Editor’s Talk

Editor's Talk (From JAP No. 73)

Dear all readers.      

       IFRS S1 and IFRS S2 are important milestones in establishing global sustainability disclosure standards. However, if viewed through a critical lens, the adoption of these standards is not only a matter of reporting progress, but also a matter of debate over cost vs. benefits and real impacts on the economy and the environment as a whole.

      On the benefit side, the standard reduces information asymmetry between companies and investors on climate risk issues, such as carbon policy risks or the transition to a low-carbon economy. Having a single, global standard framework improves data comparison capabilities and reduces the fragmentation of reports from multiple standard frameworks.

      However, these benefits come with costs that cannot be overlooked. Compliance requires a lot of resources, from a greenhouse gas emissions data base system to the development of internal control systems and data assurance. For many organizations, especially in developing countries, such costs can outweigh the benefits.

      In addition, much of the climate data is forward-looking in nature, relying on assumptions and models. In fact, there is a lot of uncertainty. There is also a risk that disclosure will become more than a boilerplate disclosure that is characterized by compliance with reporting requirements rather than communicating the real risks of the business.

      The key question is whether the data reported in accordance with the standards will actually be utilized. The most important issue is the policy question of whether disclosure can actually solve environmental problems. The IFRS S2 standard is only a disclosure framework and does not force companies to directly reduce their carbon emissions.  Reporting standards may improve data, but it is not certain that it will make the world a better place, unless the data disclosed is used to truly change the behavior of capital markets, business sectors, and truly effective public policy formulation.

Asst.Prof.Somchai Supphatada
Editor

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