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

January 24, 2022 | 34 Minutes

Liv Watson, Managing Director of Adviseers SAS, Impact Management Project, and Chair of EFRAG’s Digitization Workstream, and David Wray, President of the DFCG International Group and Finance Executive in a Fortune 50 Multinational, rejoin Count Me In to discuss digitizing sustainability information. Liv and David recently shared their perspective on A Proposal for the Digital Transformation of Sustainability Information in a COP26 sponsored side-event bringing together attendees from around the world from policy makers, standard setters, regulators to preparers, NGOs and funders to leverage the worldwide momentum for climate change and sustainable economies. In this podcast episode, they share with us their view on what the profession can do to accelerate this transformation, and more specifically how management accountants can support their organizations in managing the data lifecycle of sustainability information, from cradle to grave! Download and listen now!

Contact Liv: https://www.linkedin.com/in/livwatson/
Contact David:

Visit Adviseers website: : www.adviseers.com  
Visit David's website:

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 but it took strong leadership from regulators to standard setters to a project that David and I have been very involved with under the Institute of Management project, an initiative supported by the G 7 to bring consensus to sustainability reporting and thinking digital first was a project that we got on the agenda, the standard setters.
 Liv: (08:43)
 So yes, it takes a village. I will tell you, but I do feel right now and some of the work before I talk about some of the key findings or the challenges of digitization for the last few years, David and I have done research around the complexity of digitization for companies and David coming from the preparer side, me coming from building compliance platforms, that's used by some major companies around the world. We discovered how fragmented regulation, right? And you can't just digitize and create structured data that can be discoverable if standards are not written more structure. So that fragmentation because standards and regulators are so fragmented in our paper, the digital transformation, brief business reporting in the fourth industrial revolution that was published by IMA and thank you to IMA for letting us publish that paper. Because at the European commission, in our analysis, that supported why we needed digitization was actually drawn from some of our research within that documentation in that paper.
 Liv: (10:09)
 But we also need data management to collect data that is like cost enabled. David and I talk about greening the data, but we also need to create discoverable data, digital's data. There is lots of it out there, but how do you find it? Where is it? So the data ecosystem is fragmented and we need key stakeholders and IMA to continue supporting this journey because it's really, truly not just, and one time kind of an event there, we are on a journey on digitizing information that is consistently changing. And in a very dynamic world, it needs what we call controlled vocabularies, And agreed interoperable, taxonomy. So not sure Mitchell, I could talk passionately about this for quite some time, but I better get back on track and turn it back to you.
 Mitch: (11:10)
 Well, thank you, Liv. I mean, there's certainly so much to consider with this topic and you outlined so many key components of it. As you said, I'm sure you could go on for much longer, but, you know, to stay where we are in this conversation. And to flip it back to David for a moment, I do want to pick up on some of the things Liv just shared. I think for many of our listeners, particularly one of the things that they probably question is, how do you really present this issue to those who are making the business decisions within their organizations? So David, how do you bring this issue to life for finance and accounting executives?
 David: (11:49)
 It's a great question because it is the million dollar question at the end of the day. Theory is wonderful, but what does it mean to me on the ground in my day to day role? So let me use a really simple human example to illustrate what we mean. And this is something I think that listeners, all around the world can relate to. So you're a preparer, right? You've been tasked with preparing, a sustainability disclosure, either a sustainability report or a disclosure. And imagine that you've got to try to figure out which sustainability standard or standards you have to choose to report on something like greenhouse gases. So today greenhouse gases are covered by CDP. There are also covered in IOS 14 0 6 4, and we don't stop there. They continue to be talked about in the greenhouse gas protocol and TCFD. And of course there are a number of country specific regulatory requirements as well. One example from around the world is in the UK and they've got the measuring and reporting environmental impacts guidance for business.
 David: (12:53)
 So a preparer in the UK for example, would have to look at a number of different standards, and then they've got to start answering questions around. Okay, great. So let's assume I've read all of this and I can make sense of it. Then I've got to start thinking about questions to solve around. Well, what data exactly do I need to collect and how do I correlate that data in a way that is going to make sense and is going to relay something meaningful to someone who looks at it? Well, then how do I run that through scenario models? So if I have to run a number of models, how would I actually do that? And then how I going to assure the sustainability data? So even on the assurance side, a lot of standards that are at the moment are talking about assuring sustainability standards and data themselves in particular, which is absolutely the right idea, but it poses some very interesting challenges for the profession.
