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Picture: 123RF
Picture: 123RF

Earlier in 2022 at the annual World Economic Forum meeting in Davos, global leaders lamented the lack of a universal sustainability reporting standard and noted that this presents a challenge to measuring business sustainability and, in particular, our global response to the imminent threat of climate change.

On the face of it this is an eminently reasonable concern. Sustainability is a global systemic challenge that requires co-ordinated international action. Without a common set of standards and protocols, how can we develop a coherent and effective united front? Moreover, how would we be able to gauge progress at the scale necessary to effect change?

At the same time, we need to be careful and pragmatic about reporting and its connection to effective action. Reporting standards need, on the one hand, to be sufficiently universal and rigorous. But they cannot be so rigid and reductive that they restrict the ability of stakeholders to be pragmatic and flexible, especially when market conditions are hardly uniform worldwide.

Setting the standard

An analogy to global accounting reporting is instructive — both for revealing the value of global standards and because it points us towards their potential limitation.

The International Financial Reporting Standards (IFRS) Foundation has led the way in terms of showcasing the benefits of a prescribed global accounting treatment, applicable in many instances across multiple business jurisdictions, markets and sectors. These standards have yielded results in terms of enhanced disclosure and transparency, together with tangible successes in terms of business risk mitigation by way of early detection of accounting fraud. 

The foundation invested years in building out the global accounting standards we have today. Though painfully arduous for in-house finance teams to implement, the outcomes have been unarguably positive. The case for global financial reporting standards is clear and has been supported by real-world practice. The IFRS has purposeful, rational standards and has improved global business practices.

It is therefore no surprise that some observers want to see the same universality applied to global sustainability standards. Writing in the Harvard Business Review, Robert Eccles and Bhakti Mirchandani argue that the newly launched International Sustainability Standards Board (ISSB) will do for sustainability reporting what the International Accounting Standards Board  does for financial reporting. However, while the launch of the ISSB should be welcomed, a question remains — is a single, universal sustainability reporting standard even feasible? And should it in fact be universal?

Accounting standards and sustainability reporting are to some degree analogous — but there are clear differences. Accounting standards are objectively technical — there are set rules, applicable in any jurisdiction, as to how transactions and events should be treated and then reported in financial statements. This results in a cleaner and more reliable audit process. By contrast, climate standards can be better understood as an ideal — generating a desirous outcome outside the technical, evaluative process. And herein lies the challenge.

Moreover, the ISSB’s announcements at COP27 towards the implementation of climate-related disclosure standards in 2023 raises the question of how consultative the process was. At Sharm El Sheikh, ISSB chair Emmanuel Faber unveiled the board’s new partnership framework, which is designed to support issuers, investors and other capital market stakeholders as they prepare to use IFRS sustainability disclosure standards.

While it was pleasing to see the ISSB allude to the need to consider the specific circumstances of emerging and developing economies, and smaller entities (many of which operate within global value chains), the overall message was centred, rightly or wrongly, on achieving a truly global baseline across all economic settings. In theory, this is so all market participants can access its benefits. In practice, might it place an uneven burden on developing markets? Closer to home, should entities listed on African bourses be forced to adopt the ISSB’s reporting standards?

Avoiding dictatorial approach

Is it surprising that developing economies are subject to a host of environmental policy impositions from their developed-market counterparts? Thepremier league polluters” as my colleague once referred to them — continue to recommend, advise and ultimately impose obligations, which are often inappropriate to the markets they target.

A counterview says emerging markets should not be held to a universal standard in all areas of economic development and sustainability; especially when that standard is most often set by a developed world cohort with little thought given to realities on the ground in other environments.

Take sugar and tobacco for instance. These “sin” commodities are lambasted globally for their public health effects. However, in some sub-Saharan economies their entire value chains are dependent on these industries. Demanding their wholesale abandonment would cause an economic implosion of disastrous proportions, putting jobs, local economies and lives at risk. Should we consider climate financing to help these economies move away from such a skewed dependence on “sin” sectors.  Absolutely. Can it be done quickly and comfortably? Definitely not.  

With the above in mind, how specifically should emerging market businesses with a global footprint regard the initiatives of the ISSB? Furthermore, how do we incentivise change without compromising economic sustainability and social development in emerging markets?

As SA’s just energy strategy makes clear, social, economic and environmental questions are all deeply interconnected. Indeed, you compromise your environmental goals if you don’t support inclusive socioeconomic development, especially in developing countries. It thus makes little sense to apply reporting and compliance standards that restrict the scope of flexible pathways to long-term sustainability.

A one-size-fits-all approach to reporting is neither practical, nor practicable, in the pursuit of sustainable development. Precisely because of the urgency of the global climate challenge, we need realistic, pragmatic standards and reporting protocols that facilitate concrete action — not pristine models that make compliance more of a burden than an achievable goal.

• Silke is associate director at Instinctif Partners Africa.

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