IFAC and ACCA see need for reliable climate accounting


The International Federation of Accountants and the Association of Chartered Certified Accountants are marking Climate Week in New York City by urging accountants to get more involved in climate information reporting.

IFAC and the ACCA co-hosted an online panel discussion Monday on how finance and accounting professionals can help improve sustainability reporting for companies and their investors by giving them access to more reliable information.

Climate Week NYC takes place as the United Nations kicks off a series of meetings in New York to discuss the urgent need to combat the accelerating pace of climate change. A report released Friday by the UN found that while most countries have increased their commitments to reduce greenhouse gas emissions, they will have to significantly speed up their efforts between now and 2030 to meet their goals, or else emissions will keep increasing to ever more dangerous levels.

Accountants are increasingly being called upon to help companies with their environmental, social and governance reporting efforts as the ESG funds grow in popularity.

“Accountants can help bridge the climate information gap, first to inform investors and stakeholders about the climate risks and opportunities facing the company and the financial implications, and second to navigate their companies toward climate mitigation and adaptation,” said IFAC CEO Kevin Dancey. “This all starts with the board and management’s need to understand a company’s climate impacts and how climate risks and opportunities will affect its financial position and performance and enterprise value creation over time, and it extends to reporting all this in a transparent way. Investors and other stakeholders are increasingly concerned that they are not receiving the level of transparency and information they need. There are challenges with reliability, consistency and comparability.”

International Federation of Accountants CEO Kevin Dancey

ESG standard-setters have been coming together to try to better align their sometimes conflicting standards while the International Financial Reporting Standards Foundation is in the process of setting up an International Sustainability Standards Board that it would oversee alongside the International Accounting Standards Board.

“The new ISSB under the IFRS Foundation will have an important role here, and IFAC strongly supports this initiative,” said Dancey.

Quantifying climate risk is difficult, but essential. “There’s a lot of hard work here,” said Dancey. “Accountants need to translate risks and opportunities into numbers. Without quantification of the risks and opportunities, companies will find it very hard to evaluate the financial impact and the resilience of the business. Aligning and integrating climate-related risks and disclosure with a company’s climate commitments, targets and strategic decisions is very important. It’s really important to avoid greenwashing. To do that, the external reporting needs to be aligned with the reality of the company’s climate commitments, strategy and operations.”

Earlier this month, IFAC released a statement urging accountants to take a more active role in climate change reporting in the current fiscal year (see story). “This statement reflects the rising demand and scrutiny on climate risks from investors, regulators and policy makers,” said Dancey.

There is bound to be a learning curve for accountants to adjust to climate reporting. “I think climate literacy is one of the key issues that needs focus in terms of creating the next generation of accountants,” said Munazzeel Riasat, CEO of IBC Power Limited, a dredging company in Bangladesh, during the panel discussion. “Not only for accountants, but every other profession too for the future that’s lying ahead of us. As accountants are serving in a public interest capacity, I think they have an additional responsibility toward the businesses, and as financial advisors, to be up to date on all the salient issues in relation to climate change, and drive the conversation in terms of transitioning to that net zero target, a very ambitious target by the way because 2050 isn’t that far away. We’re still very much in the infancy of regulation, of creating the kind of culture that is necessary to drive the transformation that is necessary for us to go to net zero. Climate literacy is something that is essential to that role, but unfortunately there isn’t a lot of focus in that area. I feel it’s something that needs to be developed into national curriculums, especially into the educational curriculums of professional bodies so that we are all more aware of the issues and how we can contribute to reducing the risks that we can foresee in the near future.”

The accounting curriculum at many schools will probably need to be updated to include training in ESG reporting.

“It’s an opportunity for accountants to be literate about this topic,” said Wan Shamilah Saidi, senior general manager of group corporate finance at Petronas, a Malaysian oil and gas company, during the panel discussion. “It’s such a central topic for business. You need to speak the language of investments. We are investing a lot in terms of getting professionals in the company upskilled in literacy of climate change. One of our goals is scholarships because we want to nurture the leaders of the future because they are the ones that will complete that journey to get to the target of 2050. It is important to us. You need to start early with the next generation. We interact with schools. We provide scholarships to the selected students so that they start the journey with Petronas from a very young age, and we invest a lot of resources and attention in this topic.”

Separately, the Index Industry Association recently released a survey of over 300 asset managers that found varying levels of ESG commitment and adoption across major markets, but a diffusion of responsibility for developing and harmonizing ESG data and metrics between regulators and the private sector. However, 85% of the asset managers felt that ESG was very important to their business going forward.

“We asked them how large their portfolios are now, and what would they look like in five years,” IIA CEO Rick Redding told Accounting Today. “Roughly 26% of the portfolios are ESG now, and they expect in five years that number to be around 42 or 43%. Then by the end of the decade they thought it would be well over half their portfolios. That’s some serious uptake if you’re looking at that kind of growth over that time period. We asked them what could derail that? It comes down to a couple of things. One is the lack of data coming out of the corporates, and the second piece of that is the lack of standards to follow because there’s over 100 standards out there, but investors need to coalesce around a smaller number of these. The corporates are having to respond to 100 surveys a year. In the accounting world a lot of people are anticipating to see what the IFRS board does. A lot of them mentioned TCFD [Taskforce on Climate-related Financial Disclosures]. That’s one critical piece on moving this forward. There’s a lot more green on ESG. That’s the part that’s concerning to us as index providers. Are the regulatory pieces in place to make this happen globally? Over 56% of the investors felt that they had a lot of confusion over regulations surrounding this.”

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