PwC working with SASB on XBRL taxonomy while developing ESG app
PricewaterhouseCoopers is teaming up with the Sustainability Accounting Standards Board on translating its standards into Extensible Business Reporting Language, while also rolling out its own ESG Pulse application for environmental, social and governance reporting at companies.
PwC has been working on these initiatives in the midst of the COVID-19 pandemic.
“Fortunately we’ve been able to deliver without interruption,” said Wes Bricker, vice chair and assurance leader for the U.S. and Mexico at PwC, and a former chief accountant at the Securities and Exchange Commission. “We’ve been able to provide trust and assurance to the marketplace. Companies have continued to report the information that investors and other stakeholders rely on, so I feel good about our ability to really bring our purpose to life around building trust and solving important problems. That’s not been interrupted. Even as many other aspects of life have been interrupted, the quality of information has not been.”
He sees the ability to translate SASB’s sustainability standards into XBRL as important for booth companies and investors. XBRL provides a data-tagging format for financial and non-financial information and has been mandated by the SEC for public companies to use with their filings, phasing it in with the biggest companies starting in 2009. The technology is supposed to make it easier for investors and analysts to compare information across companies and industries, although it’s had challenges over the years with data quality and consistency. The Financial Accounting Standards Board took over maintenance of the XBRL taxonomy for U.S. GAAP in 2009 from an industry consortium, XBRL US, and updates the taxonomy every year with new and revised standards with the approval of the SEC. Last week, FASB released a set of proposed improvements for 2021 of the U.S. GAAP Financial Reporting Taxonomy, asking for public comments. Similarly, the IFRS Foundation and the International Accounting Standards Board provide an XBRL taxonomy for International Financial Reporting Standards.
PwC is helping SASB put its standards into XBRL format as well. “We were selected by SASB to provide work in helping to develop a taxonomy for their 77 standards, the taxonomy based on XBRL,” said Bricker. “It would be designed in a way that is useful and can be conveyed in a way that lowers cost, increases value and creates a good experience. XBRL can help do that. It provides meaning for the information that companies provide. What we know from financial reporting and the XBRL taxonomy for financial reporting, which is widely used not only in the U.S. but also around the world, we know that XBRL is an important element in the information-reporting ecosystem, but it was missing for sustainability information. It lacked the maturity of a full data taxonomy. Our firm is uniquely positioned with the expertise both around sustainability information but also XBRL data to bring that to life for SASB.”
PwC will deliver the taxonomy to SASB, and the board will then go through its normal governance and oversight process before approving and publishing it.
PwC has long been involved in sustainability reporting and assurance services, along with other major firms. Last month, it joined with the other Big Four firms — Deloitte, KPMG and EY — and the World Economic Forum in agreeing to develop a common set of metrics to use for ESG reporting (see story).
“We had worked together with the World Economic Forum and the other firms in helping to develop a set of concrete metrics that would help companies communicate in a comparable way about highly relevant aspects of their business and the impact of their business,” said Bricker. “We’re really excited to do that with the World Economic Forum because it is then global in scope, but also national in reach. There’s a heavy connection to the U.S. market. That's an important piece, but it’s just one peice of the overall information ecosystem. It's the piece of standardization in metrics. What also is important to high-quality information is that companies have an investment-grade process to prepare the information and a clear line of involvement for those who have expertise in reporting, like the controller, the CFO, the general counsel, the chief audit executive, all the way up to the audit committee. Those are the classic control functions in a company that help protect the quality of reporting that occurs so that when investors receive information they can have the confidence that it’s gone through a set of disclosure controls and procedures and maybe even have external assurance to raise their confidence in the quality of it. What we wouldn’t want is investors to be less protected when using sustainability information.”
Meanwhile, SASB and other major ESG standard-setters such as the International Integrated Reporting Council, the Global Reporting Initiative, the Carbon Disclosure Project, and the Climate Disclosure Standards Board — have also agreed to work on more closely aligning their standards to overcome some of the confusion over which set of standards to use (see story). The IFRS Foundation has been asked by the International Federation of Accountants to oversee a proposed new International Sustainability Standards Board that would operate alongside the IASB, and it issued a consultation paper last month to gauge reactions (see story).