 David: (13:49)
 So it makes us then sit back as finance or sustainability professionals and sit and think, how am I going to actually wave through just the sheer volume of data and the noise that gets created through that volume of data to actually tell them a coherent story to external stakeholders? So what we really mean is that in effect, this challenge is really four pronged. It's about data availability, data integrity, data fragmentation, and data that ultimately needs to be multifaceted, meaning it needs to serve more than one purpose. So when we talk about availability, we're talking about data that needs to be identified and known. So we've got to know where it's located, what format it's in, and is it conducive to a multi reporting environment? If you are sitting in an organization that has to report in, let's say 60 jurisdictions, that's potentially 60 different ways just on a country level, never mind an individual regulatory body within the context of that country to do the reporting.
 David: (14:51)
 If we think about data integrity. So this is about data being trusted or capable of being trusted, which really speaks to the whole issue of audit and the ability to then audit that data. Or if we talk about data fragmentation, this is the recognition that data is effectively trapped in the number of silos systems at the moment, or potentially in some repositories. And it could hold a wide variety of formats, right? None of which necessarily are easy to automate or to integrate in any meaningful way. So we need to fundamentally change the data management process so that we really start to think about it from the context of inception. So data creation, not just disclosure. So as Liv mentioned a little bit earlier, it's thinking about the entire cycle and not just the output, which I think has been our traditional fallback strategy in years gone by.
 David: (15:48)
 And then the fourth aspect, when we talk about this challenge of data in of the multifaceted nature of it is it's basically that the same piece of data should be able to fulfill a number of different purposes without having to be manipulated or re-keyed from one format to another. So in other words, how do we drive down the kinds of errors that are quite typical from those kinds of problems? And I think as Liv you've mentioned, we talked about this quite a lot in the paper that we published through IMA last year. So effectively, there are two key messages that really come out quite strongly from the work that we've done, that I'd like listeners to reflect on as they listen to this. So the first one being that when we talk about structured and govern into operability, it's really a foundational requirement for this digital future that we keep talking about.
 David: (16:39)
 And it's got to be able to transcend geographical boundaries because the reality is, standard setters may not harmonize or integrate into a common set of global standards, certainly in the near term and maybe not even in the mid or the long term, you know, we can just see what happens on the financial standard side. And there really still are some differences after decades. So we need to start thinking about solutions that transcend that and allow geographies to have some flexibility. And digital is certainly one mechanism to do that. So what does that mean to us as preparers? Well, it means that we need to start insisting and putting more pressure potentially on policy makers and standard setters to consider it more concretely and directly in everything they do. So Liv, referred to it as this idea of digital from the start. And that's exactly right.
 David: (17:29)
 So it's, it's about how the standard is designed because the standard setters or the policy makers will need to start thinking about what will that look like in digital form. So it's a very different way of thinking and therefore designing. So that's the first message. And then the second key message that I'd like to leave listeners to reflect on is we've got to mobilize together and that's the only way we're going to drive a digital solution. That's going to significantly drive down the cost of compliance for the entire ecosystem, because this isn't just about preparers. This is about everyone in the ecosystem, getting benefit out of this. Because as I said before, the money that we save could absolutely be reinvested in many areas for public good. And I think Liv said it really well a little bit earlier when she said it really takes a village to make this happen.
 Mitch: (18:22)
 Now, David, you mentioned a couple times through that response. I know you said prepares earlier on, you said accounting and sustainability professionals. One thing I do want to keep top of mind is, you know, the target for our podcast here really being, you know, IMA members, but management accountants at large, I would like to kind of discuss their role and some, advice that they could take a bit further beyond, some of the key messages that David just left. So Liv, if I could ask you, you know, being a former IMA board member, what advice do you have for Ima members or the accounting and finance profession, in order to become advocates for this digital sustainability information transformation?
 Liv: (19:07)
 Well, first of all, IMA as a professional organization, as I stated earlier, has been leading this, but it's also been my professional organization for over 20 years where both contributing to the body of knowledge, but also my career was built on the body of knowledge that I learned from IMA bringing in back into my work ethics and career opportunities. So IMA I think has and I'm going to quote our fearless CEO at IMA Jeff Thompson that says as the world continue to change, so too who must business change to focus more on holistically on sustainability business management for long term value creation. I think reflecting back on David and I being in the dialogues up in Glasgow's is also very interesting to see that this is not just a regulatory environment. This is a private public sector that we all have to change.
