Sustainability and the ICAS Code of Ethics: ICAS publishes new guidance explaining how the Code applies to sustainability
Ann Buttery, Head of Ethics, ICAS Policy Leadership, introduces ICAS’ new guidance paper to the Code of Ethics: ‘Guidance to the ICAS Code of Ethics: Sustainability’.
The paper highlights that sustainability is an important topic, relevant to every CA, and seeks to assist CAs by focusing on a number of areas of the Code where provisions could relate to sustainability related matters. This is the first of a series of extracts from the paper. Links to the other extracts are provided below.
Sustainability, the CA and The Power of One
Society is changing. The sustainability, or Environmental, Social and Governance (“ESG”), agenda is now becoming a company’s licence to exist. There is an ever-growing emphasis on sustainability and ESG at government and regulatory level, as well as increased expectations for organisations to behave responsibly. Organisations need to be thinking about the impact of sustainability/ESG on their organisation, and the impact of their organisation on the environment and society.
Shareholder value is converging with stakeholder value. As well as making profits for shareholders, companies also need to have an understanding of the awareness of their broader impact on society, and whilst the “E” is clearly important, sustainability is not just about climate change - the importance of societal matters (the “S”), as well as governance and ethical corporate cultures (the “G”) are of equal significance. The rise of sustainability/ESG is essentially a re-assertion of long-term thinking – it moves thinking beyond the short term to a responsibility for the longer time frame.
CAs are a vital part of any organisation. They undertake many different roles across a variety of sectors. A CA can find themselves being involved in sustainability related matters in many ways including: accounting for, and reporting on, climate change and environmental considerations; assessing and managing the risk and opportunities associated with the social inclusion and equality agenda; providing assurance on an organisation’s sustainability report; being a board member responsible for setting the ‘tone at the top’ of an organisation and ensuring that a culture of ‘doing the right thing’ exists at all levels within the organisation.
This rise in the importance of sustainability/ESG drives new and different requirements for the accountancy profession. The role of the CA is broadening to include greater focus on non-financial information. The people to whom organisations are responsible is now a broader group and therefore CAs need to be better communicators of data to a broader set of stakeholders – not just shareholders.
The formation of the International Sustainability Standards Board (ISSB) was announced by the IFRS Foundation at COP 26. The ISSB is developing standards that will result in a high quality, comprehensive global baseline of sustainability disclosures for the financial markets. The intention is for the ISSB’s standards to cover all sustainability topics (environmental, social, and governance) on which investors want information, although it has begun by issuing Exposure Drafts on general requirements for disclosure of sustainability-related financial information and climate-related disclosures, due to the urgent need for information on climate-related matters.
Investors are also recognising the important role they have to play in supporting companies who are aligned to sustainability/ESG goals, including net zero greenhouse gas emissions by 2050, and increasingly they are looking for commitments and disclosures to be reviewed and assured, and for boards and directors to be held accountable for commitments being met.
ICAS’ business ethics initiative, The Power of One, advocates the importance of every CA taking personal responsibility for ethical leadership, no matter their career stage or level of seniority; the need for every CA to recognise the part they have to play to promote ethics in the organisations within which they work; and the fundamental requirement of the accountancy profession to act in the public interest.
Ethics is not something that sits separately or is only a part of one element of sustainability and ESG. Ethics is the umbrella which sits over all of it. There is a need for all CAs to be aware that sustainability/ESG is not a niche topic that they can ignore. Every CA has their part to play in their own sphere of work around ethics and sustainability. Every CA can be proactive and make a difference.
The accountancy profession has a responsibility to act in the public interest. Ethics is the conscience of organisations, it is at the core of driving behaviours, and is the key to long-term thinking and trust. The golden thread of ethics and The Power of One weaves through sustainability/ESG.
Sustainability and the ICAS Code of Ethics
ICAS Members and CA Student Members have to comply with the five fundamental ethics principles enshrined in the ICAS Code of Ethics (the “Code”),which is substantively based on the Code of Ethics published by the International Ethics Standards Board for Accountants (IESBA). With effect from 1 January 2022, IESBA revisions were made to the Code to promote the role, mindset and behavioural characteristics expected of all professional accountants. The fundamental ethics principles are now defined as follows:
"(a) Integrity - to be straightforward and honest in all professional and business relationships.
(b) Objectivity – to exercise professional or business judgment without being compromised by:
(c) Professional competence and due care – to:
(d) Confidentiality - to respect the confidentiality of information acquired as a result of professional and business relationships.
(e) Professional Behaviour – to:
The Code provides a conceptual framework to ensure adherence to these fundamental principles. The conceptual framework requires professional accountants to identify threats to compliance with the fundamental principles; evaluate the threats identified; and address the threats by eliminating or reducing them to an acceptable level. It requires professional accountants to have an inquiring mind; exercise professional judgement; and to apply the “reasonable and informed third party test”.
Paragraph 100.2 of the Code states:
“100.2 Confidence in the accountancy profession is a reason why businesses, governments and other organisations involve professional accountants in a broad range of areas, including financial and corporate reporting, assurance and other professional activities. Accountants understand and acknowledge that such confidence is based on the skills and values that accountants bring to the professional activities they undertake, including:
(a) Adherence to ethical principles and professional standards;
(b) Use of business acumen;
(c) Application of expertise on technical and other matters; and
(d) Exercise of professional judgement.
The application of these skills and values enables accountants to provide advice or other output that meets the purpose for which it was provided, and which can be relied upon by the intended users of such output.”
Given the important role that the accountancy profession plays in society, it is imperative for all CAs to be aware that, whilst sustainability and ESG related matters are generally not currently specifically highlighted within the Code, they are nevertheless contained within the substance of the Code. Paragraph 100.2 above refers to “professional activities” which is a frequently used term in the Code and defined broadly in the Glossary as: “An activity requiring accountancy or related skills undertaken by a professional accountant, including accounting, auditing, tax, management consulting, and financial management.” CAs should therefore be aware that the Code’s definition of a “professional activity” includes activities performed in relation to sustainability/ESG related matters.
The Code also emphasises that professional accountants are expected to comply with the spirit, and not just the letter, of the Code. As it states in paragraph 100.6 A2: “Complying with the Code includes giving appropriate regard to the aim and intent of the specific requirements.” CAs must always therefore ensure their obligations to the five fundamental ethics principles are met in terms of sustainability and ESG related matters.
Find out more
To assist CAs, the guidance signposts the following areas of the Code where provisions could relate to sustainability related matters (please note that these areas are provided by way of example and should not be considered an all-inclusive list):
- Preparation and presentation of information – integrity and objectivity
- CAs shall not knowingly be associated with misleading information
- Internal controls
- Inquiring mind
- Reliance on the work of others or on the output of technology
- Financial interests, compensation and incentives
- Professional competence and due care, confidentiality and professional behaviour
- Acting with sufficient expertise
- Non-compliance with laws and regulations (NOCLAR)
- Organisational culture, including responsibilities with regard to values of equality, diversity and inclusion
- Professional appointments
- Assurance
- Pressure to breach the fundamental principles
- Having the strength of character to act appropriately
- Speak Up? Listen Up? Whistleblow?
ICAS ethics resources
Find out more about the ethics resources ICAS provides to support its Members below.