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Accountable Sustainability

By April 6, 2022No Comments

The announcement in March of this year that the International Financial Reporting Standards Foundation has created an International Sustainability Standards Board is, I believe, a watershed moment in the history of investment. It signals that sustainability reporting has come of age. Moreover, it suggests that the nature of accounting has changed.

In 1990, only a handful of “responsible investment” research pioneers systematically gathered to analyze the CSR (corporate social responsibility) data of publicly traded companies. I plead guilty to having been among those few. By the mid-1990s, spearheaded by the Global Reporting Initiative, others joined an increasingly crowded field. By the 2010s, well over 100 such “standards setting” organizations had devised their own “key performance indicators” and published their own ratings.

As the market for sustainability data and accompanying ratings proliferated, users grew frustrated with apparent incompatibilities of the data reported and disparities among the ratings assigned. The ISSB, under the aegis of the IFRS Foundation, will now “fulfil the growing and urgent demand for streamlining and formalising corporate sustainability disclosures.”[i] (Emphasis added.)

Accounting’s primary concern is disclosure. Its global accounting standards will now include sustainability factors along with financial data. The ISSB will face twists and turns along the road to defining what data falls into this category but its expertise is precisely in bringing clarity to definitions of this sort and it will undoubtedly be equal to the task.

Analysts and investors will not all interpret this sustainability data in the same way, any more than they come to the same “buy, hold, or sell” decisions given relatively comparable financial data. The ISSB will also have to confront the annoying tendency of the value sustainability factors to diverge from financial considerations on occasion. Moreover, sustainability concerns come and go with surprising frequency due to local contexts and the tenor of the times. The ISSB’s approach will consequently have a different methodological “look and feel” when it comes to key aspects of disclosure—a flexible dynamics and an attention to the qualitative. But these are just part and parcel of the sustainability territory.

What the ISSB will not do is “rate.” By taking charge of data disclosure, it has in effect freed today’s rating organizations to concentrate on the business of interpretation and evaluation. Freeing these groups of the complications of their current two-pronged business model—defining key performance indicators and then interpreting that data—will be a major step toward rationalizing the field.

Among other things, raters will no longer need to answer the vexing question of whether their sustainability KPIs are “financially” material. The creation of the ISSB cuts the convoluted Gordian knot of “single versus double” materiality. It gives financial and sustainability data equal but separate weight. Halves of a single indivisible whole, the two can now play out as the yin and yang of a holistic and balanced assessment of value.

As Robert Eccles and Bhakti Mirchandani recently put it, two conversations are now in play: “One is about [a company’s] financial performance, and this is a conversation between the CEO, CFO, and investor relations with portfolio managers. The other is about its sustainability performance, and this is a conversation between the company’s sustainability function and the sustainability and stewardship function in the investor. These two conversations are already starting to converge and must become one.”[ii]  (Emphasis added.)

The creation of the ISSB forces an interaction between portfolio managers as they consider their financial decisions and the trustees of asset owners as they evaluate a company’s contribution to environmental and societal sustainability. An imprimatur has now been given to investment firms as whole entities to tie considerations of financial data in their portfolio management to considerations of sustainability in their investment function.

The very fact that the ISSB is part of the IFRS means that “investment functions” can no longer be taken to mean simply “financial” accountability, but must mean “sustainability” accountability in a different sense as well.

In the end, the accounting profession is not simply about the counting or recounting of financial figures but about the accountability of those that manage the financial assets behind those figures. Accountability lies at the heart of accounting. This takes us back to some of the earliest expectations of “responsible” investment. What is now known familiarly as “CSR”—corporate social responsibility—then also went by “corporate social accountability,” a term that has not entirely retired from the scene.[iii] Socially “responsible” investment meant that investment should be responsible to society. Early practitioners wanted corporations to be held accountable for—responsible for—their social and environmental actions.

Agreement that sustainability data qualifies as a subject worthy of the full attention of the accounting profession is also an acknowledgement that companies can and should be made accountable for the impacts of those actions that produced that data.

I view this as a substantive expansion of the purpose of accounting. Reflecting the tenor of the times, with the changing role of corporations in society and emerging global challenges, accounting can no longer avoid setting standards for the disclosure of this data. Financial data and its disclosure stand on an equal footing with that of the social and environmental. They are two voices in a single conversation, two parts of the same story. Together, they set in motion a dialog much needed today.

[i] Press Release. “IFRS Foundation announces International Sustainability Standards Board,” November 3, 2021. Accessed at on March 29, 2022.

[ii] Robert G. Eccles and Bhakti Mirchandani. “We Need Universal ESG Accounting Standards,” Harvard Business Review, February 15, 2022. Accessed at

[iii] See for example The Accountable Corporation. This four-volume collection of essays on various aspects of corporate social accountability was edited by Professors Marc. J. Epstein and Kirk O. Hansen and published in 2006 by Praeger Publishers.