How to reportFundamental Characteristics
The fundamental characteristics are relevance and faithful representation. Information must both be relevant and provide a faithful representation of what it purports to represent if it is to be useful.
Relevance
Relevant information is capable of affecting users’ decisions. “What to Report” synthesizes the information that participants in the public consultation agreed is relevant for an impact performance report. In general, report preparers are encouraged to include as much of this information as possible. In practice, report preparers will need to make numerous judgment calls. These may arise for various reasons. For instance:
- Some of the suggested information may not be available;
- Even if all of the suggested information were available, to include it at a high level of disaggregation would overwhelm users; and/or
- Information not listed in “Part 1: Content” may need to be included in particular circumstances.
These judgment calls will be context-specific and will vary depending on the report users, the entity, the impact objective(s) committed to, and the nature and magnitude of impacts on stakeholders and the natural environment. For this reason, the Reporting Norms cannot specify exactly what information will be relevant for any individual report preparer to include.
- In private markets, report preparers and users are often able to engage one another directly to determine what information would be relevant to users’ decision-making, given the impacts experienced by stakeholders and the natural environment. This discussion may identify opportunities to shorten reports, reducing time and expense.
Information about the significance of impacts to stakeholders is itself relevant. If available information suggests that the impact is either more or less significant to the stakeholder than it is to the preparer or user, this difference in significance will be relevant to note in the report.
Report preparers will need to weigh the benefits of including additional information that may be useful to asset owners and allocators against the risk of including information that is not. Preparers are encouraged to consider the possibility that more information is not always better. The inclusion of unnecessary information obscures readers’ view of useful information and compromises understandability.
Preparers may additionally include information relevant to users’ assessment of financial risk and opportunity, for instance as part of an integrated report.
- For certain investees, no targets are included; however, the report offers a clear explanation for the omission.
- The report contains substantial "filler" text and images that may obscure the reader’s view of the most relevant information.
Faithful Representation
Faithful Representation means that information is complete, neutral, and accurate.
A complete depiction of impact performance would include all outcomes and impacts that are known or could reasonably be expected to be known at the time the report is prepared. It would include both positive and negative impacts, and both intended and unintended impacts, measured as far down the impact pathway as possible.
A depiction of “impact performance,” as opposed to just “impact,” in principle implies not only a description of an entity’s positive and negative outcomes and/or impacts, but also a consideration of the balance between different kinds of positive and negative impacts in that entity’s particular context, the tradeoffs among them, and the decisions made to manage those impacts.
- Complete information is rarely available or cost-effective to obtain. Financial standards also recognize the cost constraint on reporting. Judgment is required to gauge how much completeness and granularity is appropriate in light of the cost of obtaining and disclosing the information, the significance of the impacts from the perspective of stakeholders and the natural environment, and the relevance of the information to primary users of the report.
Neutral means there is no bias in which information is selected or in the way that information is presented.
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In the context of reporting, the term bias refers to slanting, weighting, emphasizing, deemphasizing, or otherwise manipulating the information in the report to make it more likely that users of the report will receive the information positively or negatively. Colloquially, a “neutral” depiction would be one free of “green-washing” or “impact-washing.”
Concepts such as bias and neutrality merit handling with care when preparing reports about social and/or environmental impact. A representation that appears neutral and unbiased to a report preparer or to some users may not appear so to others. Report preparers, users, and independent reviewers alike are encouraged to check for bias and neutrality from multiple perspectives, for instance by ensuring that report drafts are reviewed by individuals that can represent the various groups of stakeholders and/or aspects of the natural environment represented in the report.
The Reporting Norms follow the IFRS Foundation’s S1 standard that “some sustainability- related financial information— for example, targets or plans—is aspirational. A neutral discussion of such matters covers both aspirations and the factors that could prevent an entity from achieving these aspirations.”
Accurate information need not be perfectly precise, but it does need to be free of material misstatement.
Accuracy requires that reported information is free of material misstatement; estimates, approximations, and forecasts are explicitly identified; and estimates are developed through reasonable assumptions and inputs-based information of sufficient quality and quantity.
Impact claims are more credible when evidenced by data from as close to the stakeholders experiencing impact as possible. While it may not be possible for users or independent reviewers to verify the source data, estimates, or assumptions that underpin the report, preparers can follow consistent and rigorous processes, and the following of those processes can be documented and independently reviewed.
Measurement uncertainty arises for aspects of impact that are difficult to measure and for phenomena such as additionality that are impossible to measure directly. The Reporting Norms follow ESRS 1: General Requirements that:
“The use of reasonable assumptions and estimates, including scenario or sensitivity analysis, is an essential part of preparing sustainability- related metrics and does not undermine the usefulness of the information, provided that the assumptions and estimates are accurately described and explained. Even a high level of measurement uncertainty would not necessarily prevent such an assumption or estimate from providing useful information or meeting the qualitative characteristics of information.”
Public consultation supported the principle of conservatism. This principle encourages report preparers, when information is uncertain or may be presented in various ways, to favor possible understatement over possible overstatement of positive impact, and vice versa for negative impact.
Stakeholder engagement and independent review may help to address challenges in obtaining sufficient completeness, neutrality, and accuracy necessary to inform decision-making by report users. The stakeholders experiencing the relevant outcomes and impacts are the best source of information about their own needs and preferences, about those outcomes and impacts, and about the relative importance of those outcomes and impacts. In the case of the natural environment, sources of information may include scientists, technical experts, and local communities who are most proximate to and/or skilled with the measurement and interpretation of environmental phenomena.
Entities engaging directly with stakeholders are also encouraged to consider that engagement may be received as “empowering” or “extractive” — or even perceived as a means towards control or influence — and therefore needs careful consideration. Report preparers are encouraged to refer to written resources or practitioners with specialist expertise in engaging stakeholders.
When considering whether information in a report is faithfully represented, a useful criterion is whether the stakeholders or aspects of the natural environment experiencing the impact would consider it a faithful representation, in a hypothetical scenario in which they were able to review the report. One way of ensuring faithful representation is to engage stakeholders in the production and/or review of the report. Preparers are encouraged to provide evidence that the content of the report reflects the views of the stakeholders experiencing the impact.
- Expectations of the depth of implementation should be commensurate with fund size to avoid disadvantaging smaller and/or emerging fund managers. Differing levels of data availability in reporting entities’ contexts should also be taken into account by report users.
- The report provides estimates, detailing the methodology used to derive them and emphasizing that they are based on conservative assumptions.
- The report focuses solely on the intended positive impacts for each investment.