Peter Knight suggests the Sustainability Accounting Standards Board is making the Global Reporting Initiative’s leadership get hot under the collar

To misquote the American political scientist Wallace Sayre, NGO politics is the most vicious and bitter form of politics, because the stakes are so low. 

This rewrite of Sayre’s Law on academic politics neatly characterises the tempestuous tiff between the people who run the Global Reporting Initiative (GRI) and the accountants in charge of the Sustainability Accounting Standards Board (SASB)

Disharmony erupted at the annual GRI conference in May in Amsterdam when the topic of SASB was raised. Trust accountants to spoil the fun.

SASB is busy devising sustainability accounting standards for 88 different industries – a mammoth task it hopes to complete by 2015. These standards are designed expressly to be used when US-listed companies complete their 10-K and 20-F forms required by the US Securities and Exchange Commission (SEC).

The documents (10-K for domestic and 20-F for foreign-domiciled corporations) always make interesting reading because corporations have to list their current and future risks for investors. The format is legalistic, and therefore relatively spin-free.

Material issues

SASB is trying to make environmental, social and governance (ESG) issues relevant to investors by helping companies define which issues are material, then include that information in SEC filings.

By the indignant reaction of the GRI chief executive, Ernst Ligteringen, to questions about SASB, it would appear GRI is worried that the accountants could provide serious competition to GRI – until now the only show in town.

Ligteringen likes to put on a forceful show of confidence but he could not hide his frustration with SASB when he declared – possibly a little too vehemently – that the GRI had extended an open invitation to the accountants for talks but had received no reply. Such rude people, these American accountants.

SASB has set itself a hard task and it will be interesting to see the quality of its output, especially its interpretation of materiality. The accountants are attracting a lot of attention and there are plenty of formal supporters from the business community willing them on. In fact, it appears SASB has copied the start-up restaurant model where a tiny portion of equity is shared among a thousand “investors” who all become cheerleaders for the enterprise.

The big question is about how SASB sees itself. Is it a campaigning organisation in the same mould as GRI and the International Integrated Reporting Commission (IIRC)? And does it want to encourage greater detail in the reporting of ESG issues, or improve the quality of ESG reporting?

SASB promotes the complementary nature of the three different initiatives – itself, GRI and IIRC – as sharing the same goal, “the advancement of corporate sustainability reporting”.

Unlikely partners

The GRI has successfully infiltrated the IIRC and co-opted its mission. GRI executives sit on the board and council of the IIRC and the common hymn sheet says that the organisations’ roles are complementary. This way the raison d’etre of both organisations is protected and their shows can go on. Jobs and pensions are protected.

But SASB has yet to be co-opted and looks too insular and too American to be persuaded. SASB distinguishes its efforts from others because it says it’s seeking to provide standards for mandatory reporting, while GRI and IIRC provide frameworks for voluntary reporting.

We will have to wait some while for SASB’s final offering to see if it can devise simple, useful standards. But its emphasis on catering to the needs of investors puts it in a bit of a bind. No matter what the sustainerati say about investors (stupid, pompous, short-term etc), this group is pretty astute at determining materiality because they look at the real world – for them a short-term world where sustainable profits are important.

Sustainability people think long term and constantly consider a world they would like to see – what they think should be. They are locked firmly in campaign mode, constantly striving for  nirvana.

These are totally different and incompatible world views. GRI is firmly in the second camp, haranguing business people to provide vast amounts of mostly needless information for a wide group of stakeholders who only have a very limited interest in the data.

But where does SASB sit? If it chooses the GRI mode, SASB’s standards will be entirely irrelevant to mainstream investors. If it chooses the mainstream investor view of the world – as it should – it won’t have much to say because investors are pretty good at working out materiality without SASB’s help.  

Investors’ stakes are high. IIRC’s and GRI’s stakes are, unfortunately, so very low.

Peter Knight is chairman of Context.

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