CAs’ role in battling climate change
As the demand for progress on combating climate change grows stronger, CAs will find themselves in the thick of the action, says James Barbour CA, Director, Technical Policy.
In 2000, the world watched as Edinburgh played host to the International Federation of Accountants Conference. At this historic gathering, members of the then International Accounting Standards Committee voted to approve a new constitution, giving effect to a major restructuring which ultimately led to the establishment of the International Accounting Standards Board (IASB). The IASB, initially under the chairmanship of ICAS Past President Sir David Tweedie CA, has gone on to revolutionise the world of financial reporting, and the use of IFRS is now commonplace across the globe. Ever since, CAs have undertaken professional development in changes to the IFRS as it continues to evolve to reflect the changing world we live in.
With November’s COP26 fast approaching it is now the turn of Scotland’s other major city, Glasgow, to play host to a conference that could have significant implications for the wider world. As with all such events, the actual agreements might be of less importance than the momentum created by the gathering of world leaders, business people, NGOs, climatologists and more. While perhaps not directly due to COP26, 2021 has already seen significant activity on the sustainability regulatory front that will have direct implications for the accountancy profession.
The public interest responsibilities of being a CA are set to become even greater: CAs will find themselves at the forefront of ensuring the accuracy and reliability of information on climate change and other forms of sustainability.
In May, ICAS responded to the BEIS consultation on requiring mandatory climate-related financial disclosures by publicly quoted companies, large private companies and limited liability partnerships. ICAS is supportive of the government’s overall proposed direction but highlighted some areas where further consideration was required. The most significant of these relates to the need for the UK government to be aligned with other developments in non-financial and sustainability reporting, both in the UK and globally.
There has been significant movement elsewhere, too. In April, the EU published a draft corporate sustainability reporting directive, which is to replace the current non-financial reporting directive. The name change is significant by itself as it highlights the ever-increasing focus on this subject. The proposal that the reported information was to be subject to assurance was also another major development. This is an area that will keep growing for the foreseeable future. Indeed, the integration of non-financial and financial information is something that will continue as disclosures start to become more evident in the numbers presented in the financial statements.
The proposed establishment of the Sustainability Standards Board by the IFRS Foundation has been another major development this year and is moving at pace. The European Financial Reporting Advisory Group has at the same time been tasked with developing standards in sustainability reporting. The focus of the two is not exactly the same: the conceptual difference appears to be the use of double materiality by the latter, with the former sticking with the concept of materiality well established with regards to the economic decision making of users.
The US SEC has also recently consulted on whether current disclosures adequately inform investors. The SEC acknowledged that investor demand for disclosure of information about climate change risks, impacts and opportunities has grown dramatically in recent years. Consequently, questions arise about whether climate change disclosures are adequately informative, and whether greater consistency could be achieved.
The hope is that with all these developments we will move towards greater transparency and consistency of approach on a global basis. If the business case does not change business behaviour, then the case for a more regulatory approach will likely become even stronger. That is fine, but it needs to be coherent – and the greater the level of harmonisation at a global level the better for the future of the human race.
The public interest responsibilities of being a CA are set to become even greater: CAs will find themselves at the forefront of ensuring the accuracy and reliability of information on climate change and other forms of sustainability. They will not face that challenge alone, however. ICAS has created a range of resources and content to assist them in expanding and maintaining their knowledge in this area, many of which we highlight here. These will continue to be updated as developments are – not before time – starting to move at pace.
Keep up to date on sustainability by visiting the ICAS resources hub