Investors want more qualitative reporting, research finds

Australia’s company sustainability reporting framework uses a combination of Sustainability Accounting Standards Board (SASB) and International Financial Reporting Standards (IFRS) S2 requirements, which one researcher says “impairs comparability” and goes against the whole core idea of mandatory sustainability reporting.

Speaking with Accounting Times, RMIT department of accounting lecturer and researcher Kevin Thai stressed that investors are looking for more than just rules-based reporting, as they are more concerned about qualitative metrics of a company, as it says a lot about its progress.

“Australia [is] one of the only two jurisdictions that actually adopts International Financial Reporting Standards (IFRS) S2, and doesn’t make the industry-based [Sustainability Accounting Standards Board (SASB)] reporting requirements mandatory,” he said.

“When it comes to the business model and innovation, it's not just about how well they use materials, but we also need to understand how they manage their supply chain, and what kind of R&D undertaking,” Thai said.

“The narrative discussion is [appropriate] where the market does not demand to see a number, but cares more about a process and more insights about how the company’s actually taking initiative and doing things to transform the business model to make sure they adapt or to mitigate the climate-related risks – I think that's what the market always wants.”

Based on RMIT findings commissioned by CA ANZ, Insights from the voluntary use of industry-based metrics for climate-related disclosures in Australia, as a co-author, Thai noted that the metal mining industry does well in their voluntary industry-based disclosures due to historical reporting requirements in the same area.

“For metal mining, it’s not surprising that they're doing very well because those reporting environments they have been disclosing for a while already,” Thai said.

“Most of the material topics that they are asked to disclose under SASB are actually under the environment dimension. Once again, greenhouse gas emissions, energy, and water – those are very common topics that a company in that industry has been expected to disclose for a long time.

“They draw the reporting requirements from the Global Reporting Initiative (GRI) or the Carbon Disclosure Project (CDP).”

Thai said that compared to metal mining companies, customer service and service companies struggle, as they did not historically have equivalent requirements.

“It's not always about a number; it’s about the assumptions, it's more about a narrative discussion – how the company is getting there,” Thai said.

“The regulators have to work out a way to ask companies to also provide a narrative discussion, rather than just a number. We don't want industry-based metrics to become a compliance checklist; we also want to understand how the number is calculated, what the assumptions are, and what the limitations are.”