 Liv: (20:20)
 And I think from an IMA perspective, management and accounting profession cannot better be suited to take on that challenge of greening data. It's our role tobring data forward that can drive business decisions and we need to, in our fiduciary duty and my opinion help reducing the cost of compliance and data management so that we can deliver data that is needed. So we need new skill sets. We need to think about how data is produced, discovered, and repurposed. Then we got to rethink how we contribute to the life cycle of data. So with that, I'm very excited also going back to the IMA and our now board as I stepped down. My time term limit was up this July, is that the board has now taken a decision to create a sustainability business management global task force.
 Liv: (21:37)
 I will be a member of that task force, but it is about setting the stage for what is the kind of role of the management accountant. It also will start looking at things like, how we can become the custodian of data management and bringing this data. But it's also going to give us an opportunity to be right in the dialogue of the key topics that the world is talking about. Now you can hardly pick up a newspaper without reading about the real danger of climate change and the impact on business. So I want to emphasize that doesn't just impact big business. It impacts small businesses impact globally, and IMA is stepping out globally with this first task force. So going back to IMA, and our members, number one from a personal perspective, IMA has been the place where I get the knowledge to drive my career and opportunity.
 Liv: (22:50)
 And I had quite a journey with being able to do so, working and traveling to over 108 countries and meeting IMA members in all parts of the world, but seeing their profession, coming together and really putting digitization first, we still have some, as I say, progress to be made. And with this new task force, I think we can get sustainability and digital thinking first onto the agenda. And greening of data is one of the greatest opportunity for our profession. I don't know David, if you wanted to add anything about that, but you and I are both very keen to say that the management, the accounting professions got to be at the table because that's where the cost of data is. The added costs that XPRL does for regulatory reporting is an added cost that bring value to the output. But the life cycle is where we got to get standards to be digitally auditable and discoverable. And we as a profession stand very well to take the opportunity to, advance this, topic.
 David: (24:12)
 I think you summarized that brilliantly Liv and I agree a hundred percent. I think that it just needs a different level of thinking. I think it needs a higher level of thinking and frankly it needs real leadership and it's taking leadership in the, let's say the not so sexy things that we talk about in the context of accounting and finance, which is the data, the infrastructure and the plumbing. So I think it's recognizing that actually we've got a lot of potential value tapped up in that, that we need to unlock. And we can do that by creating a digital end to end environment and in doing so, driving down the cost and therefore enabling the investment of that saving, to the betterment of every, part of the world. So absolutely agree. A hundred percent.
 Mitch: (25:01)
 This conversation obviously is, you know, beyond multifaceted, there are so many different, perspectives and different points that we can really dig into a lot of what we talked about. So valuable, as you said earlier on David, I believe, you know, it's, it's kind of been a little bit more in theory and we always really like to dig into the action, right. And some really actionable next steps. So, you know, in the essence of time as well, I'd like to just kind of ask one more question and give you both an opportunity to share what you believe the next steps may be, you know, for our listeners, how can they actively get involved? What can they really do to help realize, you know, this vision that you're discussing? And I would have to imagine, you know, obviously it starts with their individual organizations first, but as we wrap up 2021, we get into 2022, what can our listeners, the profession actively do to make progress on these initiatives?
 David: (25:57)
 It's a great question. And it's amazing how quickly time flies chatting to you. Mitchell, it's always so much fun and ending on a forward looking question is always the best place to do that. So what can we do? There are a few things, actually, we can, some concrete steps that we can take as professionals. The first is something that is, an area, a very simple area to do, which is common on exposure drops that relate to business reporting and disclosure. And really, I think as Liv said, make sure that these requests include information, and disclosure around a digitization strategy because that's ultimately where we need to go. We need to be able to get data that's structured, standardized, has common vocabularies, common dictionaries, et cetera, because if they don't do that from the standpoint of setting the standard, then we need to push harder to make sure that they consider our preparer needs in this regard in a much more direct and concrete manner.
