigh in on standards across industries, so the expertise of CPAs is needed to complement that of other accountants, consultants, academics, and experts from government agencies and nongovernmental organizations. For more information, visit www.sasb.org.

Challenges to the SASB's Standards

The SASB's success is not guaranteed, but may not have been possible until now—companies already capture this information, and for the first time, they can implement a technological infrastructure that will allow them to parse it, analyze it, and report it. Writing in the European Business Review, SASB chair Robert G. Eccles and coauthor Kyle Armbrester outlined three challenges companies face in adopting an integrated reporting practice: “(1) the lack of an agreed-upon framework for the content of an integrated report and the lack of a set of measurement and reporting standards for nonfinancial information; (2) largely inadequate internal measurement and control systems for non-financial information and the difficulty of consolidating all the financial and nonfinancial information that needs to be included, and (3) a good understanding of the relationship between financial and nonfinancial performance.” (“Creating a Sustainable Society through Integrated Reporting Delivered via Cloud Computing,” January 2012, http://www.europeanbusinessreview.com/?p=5748)

The authors make a strong case for cloud computing as the solution to these challenges, especially as it relates to a hosted application that will allow companies to gather relevant nonfinancial information—this way, whenever an entity decides to adopt an integrated reporting framework, it can basically just “plug in” to the solution. Because cloud-based solutions are service-oriented platforms purchased on a usage basis, companies can add more metrics to their reporting framework over time, seamlessly and at a low cost.

If the SASB is successful, the new set of standards can be an accounting game changer for corporations, their auditors, and their shareholders. To echo Issenberg, the SASB seeks to help investors not only know what they're investing in, but gives them the tools to shape these companies into what they want them to be.

Joanne S. Barry, CAE. Publisher. The CPA Journal, Executive Director, NYSSCPA, jbarry@nysscpa.org.

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