Companies warned on disclosures

A man stands in the banks of the Coca and Napo rivers after an oil spill, in Rio Napo, Ecuador September 21, 2020. Picture taken September 21, 2020. 

Bone up on enterprise value reporting. This is the message a global securities watchdog is sending as regulators wrestle with the complex task of creating common international standards for corporate sustainability disclosures.

Enterprise value reporting measures how climate and other sustainability-related issues can erode a company’s total worth. To stop companies from “greenwashing” - or painting a flattering picture of their compliance with sustainability goals - standard-setters want to replace the current patchwork of disclosures with a global approach.

Global consistency would focus on enterprise value creation, said Ashley Alder, chair of IOSCO, an umbrella group whose board includes representatives of securities regulators from, among others, the United States, China, Japan, major European Union states and Britain.

“That’s a key new phrase everyone has to get used to,” Alder, who also heads Hong Kong’s securities watchdog, told an Afore Consulting event on Friday. “Things are moving rapidly.”

The EU’s European Securities and Markets Authority chair Steven Maijoor, however, cautioned that a complete set of global disclosure standards would not be available in the short to medium term.

Global accounting standards body, IFRS Foundation, will set out a blueprint for a separate disclosure standards board in time for the COP26 climate change conference in Glasgow in November. It is expected to focus on disclosures measuring the impact of sustainability issues on a company.

But the EU, which this week began rolling out its own rules on disclosures without waiting for the new board, wants “double materiality” or inclusion of a company’s impact on the environment as well.

Maijoor said investors wanted double materiality given that over the longer term a company’s impact on the environment will affect its value.

“I would hope that in the medium to long term we would move to one set of international standards because that would be to the benefit of investors,” he said