DWS calls for consistent ESG reporting standards on dual materiality principle
The current ESG reporting framework is flawed as investors become increasingly interested in the use of their capital and its impact on the world, wrote DWS in response to IFRS foundation’s consultation paper on sustainability reporting. The double materiality implies not only disclosing information on the impact of sustainability issues on companies but also on how companies affect society and the environment.
In a letter to the IFRS, Francesco Curto, director of research at DWS, warned that current ESG framework is already failing investors, as investors are increasingly interested in assessing the impact of capital on the world (inside out), rather than only assessing the external impacts associated with the issue of sustainability on accompany (outside in), which was a common approach until 2019. Curto added that according to their research, without a global ESG accounting standard, ESG investment will be lacking for much of the investment community. “Equity investment should be long-term in nature, but long-term investors and humanity face many pressing challenges because accounting standards have not kept pace with the times,” said Curto.
DWS recommended that non-financial reporting should be fully auditable and that management should be accountable. Non-financial reporting is as important as financial reporting, said the asset manager, adding that a gradualist approach is likely to fail. The boundary between financial and non-financial reporting is already blurred and failing to deliver on non-financial reporting is akin to failing to meet objectives set out by the IASB.