![]() ![]() Absent a clear audience or objective, sustainability standards are unbounded in scope and subject matter. Sustainability standards are aimed at a broader stakeholder audience with a diversity of objectives, some of which may conflict with one another. Carefully prepared and audited financial statements provide investors with “the information they need to make decisions about how well an organization or government is managing its resources.” Financial reporting benefits all investors (who by definition share an interest in financial returns), whereas sustainability reporting currently benefits only investors for whom sustainability factors into decision-making. Coping with long time horizons, obtaining hard-to-capture data, applying extremely complex modeling, identifying meaningful metrics, and similar challenges stand in the way of consistent, comparable, reliable sustainability reporting.Įven the perimeters and parameters of the set of issues that sustainability standards would cover are unclear. Sustainability standards are built on guesswork and data gaps. Unlike financial accounting standard-setting, sustainability standard-setting suffers from a dearth of well-researched and established expertise. Recent comments on the SEC’s proposed climate rule have cited the “incoherent” and highly speculative nature of sustainability reporting and disclosure. Ĭonversely, sustainability standards are imprecise, inconsistent, and unfocused. ![]() The singular focus of financial reporting-painting an accurate financial picture of a company for investors-lends itself to objective, auditable, quantifiable, and comparable metrics. These standards give investors confidence in financial reporting and make it easier for them to compare financial reports across time periods and companies. When the FAF established the FASB in 1973, it did so to “create and improve financial accounting standards that provide useful information to investors and others who rely on accurate financial information.” Since that time, the main objective of the FAF has been to ensure that the FASB fulfills its mission of establishing and improving high-quality financial accounting and reporting standards. ![]() Investors wouldn’t know where to invest.” Standardized financial reporting makes sense of the would-be chaos and provides accurate, objective guidelines for communicating information about the financial condition and operational results of public companies. just made up numbers to represent their revenues, profits, or spending, the result would be economic chaos. Throughout its five decade history, the FAF and the accounting standard-setters it oversees have sought “to establish and improve financial accounting and reporting standards.” As the FAF itself has explained: “If companies. ![]() Accounting and Sustainability Standards Are Fundamentally Different.These differences underpin the argument against the FAF’s involvement in sustainability standard-setting. The FAF’s interest in these conversations, therefore, is understandable, but should be tempered by an appreciation for the fundamental differences between accounting and sustainability standards. The Draft Plan, citing the “growing demand by investors and other users of financial reports for greater consistency and comparability in reporting related to sustainability,” pledges “to ensure our organization can constructively contribute, as appropriate, to any future standard-setting relating to sustainability reporting.” Sustainability reporting is at the center of many conversations in corporate, institutional investor, and regulatory circles. Accordingly, we write to urge the FAF to approach with care Goal #6: “Engage with stakeholders, regulators, and Congress to determine the appropriate way, if any, for the organization to contribute to future sustainability reporting.” Introducing sustainability standard-setting to the FAF runs the risk of degrading the independence and effectiveness that are the hallmarks of the FAF’s two standard-setting boards, the Financial Accounting Standards Board (“FASB”) and the Governmental Accounting Standards Board (“GASB”). High quality financial accounting and reporting standards are central to the success of the United States’ capital markets. We share the FAF’s commitment to independent, objective standard-setting for financial accounting and reporting. Thank you for the opportunity to comment on the Strategic Plan Draft for Public Comment (“Draft Plan”) of the Financial Accounting Foundation (“FAF”). ![]()
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