Reporting Enterprise Value That Matters

The IIRC, a champion of integrated reporting, offers a financial disclosure standard to address climate change

IEDP Editorial

Tuesday 22 December 2020

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In his recent Reith Lectures, Mark Carney, uses his experience of twelve years as a G7 central bank governor to reflect on how and why ‘value’ determines our livelihoods, identities, and future potential, and how our concept of value needs to change from market value to human value.

He argues that, after several shocks to the economic system and facing the existential threat of climate change, we need to build an economy and society in a post-pandemic world that works for all—individuals, businesses, governments, and society; where corporate and enterprise value is determined by wider human interest rather than just by financial profit.

Mirroring Carney’s views as they apply to climate change, the International Integrated Reporting Council (IIRC), in collaboration with the four other leading organizations in sustainability and integrated reporting—publishers of a shared vision for a comprehensive corporate reporting system earlier this year—have taken a next practical step together. This month the group published a paper that addresses one part of this system: Standards for reporting on enterprise value, brought to life with a prototype climate-related financial disclosure standard.

"This unified approach and illustrative prototype climate-related disclosure standard demonstrates that a global structure can be achieved to a rigour, and within a timeframe, that meets stakeholder demands. Standards for enterprise value creation connect relevant societal and environmental factors to core business and capital market decisions, accelerating progress towards long-term sustainable value creation. Our frameworks and standards are designed to be decision-useful and I look forward to the market's response to this collective global effort as a stepping stone towards comprehensive value creation and to bring future cohesion and simplicity to the corporate reporting system." Charles Tilley, CEO, IIRC

Whether or not central banks should be drawn into the climate change debate can be questioned, but the focus of the IIRC in this area is entirely welcome. With the UK committing to a 100% reduction in carbon emissions, relative to the levels in 1990, by 2050, with France and several other countries making similar commitments, and the Biden administration poised to bring the US back into the 2015 Paris Agreement, one must ask how realistic are these commitments? To what extent are net-zero targets just targets?

Ongoing initiatives from the IIRC, including this recent one, brings some welcome realism on the actions required to meet sustainability targets. Businesses and the capital markets that support them, as well as governments, will have to take firm practical action if we are to achieve the global climate change goals set out at Paris and since.

For businesses of all types the information that is ‘reported’, and on which the organization is judged by its stakeholders and itself, is the knowledge that determines its strategy and future direction. The IIRC’s drive to replace traditional narrowly focused corporate reporting, with reporting that encompasses environmental, societal, and financial impact as the recognized gold standard in terms of measuring value is a vital contribution. Reports that paint a broad picture of a company’s impact in the world rather than just its profitability can be an essential precursor to adopting true sustainability.

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Read the report: ‘Reporting on enterprise value. Illustrated with a prototype climate-related financial disclosure standard’. From leading sustainability and integrated reporting organizations CDP, CDSB, GRI, IIRC and SASB