Irreconcilable Differences? American versus international accountability
The new European Union Corporate Sustainability Reporting Directive (CSRD) appears to have come as a surprise to many organizations that fall within its scope. Why? Efforts to increase non-financial disclosures as a requirement of both securities compliance as well as corporate annual reports always run into headwinds, especially in the USA. These added reporting requirements come at the same time as a general push-back on ESG reporting.
It seems there is general acceptance that externalities related to the environment – so called natural capital, embracing issues related to climate change must be addressed – after all there is a real risk to shareholders from not addressing this risk. Yet beyond that, disclosure and accountability related to other stakeholders is where resistance exists. Efforts to explain that away by focusing on value creation is missing the point. Why?
Europe and North America – the USA in particular are on separate tracks when it comes to corporate regulatory requirements. Europe believes that social accountability is a paramount responsibility of companies. North America continues to believe that “what is good for the investor is good for the public.” Thus, minimization of reporting and regulation remains a foundational aspect of the vibrant US economy, built on a base of risk taking, innovation , and creativity. Little wonder that efforts to add either regulatory or other reporting burdens is resisted.
Yet an opinion piece in the New York Times on September 4th titled “America Is an Empire in Decline. That Doesn’t Mean It Has to Fall” makes some interesting points including https://www.nytimes.com/2023/09/04/opinion/america-rome-empire.html ) as a part of its’ conclusion that suggests a way forward, ”To do so, though, America will need to give up trying to restore its past glory through a go-it-alone, America First approach.” This means understanding changes that are taking place elsewhere in the world – including social pressure towards corporate accountability. Readers wanting to understand more should read Jeremy Rifkin’s “old” 2004 book “The European Dream” that outlines how the two directions are fundamentally different.
This difference in opinions has already been played out through evolution of new approaches to corporate reporting, that started with a push for an integrated approach (IIRC). Today this direction is firmly back in the hands of the accountants, through the ISSB – International Sustainability Standards Board – that is part of the International Financial Reporting Foundation. Have the accountants already triumphed? Is the focus of future reporting destined to remain shareholder and investor focused, with a “nod” towards climate change? Will underlying approaches to governance, long a core part of ESG, ever fundamentally change to be broadly stakeholder based?
The evolution is far from over. Those responsible for corporate governance, regulation and reporting can avoid being surprised, if they pay heed to the underlying societal changes taking place elsewhere. Wile the USA may be “open for business,” the expectations for corporate behavior are changing.
Nick Shepherd.
