Audit firm calls on companies: Put sustainability at forefront

FIRMS should consider sustainability as part of their business goals and not just as a way of complying with requirements from regulators, an audit firm said as companies are gearing up for the submission of sustainability reports this year.

“I believe the number one pain point is that many companies may have yet to embrace sustainability as part of their advocacies or purposes. Hence, it may be difficult to prepare their sustainability reports,” Christopher M. Ferareza, partner at P&A Grant Thorton’s Audit & Assurance and Advisory, said in an e-mail last week.

The Securities and Exchange Commission (SEC) released its own sustainability reporting guidelines for publicly listed companies in 2019. These are laid out in SEC Memorandum Circular No. 4. Companies are to fill out the report forms through a “comply or explain approach,” where firms are expected to explain their noncompliance for some items.

More publicly listed companies have adopted the sustainability reporting system, P&A Grant Thorton said, after seeing “90.4% in 2019 for the 2020 reports to 91.07% for the 2021 reports.”

“I believe companies who have already integrated [or fully embraced] sustainability in their operations would prefer to use their own templates, but based of course on generally accepted standards such as GRI (Global Reporting Initiative), IIRC (International Integrated Reporting Council) [and] SASB (Sustainability Accounting Standards Board), [which have recently merged], and TCFD (Task Force on Climate-Related Financial Disclosures),” said. Mr. Ferareza.

“Most, however, would be dependent on the template suggested by the regulator,” he added.

The SEC plans to make sustainability reporting for listed companies mandatory come 2023.

To encourage more companies to comply with sustainability reporting, Mr. Ferareza said “giving various incentives both financial and nonfinancial” would be a good start.

“In Japan, which is the global leader in sustainability reporting, the financial incentives to achieve a carbon-neutral [or net-zero] society seems to be working very well,” he said.

Mr. Ferareza noted that some of the challenges is the lack of a sustainability reporting expert within a firm’s ranks, on top of “a possible conflict of interest among companies engaged in businesses that pose harm to the environment or society.”

This is where the role of independent auditors would be vital, he said.

“We usually know the business inside out so it’s easier for us to marry financial and nonfinancial aspects of the business operation,” Mr. Ferareza said.

Corporates are reminded to not only focus on profits, but also to keep sustainability as one of the pillars of their businesses.

“This means that if a reporting entity remains solely focused on profits, its sustainability reporting remains solely for compliance,” Mr. Ferareza said. — Keren Concepcion G. Valmonte