‘Mandatory reporting requirements’ on sustainability may be best solution – NBIM

Mandatory reporting requirements on a company’s sustainability may be the “best solution” over time, Norges Bank Investment Management has stated.

NBIM, which is responsible for the investments of Norway’s Government Pension Fund Global, made the comment in a letter to Dutch corporate governance forum, Eumedion, in response to the forum’s green paper on non-financial reporting. It was addressed from chief corporate governance officer, Carine Smith Ihenacho and senior analyst, corporate governance, Séverine Neervort.

NBIM said it welcomed the opportunity to contribute its opinion to the green paper, Towards a global standard-setter for non-financial reporting, as it has an “inherent interest” in how companies manage their use of natural and social resources due to their ability to create financial value.

“Moreover, as a long-term, global investor, we consider our returns over time to be dependent on sustainable development in economic, environmental and social terms, as well as well-functioning, legitimate and efficient markets,” the letter stated.

NBIM explained that many companies now report on sustainability than in the past but the “level of detail and quality continues to vary significantly”. It agrees with Eumedion that the low degree of standardisation in sustainability reporting “hinders investors’ ability to systematically consider companies’ environmental and social risks and opportunities”.

“We believe the further consolidation of existing sustainability standards is necessary to achieve a simpler and more coherent basis for corporate sustainability reporting. To achieve consistency and a level playing field for disclosing companies, the best solution may over time be mandatory reporting requirements,” NBIM stated.

However, the letter said that such requirements would need to be based on globally accepted sustainability metrics, which are agreed on by all stakeholders.

“Nevertheless, we see the introduction of a single sustainability standard that would address the needs of both investors and other stakeholders and replace all existing standards as a long-term and complex project,” it stated.

Therefore, rather than develop a new set of metrics, NBIM thinks it is important to build on and integrate existing sustainability standards. These include the Sustainability Accounting Standards Board (SASB) and the Global Reporting Initiative (GRI).

“The standards developed by SASB support companies in reporting financially material sustainability information to investors. SASB’s standards present the advantage of being industry specific. The GRI Standards are designed for companies to communicate their most important economic, social and environmental impacts, to an audience broader than just investors. We see many aspects of these two standards as complementary,” the letter stated.

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