Earlier this year, the Committee of Sponsoring Organizations of the Treadway Commission (COSO) endorsed new research by a multiorganizational team that includes IMA® (Institute of Management Accountants) to address the application of an updated framework (Internal Control—Integrated Framework, or ICIF-2013, which incorporates a risk-based approach to designing, assessing, and reporting on internal controls) to sustainable business information and reporting. Expected in early 2023, the publication (of which I am a coauthor) will propose solutions to the challenges in the current sustainability reporting reality.




Companies today use a variety of means to deliver sustainable business information. That can sometimes include directly releasing the information in a regulatory filing, such as Form 10-K. The U.S. Securities & Exchange Commission (SEC) stated in 2010’s Commission Guidance Regarding Disclosure Related to Climate Change [Release No. 33-9106] that existing disclosure rules already require corporate filers to provide material information related to climate change in Form 10-K. Over the last year, the SEC’s division of corporation finance has reviewed corporate filings with an eye toward compliance with this 2010 interpretation.


The SEC also proposed in 2022 new regulations regarding climate risk disclosures.  Internationally, the new International Sustainability Standards Board, overseen by the International Financial Reporting Standards Foundation, issued proposed new corporate disclosure regulations regarding climate and other sustainability information in Exposure Draft (ED/2022/S1): General Requirements for Disclosure of Sustainability-related Financial Information and Exposure Draft (ED/2022/S2): Climate-related Disclosures. Concurrently, at the direction of the European Commission, in mid-2022, the European Financial Reporting Advisory Group released 13 exposure drafts as Set 1 of sweeping new corporate reporting mandates.




Although market demand for sustainability information continues to rise steadily, the level of confidence that internal and external stakeholders have in the reliability, utility, and quality of the sustainability information currently available is far below that of traditional financial data. There are multiple reasons for this lack of trust.


Fragmentation. Companies generally don’t follow a single set of standards. Instead, they’ve been selecting aspects of different guidelines, such as the United Nations Sustainable Development Goals and those issued by the Sustainability Accounting Standards Board, the Task Force on Climate-Related Financial Disclosures, and the Global Reporting Initiative. This fragmentation makes the development of information and reporting systems challenging and makes investors less confident about the information that they’re getting.


Acceleration. Regulatory authorities, such as the SEC, are increasing their oversight of filings regarding environmental, social, and governance (ESG) information and concurrently accelerating toward new legislation, regulation, and mandatory listing requirements. This acceleration is driving financial and sustainability preparer teams to collaborate, and, as this occurs, financial reporting professionals are using their expertise and bringing rigorous oversight—along with the input of legal counsel—to the process.


Variation in software services. Following the explosion of new reporting demands, commercial providers have entered the space to offer new reporting tools. These platforms can help instill good controls and oversight systems, including documentation. But if poorly designed or implemented, these systems can create challenges. Some preparers find standardized software unadaptable to their organization’s unique data and information streams. Others are loath to consider solutions after previous disappointment with other financial accounting and reporting solutions, such as those that failed to work as promised for lease accounting.


Novel data streams. Often a company has never gathered, summarized, or analyzed the data it needs for sustainability reporting, such as information on greenhouse gas emissions, water use, waste management, energy sourcing, energy usage, and workforce turnover and diversity. Moreover, much of this data is in the hands of operational units around the world with immature or nonexistent systems.


Third-party data. In financial reporting, the concept of a “reporting entity” is relatively settled. Sustainability accounting, however, uses the concepts of “control” and “influence” differently. This means companies must assess and report on information sourced from third parties, which raises significant concerns over reliability. Further, the impact accounting approach favored by certain sustainability advocates also depends on information from external sources, including government and nongovernmental statistics. This raises concerns from preparers, compliance professionals, and auditors on the quality and reliability of externally sourced data.


New time horizons. Traditionally, financial accounting rested on the summarization of past transactions and events. Over time, however, reporting evolved to reflect economic expectations and estimates of the future. For example, in adopting the current expected credit loss model, financial reporting evolved from “probable” credit losses to “expected” credit losses. Sustainability is about wise use and preservation of resources over the long term. Therefore, it necessitates estimating and assessing expectations over a longer term than the time frame to which financial professionals have become accustomed. The process of estimation is the same, but the time horizon is longer.


Qualitative information. Sustainability information is more qualitative than mainstream financial information. Because the goal is to estimate and assess expectations of ongoing availability of resources and stakeholder willingness to make these resources available to an entity, it’s inherently more qualitative than traditional financial reporting. Some of these factors can’t be adequately measured or monetized, although research and innovation may yield new methods of doing so.


Demands for external assurance. Users of sustainability information are seeking similar assurance that the ESG information that a company issues externally results from the same rigorous oversight system—both internal and independent—that they’ve come to rely upon from financial reporting. Today, certain types of information that are now considered under the ESG umbrella, such as environmental data, is audited before submission to agencies. But as more sustainability information is delivered via general corporate reporting such as Form 10-K, voices are becoming louder in seeking independent assurance.


All of these items underscore why the interpretation and application of the ICIF-2013 is a practical but important challenge for professionals that are now part of the sustainable business information value chain. The ICIF-2013 can help an organization consider its purpose, set objectives, consider and respond to risks, implement and communicate new policies, and set its reporting agenda. These steps further the fundamental purpose of our profession: the delivery of relevant, reliable, complete, and unbiased information so that management, investors, and other stakeholders can make informed decisions.


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