As already reported, my colleague Ian Hicks recently attended the UNCTAD/ISAR workshop in Geneva. Here’s some further insight into the XBRL-related themes developed during the meeting.

The Intergovernmental Working Group of Experts on International Standards of Accounting and Reporting (ISAR), serviced by UNCTAD, is the only intergovernmental working group devoted to corporate transparency and accounting issues. ISAR aims to improve the global comparability and reliability of corporate reports.

Sustainability reporting and XBRL

The main theme of the workshop was to understand how reporting of sustainable development actions will affect future corporate reporting. Sustainability reporting is increasingly demanded by investors, policy makers and the public. In some countries companies are already expected to account for the environmental impact of their business in their financial modelling and reporting.

Where businesses report against some form of structured framework (e.g. Global Reporting Initiative, Sustainability Accounting Standards Board) there is significant potential to use XBRL in the creation of the reporting framework. By extension, this could also be used for data validation and downstream analysis.

Many of the benefits derived from well implemented XBRL projects mirror the objectives outlined for sustainability reporting:
– Data accuracy and reliability
– Transparency
– Comparability
– Digital platform: supporting both human- and machine-readable documents
– Downstream analysis

Many government and regulatory agencies are now collecting financial and statistical information in XBRL format, so the opportunity exists to re-use that data for sustainability reporting purposes.

Forecasting and comparability

Interestingly, however, whilst financial corporate reporting is predominantly backward-looking, sustainability reporting will force businesses to forecast. This may present opportunities for XBRL to compare what companies say about their sustainability behaviour with their reported financial outcomes a year or so downstream. For instance, Company A mentions in its sustainability reports: “we are a non-polluting company with a fully-inclusive HR strategy”. Yet in the following year’s financial report Company A discloses provisions for clean-up operations and pay-outs to employees as a result of discrimination cases. Clearly there are discrepancies, which would become even more obvious if data were compared electronically using XBRL.

Today’s situation

Some government agencies are already mandating sustainability reporting, for example the UK’s Carbon Disclosure; South Africa’s sustainability reports for companies listed on Johannesburg Stock Exchange; France’s Grenelle II law requiring investors and fund managers to disclose environmental, social and governance criteria. Big 4 accountancy firms are now offering sustainability and integrated reporting advice and support. Consequently, opportunities exist to provide products to support the creation, validation, analysis and downstream audit of financial and non-financial reports.

The XBRL market challenge

The challenge to the XBRL market is to provide products and services that support the decision-making processes of investors and regulators.

The investor community will be asking:
– Does this company create long term value?
– Is this company ahead of, level with, or behind its competitors in creating and sustaining long term value?
Regulators will be asking:
– Is this a company that meets its environmental commitments both locally and internationally?
– How closely does its financial reporting correspond to its sustainability commitments?

The opportunity to collect, validate, compare and analyse source data as part of the sustainability agenda will help to answer their fundamental questions. XBRL is the obvious enabling technology as the sustainability programme gathers momentum.