 David: (26:57)
 So that's the first really easy, low hanging fruit to do. And there are gonna be a number of our opportunities to do that. Certainly I think as Liv mentioned earlier, Europe is going to have that opportunity next year and they won't be the only ones we'll also see similar, requests we already do from the SEC and others. The second concrete step that they can take is consider adopting a more cloud-based integrated business solution environment. So really, instead of thinking as of the traditional inflexible ERPs, start thinking a little bit more about the solutions that are more cloud based and more SaaS based that can end up into connecting with each other. And that's important because it provides the flexibility that companies and organizations need to be able to adapt to the rapidly changing environment that we're in. If there's one thing, the pandemic has taught us if nothing else has been taught to us around that from a business perspective, is that everything changes.
 David: (27:53)
 And we need to be able to respond to that in a much more rapid manner than we have historically. And we need to be able to do that without having to go through significant transformation projects or programs, which frankly just add time, cost and complexity to many organizations. So even, you know, whether we're talking about SMEs or we're talking all the way up to multinationals, I think adopting this kind of a mindset for flexibility and integrated, cloud based solutions is a very healthy way to go. And then the third thing that I would suggest is a very concrete step is to start thinking about processes internally that think about data from inception, through collection processing and reporting, and start thinking about the process design, the process flow that they need to go through and start really thinking about what's the plumbing or infrastructure that needs to underpin this digital data management, right from the start within the company and thinking about it from the standpoint of, if I can extract value from this information, I can help management in a much more concrete manner around the company strategy.
 David: (29:04)
 So really thinking about this information as being a gold mine, to helping us internally from a strategic perspective, not just, a disclosure requirement later on, because I think at the end of the day, we can't afford as a profession to sit in the backseat or in the passenger seat. We've really got to start taking a much more assertive leadership role in digital data management. If we're gonna get the kind of breakthrough change, that's absolutely gonna be necessary in 2022. And well beyond that. So on that note, thanks very much for inviting me to chat with you today. Mitchell I've really enjoyed it. And let me turn it back over to you and Liv.
 Mitch: (29:44)
 Yeah. Thank you, David. And as you said, I would like to give Liv an opportunity as well to share her closing thoughts on this topic.
 Liv: (29:52)
 I'm going to be quick here as, I think everybody and the key message here. This will take a journey. It's not a destination and answering your question very clearly. How do I stay involved? I always said show up, right? And I think showing up means within regards to our profession here is IMA has a lot of opportunity. We have the IT committee. We now have the sustainability management accounting, special taskforce. There are many articles. There are, discussions at our annual events and even at the local chapters events. So there are many opportunities to take an active role in, within IMA and other organizations. But IMA, like I said, is very well equipped for both educational and leadership role here. The second thing I wanted to let the members know is that David and I will be taking a very leadership role and will obviously invite a professional to the table.
 Liv: (31:01)
 But we recently, under the umbrella of the impact management, where I am seconded to, it's a project for seven years to build on impact standards, right? So what is the impact? The company, not just their value creation is that, we have a grant from the tipping point and we will continue, foster dialogue and meetings over the next few, few months where we are going to map out what the plumbing with the right key stakeholders in the room. And IMA will obviously be at the table at this, but many of the world leaders and that's building on the success from cup 26 and our event there. We started out to be a dialogue around six to 15 people. We're going to have a couple of coffee and talk about digitization to the point we had to turn people away and now have a very good foundation of the right people in the room to drive these changes so that we can get the plumbing to really have discoverable machine readable, auditable data that we so need. If we ever gonna measure the impact on climate and this commitment that companies and cities and industries are doing toward net zero, we have to have accountability and accountability as data. So yes, let's do this while we are still young and the IMA has have a wonderful platform for us to drive this leadership globally. And thank you, Mitchell. I hope we with new updates that comes later on this year, that you and invite us back.
 Mitch: (33:00)
 Absolutely. Thank you so much. Liv. And David, it really is a fascinating topic and Liv you took the words right out of my mouth. It's always great speaking with you. And I have a feeling with all this progress and work being done, this will not be the last update that we discuss. So thank you again. And, I hope you both take care.
 Closing: (33:20)
 This has been Count Me In, IMA's podcast, providing you with the latest perspectives of thought leaders from the accounting and finance profession. If you like what you heard and you'd like to be counted in for more relevant accounting and finance education, visit IMA's website at www.imanet.org.