Ep. 166: Liv Watson and David Wray - Digitizing Sustainability Information: It Takes a Village

Contact Liv: https://www.linkedin.com/in/livwatson/
Contact David: https://www.linkedin.com/in/david-w-29627882/

Visit Adviseers website: : www.adviseers.com
Visit David's website: https://davidwray.com

FULL EPISODE TRANSCRIPT:
Adam: (00:05)
Welcome back to Count Me In, IMA's podcast about all things affecting the accounting and finance world. I'm your host, Adam Larson. And this is episode 166 of our series. Today we are fortunate to be joined again by Liv Watson and David Wray. Liv and David recently shared their perspective on a proposal for the digital transformation of sustainability information, in United Nations Climate Change conference sponsored site event. Attendees from around the world included policymakers, standard settlers regulators, to preparers, NGOs and funders. The goal was to leverage the worldwide momentum for climate change and sustainable economies. In this episode, they summarize their perspective and share with us their view on what the profession can do to accelerate this transformation. More specifically, they discuss how management accountants can support their organizations in managing the data life cycle of sustainability information from cradle to grave. Keep listening as we head over to the conversation now.

Mitch: (01:15)
So I understand you both talked in Glasgow about the greening of data and to start off our conversation, I'd like to first to ask, what do you mean by this?

David: (01:24)
It's a great question to start really setting their context for the conversation and the discussion we're going to have Mitchell, because you're right. We were in Glasgow talking last week about the data life cycle and Liv and I have coined the term greening of the data as a way to describe some of the problem, but let me be put it in context for you. So if we think back to the IFAC work, and we've talked about this in previous podcasts and some of us may be very familiar with their work, they basically look to assess the cost of prudential disclosure reporting. And it was just one example of the issue that we see around data management and the cost of that data, to the compliance and regulatory reporting that ends up happening.

David: (02:08)
So we know that in the context of the IFAC report, that about 780 billion US dollars is spent every year by the financial services industry alone on this type of reporting. So what we are saying is, look, what if we could save half of that data, like half of that cost, of processing that data through digitization and structuring data at creation. So if we really started to think about it at the point of inception or origination, and we really carry that idea through to how it's processed, how it's disclosed or how the user consumes it, imagine the kinds of things that we could do in terms of environmental initiatives that we can invest in to better the planet with the money that we save. So really what we're talking about is it's about reducing the ecosystem costs for the sustainability reporting and basically reinvesting this spend into initiatives that will ultimately result in sustainable economies and business models and have better stakeholder citizenship, because that's really what it's all about.

David: (03:13)
And all of this could be done without raising a single incremental tax dollar, because frankly, I think we all need to look at more creative ways to start achieving sustainability objectives without defaulting to what we've always done, which is raising taxes. And we can see the effect of these tax discussions in bipartisan decisions all around the world. It's not, you know, unique to one geography because as effectively a tug of war between fiscal responsibility and the social climate responsibility, and that's really what's tugging this discussion. So unless we can start to unlock this barrier, we might still actually be talking about this subject in 10 years time and time being a luxury that we don't have much of anymore. So greening of the data is all about reducing the cost of compliance and then reinvesting that for the better of the planet.

Mitch: (04:03)
Well, you have certainly piqued my interest and I think a natural follow up question to what you just discussed is how, right? So I'd like to direct this second question to Liv. How do you make this digital vision a reality that really benefits everyone? And, you know, David just mentioned some of the stakeholders and the tug of war. How do we get everybody in alignment around the world, on this topic?

Liv: (04:28)
Okay not an easy task, but Mitchell, thank you again for having us back on the IMA podcast and amazing platform to get new topics, new ideas from. I would also think IMA's and many of the listeners might not know this, but IMA was actually part of the founders of the digitization of financial and business reporting as a founding member. So, XPRL international. So our industry organization had been a thought leader in this topic for a long time. I have had lately the opportunity to lead an initiative appointed to the European commission or by the European commission to EFRAG. And for those of who don't know EFRAG, answering your question here very quickly, but the players are key to understand is that EFRAG has been kind of the similar to fast P in the United States and standard center for financial reporting.

Liv: (05:39)
EFRAG is the European equivalent working with the International Accounting Standard to recommend international standards, to the European commission that they then adopt and embed into legislations. Right now, we have talking about greening of data, two drivers, right? Regulators wants to reduce the cost of compliance and standard setters has to start thinking digital from the outset. And so EFRAG, who used to be a standard take. And with now becoming after a consultation that I was appointed to a special task force, and we proposed 54 detailed proposals on how the European commission could accelerate sustainability disclosure and improve on their current reporting requirement, which was a legislation called the Non-Financial Directive Reporting Directive to now becoming a delegated act to improve. Because now they want to be thinking not just standard that are more descriptive, not only just more descriptive, but also we are in the statement.

Liv: (07:03)
So for an annual report in the management discussion, we are now writing the standards, proposed standards for the European commission to mandate the data, to be disclosed in the management report. And why is this important is thinking digital from the first trying to get standards that are written by silos, and then trying to bring consistency so that you can digitize them, not just the reporting. So the taxonomy for the reported data, but also think about digitize the standards that today sit locked up in PDF files, et cetera, that they've actually become executable codes. So yes, number one, we need to start thinking digital from the outs and not digital after the standards and legislation, are put in place. So that is why we feel that now is a momentum b...