Financial and sustainability reporting – the search for the best attainable version of the truth


Jeremy Stuber


“I think all good reporting is the same thing – the best attainable version of the truth.” 

This quote, from Carl Bernstein, the investigative journalist who, along with Bob Woodward, reported on the 1972 Watergate scandal, is just as applicable to corporate reporting as it is to journalism in general.

Key points

  • Connectivity between financial reporting and sustainability reporting is a key priority for investors.
  • Management commentary is likely to be the bridge between financial and sustainability reporting.
  • When sustainability reporting standards are adopted, which seems likely to be from 2024 onwards, all stakeholders can look forward to something much closer to the ‘best attainable version of the truth’ about corporate activities.

This article considers both financial reporting and sustainability reporting. Both have a lot in common, providing stakeholders with information about the performance, position and, increasingly, the prospects of a business.

However, I would like to highlight three key differences:

  1. Materiality
    Financial materiality considers the investor’s perspective and asks whether information would influence a decision. Materiality for the purposes of sustainability reporting is a hotly debated topic: the ISSB (International Sustainability Standards Board) has adopted the same definition as used in financial reporting, however, the EU (European Union) has adopted a wider definition, based on double materiality, which includes the impact of the company on the environment and society. I like the concept of dynamic materiality: some information which is financially immaterial today may become financially material tomorrow. This is particularly the case for negative externalities, such as pollution, which may not be taxed today but is likely to be taxed in the future. In this case, a sustainability report will inform stakeholders about a potential rather than an actual financial liability.
  1. Maturity
    Accounting records date back thousands of years, with cuneiform tablets recording commodities found from ancient Mesopotamia. Accountancy as a profession emerged in the UK during the Industrial Revolution with the growth of limited liability companies. Sustainability information, in many cases, has yet to be recorded, and standards of what should be reported are being developed now. Unlike financial reporting, we do not know exactly how sustainability information will be used. Assurance is a key issue, because there is no established sustainability audit profession and the nature of a sustainability audit is quite different from an audit of the financial statements: sustainability information is more qualitative, more forward looking and more estimate based than financial information. Common standards and third party assurance are needed to mitigate the risk of greenwashing.
  1. Scope
    Financial reporting is bounded by the legal entities that form part of a group and this determination has been audited. Sustainability reporting, using the widest definition, has no boundary, in that any impact on the environment or society is potentially in scope. This creates a big challenge for data capture and assurance. Gathering information along the value chain is needed to estimate Scope 3 CO2 emissions and to assess the risks of modern slavery, for example. Some of this information exists on spreadsheets, but more will need to be integrated into ERP (enterprise resource planning) systems so that reliable reporting can be automated, and potentially shared along the value chain.

Connectivity between financial reporting and sustainability reporting is a key priority as investors and other stakeholders do not want to hear mixed messages. Management commentary is likely to be the key bridge between financial and sustainability reporting. Within the financial statements, there are quite a few linkages between financial and sustainability reporting such as goodwill impairment tests, environmental provisions, segmental reporting, and useful economic life assumptions. For example, if the energy transition plan has been accelerated, then this needs to be reflected in new assumptions when measuring the decommissioning liability or assessing the remaining useful lives of assets.

During the boom, now over 20 years ago, I recall what sounded like a futuristic vision that mass marketing would one day be replaced by ‘one-to-one’ marketing because companies will have so much information about individual customers. Fast forward to today and personalised marketing is a reality: for example, Tesco’s Clubcard offers vary depending on individual transaction patterns.

Similarly, sustainability reporting which is of comparable standing to financial reporting sounds somewhat futuristic. However, my view of sustainability reporting is that, as with personalised marketing, the future may arrive sooner than some people think, as developments are taking place so rapidly. When sustainability reporting standards are adopted, which seems likely to be from 2024 onwards, all stakeholders can look forward to something much closer to the ‘best attainable version of the truth’ about corporate activities.

Jeremy Stuber is a global equity analyst at Newton Investment Management, leading on valuation and accounting issues across all sectors. His responsibilities include reviewing recommendations, challenging existing holdings and developing the valuation framework. Jeremy has covered various global sectors, including aerospace & defence, automotive, engineering and IT services. Jeremy chairs CRUF UK, co-chairs the Capital Markets Advisory Committee (CMAC), which is one of the advisory groups of the International Financial Report Standards (IFRS) Foundation and is a member of the European Financial Reporting Advisory Group (EFRAG) Panel on Intangibles. He is a Fellow Chartered Accountant of the Institute of Chartered Accountants in England and Wales, qualifying with Ernst & Young. Jeremy holds MA and MEng degrees from Cambridge University.

Disclaimer: The views expressed in the blog are those of the author and do not necessarily represent the views of all CRUF participants. To read more about the CRUF’s views on this and other topics, please visit the ‘Our Views’ section of this website.


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