- Investors have highlighted the importance of ESG disclosures to their decision making
- The current focus under the sustainability umbrella is climate change
- Recent global and local developments have further reinforced that climate risk is the domain of accountants
There was high drama and emotion in Glasgow around the final COP 26 climate package, with some expressing disappointment it did not go further. But a quieter, more sober announcement earlier in the conference didn’t miss the mark, harking a welcome new era of harmonisation in sustainability reporting: a new International Sustainability Standards Board (ISSB) to be established by the IFRS Foundation Trustees.
If there was ever any doubt about sustainability and climate’s place in the future of the profession, or professional accountants’ core role on these issues, the IFRS Trustees’ declaration on center stage of the world’s premier climate summit should have put it to rest. This will bring both tremendous opportunities and responsibilities for Chartered Accountants. As custodians of the information that keeps our capital markets ticking over, and in helping small and medium businesses navigate a growing raft of green reporting and compliance, questions and demands are going to be coming thicker and faster for CAs in the years ahead.
Demand from investors for information on environmental, social and governance (ESG) matters to enable them to make more informed decisions has been growing for years, recently hitting a sudden uptick. CA ANZ’s recent Retail Investor Surveys revealed a growing appetite for climate information with 54% saying this information is highly important to their investment decisions. Almost three quarters of more than 750 Chartered Accountants responding to the 2021 Chartered Accountants IFRS Survey (report forthcoming) indicate that sustainability information is already important in the context of their role.
We are seeing the impacts of climate risk on financial statements starting to ramp up. Regulators on both sides of the Tasman have pointed to the need for climate risks to be reflected in financial reporting and considered carefully in audits. A couple of years ago, the AASB and AUASB issued a joint bulletin clarifying that entities can no longer treat climate-related risks as merely a matter of corporate social responsibility and should consider them also in the context of their financial statements. This is a good example of Australia leading on the world stage – not long afterward, the IASB followed suit with a similar bulletin recognising the inspiration had come from our local standard setters and the IAASB has expressed similar views around climate and auditing.
However, there have already been signs of an emerging expectation gap, with some stakeholders disappointed that financial reporting impacts and disclosures of climate risk are not as pronounced as they had expected. In many cases these escalating expectations have been pointing more to what could be material to a sustainability report.
“If there was ever any doubt about sustainability and climate’s place in the future of the profession, or professional accountants’ core role on these issues, the IFRS Trustees’ declaration on center stage of the world’s premier climate summit should have put it to rest.”
Going beyond financial statements to the broader world of sustainability reporting is at present to step into a jungle of overlapping frameworks. Despite attention over decades, it has been hard to establish a level of consistency comparable to that generally taken for granted when it comes to financial reporting. The involvement of the IFRS Trustees and existing international network around financial reporting has seemed to create a momentum toward harmonization greater than has been seen before. The recent announcement already envisages consolidating the three major investor-focused sustainability disclosure organisations.
New Zealand is ahead of the curve, already taking steps to enshrine climate reporting in legislation and set out the role of the XRB in establishing standards. How this interacts with and incorporates the steps being taken internationally will be critical.
The decision value of sustainability information, just like financials, is contingent on how reliable it is – which points to assurance. A recent research piece by IFAC and AICPA/CIMA delves into sustainability assurance practices globally finding ‘significant differences in practices across different jurisdictions’ and indicating the need to consolidate the approach to assurance as well as reporting. Both retail investors and Chartered Accountants who responded to our recent surveys on the whole believe that a mandatory, consistent framework and independent assurance will improve confidence in sustainability reporting.
CA ANZ has welcomed the announcement of a new ISSB, which comes on the back of efforts toward harmonizing sustainability reporting over decades. It’s time to get on board or be left behind at the station – this is no longer about if, but about how we can deliver on the promise of high-quality information relevant to the evolving needs of decision makers in capital markets and right down through the economy including small and medium businesses.
CA ANZ Climate Hub
The accounting profession has a significant role to play in climate change mitigation and adaptionFind out more
CA ANZ press release on ISSB
New disclosure standards could end climate confusion.Find out more