Following E. Faber's nomination to the ISSB - or the need for an analysis of the controversies in sustainable finance/accounting (1)

The nomination last week (16 December) of E. Faber as head of the International Sustainability Standards Board (ISSB) is already fuelling much debate. This nomiation is a turning point in non-financial accounting standard setting and should be viewed with more perspective than just an apparently positive message.?

I therefore propose three linked posts to come back on some of the central points of current work on sustainable accounting/finance.

This event already allows me to highlight the research work that will be published in the French scientific journal "Entreprise & Société" (of which I have the honour of being a member of the editorial board) and that was "pre-presented" on 30 November at the CNAM, on the "Danone" case. In March 2021, the board of directors of the Danone group withdrew its confidence in E. Faber, its chairman, and replaced him immediately. This decision opened up a series of debates and reflections, as Danone was the first CAC 40 company - and the only one to date - to have adopted the status of “société à mission” (status, defined by French law since 2019, which refers to new forms of enterprise that have a social or environmental purpose in addition to their profit-making purpose). Many analyses had suggested a direct conflict between "shareholder values" and "societal values", but this case is more complex than it seems. It is therefore very welcome to have a first scientific feedback on this situation, also allowing to better appreciate the place/role of E. Faber in this case directly connected to the issues behind the extra-financial accounting standardisation.

Above all, the central point is that this nomination should not overshadow the underlying issues and related controversies encountered in non-financial accounting standard setting.

E. Faber said Les prototypes anglo-saxons et européens des normes climat sont très proches"(The Anglo-Saxon and European prototypes of climate standards are very similar) and that's just it, no! And that is the problem.

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The need for controversy!

One of the major obstacles to the progress of extra-financial standardisation is to fall into a certain irenicism in which all extra-financial accounting approaches would eventually converge, and in which controversies could miraculously disappear due to good (ecological?) will. In fact, this attitude of erasing or even rejecting controversies not only delays their expression (perhaps even 'violently'), but ultimately tends to impose a single way of thinking, a single theory/vision of the world, presented as 'natural', under the guise of seeking an operational consensus.

This is how the idea that shareholder value is the natural condition for the existence of companies and the development of the economy came to be accepted, putting aside the fact that :

1) this view is very recent;

2) is in no way the one used by the classical accounting theory - in historical costs - which is the one used in the everyday life of companies and which is based on the idea that the company exists beyond the shareholders (theory of the company as an entity/collective project),

3) that a large body of literature, including official reports, argues against this position, starting with the Notat-Senard report (Official French report commissioned by four ministries (economy, ecology, justice and labour), preamble to the PACTE law ?- law aimed at laying the foundations of the 21st century company. The questions addressed by the report were: "How can we encourage long-term consideration of the interests of shareholders, employees and company stakeholders? How to place corporate responsibility at the heart of company law? What statutes and governance arrangements would allow companies to pursue broader goals than profit-making? What legal and technical tools would enable the collective interest of the company to be affirmed?)

But, in the end, instead of taking on a fundamental conflict and bringing it into the public and civic sphere, in order to turn it into an argumentative democratic debate, a single vision is imposed, presented as inevitable, and a rhetoric based on meaningless mobilising concepts is then constructed.

Mobilising concepts: the death of argumentative debate?

This concept refers to :

1. words that speak to everyone

2. but while having a different meaning for everyone, everyone puts in what they want.

It is a "weapon of mass disinformation": the typical example in "sustainable" finance/economics/accounting is the notion of "value creation".

Who is against "creating value"? Nobody... But "creating value" does not mean anything in itself... Creating value, what value, for whom? For what? How do you do it? On what basis? And as these questions are not - or poorly - addressed, and in any case de-conflicted, to take a football comparison, "at the end, Germany always wins": in the end, shareholder value always wins. So "creating value", a mobilising term, interpreted as one wishes, but not directly questioned, leads ineluctably to validating the creation of shareholder value. Recently, Guido Palazzo ?, looking back on his career as a CSR researcher, indicated that "value creation" was in his "top" list of greenwashing...

Another mobilising term is the very notion of "Sustainable Development". Here again, who would be opposed to sustainable development? As early as 1989, D. Pearce, a great environmental economist, warned that "sustainable development" could end up being simply "something to which everyone can agree, like motherhood and apple pie". In the end, under the cover of this numbing of the controversy, a certain vision of Sustainable Development is imposed, which is in fact not sustainable at all. But I'll come back to that.

The last example, which allows me to return to extra-financial accounting, is the Triple Bottom Line (TBL).

The Triple Bottom Line

Presented as the "nec-plus-ultra" of corporate sustainability, the "must" of sustainable reporting, the TBL has even been described as synonymous with Corporate Sustainability.

Here again, who would object to integrating the 3Ps, the foundation of TBL (note the impeccable marketing, entirely based on meaningless mobilising concepts): People, Planet, Profit. Thus, any company seeking to take into account socio-environmental issues seems 'naturally' inclined to integrate these 3Ps and therefore to deploy the TBL. The circle is complete: integrating socio-environmental issues is literally implementing the TBL. And, very importantly, TBL is easy to implement... Not only does it sound good to the ear - the 3Ps -, it speaks to the "heart", but it is operational without too many problems. What more could you ask for?

Of course, a few "grumpy" academics had expressed major reservations by pointing out that TBL was built on particular economic bases (the dominant one, in fact), referring to a specific vision of the company and its link to the "world", that TBL favoured simple greenwashing, etc., but hey, it's operational and it's mobilising... The rest is just theory...

However, in 2018, for the 25th anniversary of the TBL, its creator, in a commendable act of intellectual honesty (rare), takes stock of the deployment of this accounting tool - and this in the Harvard Business Review (not an obscure unread journal). The conclusion is clear:

"It [TBL] was supposed to provoke deeper thinking about capitalism and its future, but many early adopters understood the concept as a balancing act, adopting a trade-off mentality [based on eco-efficiency]...] Such experimentation is clearly vital [...]. But the bewildering range of options now on offer can provide business with an alibi for inaction. Worse, we have conspicuously failed to benchmark progress across these options, on the basis of their real-world impact and performance.

Let us recall that eco-efficiency, which Elkington considered in the 1990s as the way to fight against eco-communism (this term referring to the actions of NGOs such as Greenpeace for example), consists in adopting a mentality based on "trade-offs": eco-efficiency consists in basing environmental performance on a ratio of "financial value creation" to "environmental impact".

Of course, one can improve eco-efficiency by reducing one's environmental impacts, but more importantly, one can do so by creating value more "strongly" than the related environmental impacts. And it is this latter perspective that has made eco-efficiency so successful. Instead of thinking in terms of eco-efficiency (i.e. real world impacts), the environmental performance conveyed by TBL has been that of a substitution between financial and environmental issues. Eco-efficiency is both :

- synonymous with weak sustainability,

- at the heart of the rebound effect.

- and one of the most used visions to define environmental performance (linked to the greenwashing of 'value creation' - see above).

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In short, the TBL is simply a tool of major unsustainability, while conveying an image and terms that make it the very definition of sustainability, as well as being easily operationalized...?

It is thus necessary to highlight the central controversies behind socio-environmental accounting, avoiding falling into deleterious searches for (false) consensus, and above all not falling into the "trap" of mobilising concepts and the possible charisma of certain personalities...

End of the first part. To the second part.