In response to its “Consultation Paper on Sustainability Reporting,” DWS has written a comment letter to the Trustees of the IFRS, pushing for a coherent ESG reporting standard that goes beyond climate-related data and is based on double materiality. This means not only disclosing information about how sustainability issues impact companies, but also how companies affect society and the environment.
In DWS’s letter to the IFRS, Francesco Curto, Head of Research, warns that the current ESG framework is already failing investors with many demanding increasing disclosure about how their capital is being used – yet we face significant challenges in delivering this information. Today, investors are increasingly interested in assessing the impact that capital has on the world (inside-out), rather than only assessing the implications that externalities associated to the issue of sustainability had on a firm (outside in), an approach that was more common until 2019. Furthermore, recent DWS research indicates that without a global ESG accounting standard, ESG investing will fail a large part of the investment community.
Curto explains: “Equity investment ought to be long-term in nature but long-term investors and humanity face many urgent challenges because accounting standards have not kept up with times”. Therefore DWS asks the IFRS to act with urgency. Specifically it:
• Recommends a focus on reporting on double materiality of sustainability from the onset. It is essential given what investors and clients are demanding.
• Believes that non-financial reporting needs to be fully auditable with management made accountable. Non-financial reporting is as important as financial reporting, which is why a gradualist approach is likely to fail.
• Argues that the boundary between financial and non-financial reporting is already blurred and not delivering on non-financial reporting means not delivering on the objectives defined by IASB in Article 2 of its constitution.
Marco Ferber, Head of Integrated Reporting, says: “Reporting is where all company performance and activities come together. It is becoming consensus that non-financial reporting is as important as financial reporting, and as a result, also needs to be fully auditable with management made accountable.”