“I think input and dialogue about how standards are developed, the quality of input for standards and how they're maintained, that’s a vital conversation,” said Bricker when asked about his reaction. “I'm supportive of having that conversation without presuming the outcome of that conversation.”
PwC is seeing more demand from its clients for help with sustainability reporting, and it developed a mobile application called ESG Pulse that it’s debuting this week. “Even where our involvement is not mandated by standards, what we find is that leading companies nonetheless ask for our involvement and our external assurance regarding the process of preparing the information and the metrics that are reported,” said Bricker. “They do that because they see the necessity of having an investment-grade process when preparing the information that’s used in investing decisions. The ESG Pulse app helps companies assess the maturity of their process. We're focused on that because we want users to have the confidence that companies are going through an investment-grade process to prepare information that’s being used in the investment process as well as the quality of the information used by other stakeholders. I haven’t met anyone who is in favor of sloppy reporting or sloppy bookkeeping, but there is an important judgment regarding the strength and clarity of accountability within reporting processes.”
He sees the ESG Pulse app as a way for companies to get on top of their ESG reporting processes and prioritize their efforts where they see gaps. “It connects to this broader conversation that quality of information starts with good reporting, good standards and then also a good taxonomy for the digital experience that users expect whenever they consume information,” said Bricker. “That last piece is the XBRL taxonomy that we're working with SASB to develop. But we’re comprehensive in our thinking around the elements that will go into high-quality ESG reporting.”
As a former chief accountant at the SEC, he sees the commission getting more involved in various components of ESG. The SEC in recent years has shown some skepticism about the materiality of ESG information in company performance and whether ESG funds are engaging in false advertising in promoting themselves to investors.
“Without knowing what the SEC could mandate or require in the future, here’s what I know,” said Bricker. “I know that what the SEC has focused for many years on is the importance of quality information, that if companies are reporting information it needs to have credibility. It needs to have integrity, and that can be true whether the information is sitting on a company website or in a disclosure document filed with the SEC. I took note of a variety of recent enforcement cases that focused on nonfinancial information that the SEC alleged was wrong and created liability. To me that’s a reminder to all of us that information needs to be investment grade if it’s introduced into the investment marketplace, wherever it’s reported, whether it’s a website or a disclosure document, if it’s being used in the investment process as ESG information is.”
He’s unsure about whether the SEC would ever mandate the use of XBRL for ESG reporting as it now does for financial reporting. “I can’t predict how they would reach their policy decisions around XBRL or standards,” said Bricker. “What I would note is that the majority view at the SEC in their recent Regulation SK requirements did include principles-based, but specific requirements for human capital disclosures. Human capital disclosures map to the S in ESG. It’s the social piece of ESG. That continues a long tradition of the SEC focusing on specific topics where they’ve had concerns. For example, there’s cybersecurity interpretive guidance. That maps to the G of ESG. There’s climate-related interpretive guidance. That’s the E in ESG, and more recently there’s the human capital disclosure guidance that maps to the S. So across administrations the SEC has focused on the obligation of companies to provide material information about their operations across a number of topics. When I read the risk factors that companies publish about their businesses, one of the routine risk factors is around people, around human capital, that if a company isn’t able to attract and retain and reskill people, that would represent a material risk to security holders. It follows then that there are requirements to disclose how a company is doing. We're adding now to that conversation with XBRL tagging and the XBRL taxonomy on the SASB standards, which help companies think about human capital and human capital disclosures.”
He sees the need for better ESG reporting as fitting into PwC’s overall mission. “Number one, we’re guided by our purpose of building trust in society and solving important problems,” said Bricker. “That purpose has led us to focus comprehensively on the quality of information that companies are providing to stakeholders, including investors, and that has led us to contribute in two very specific ways. One, the taxonomy for SASB is an important piece of the architecture for high-quality reporting. Secondly, what I’m excited to unveil is our ESG Pulse application that helps companies assess where they are on their reporting processes. I’m really excited about our contribution, consistent with our purpose, to high-quality information that investors count on to make their decisions.”