Accountants meet to address climate change threat
International accounting groups convened in New York during Climate Week to address the risks of climate change and how to measure and disclose it in corporate sustainability reporting, as the United Nations General Assembly met a few blocks away to talk about the climate emergency and other pressing issues.
The International Federation of Accountants and the Association of Chartered Certified Accountants hosted a panel discussion Monday morning at the IFAC offices featuring officials from their organizations, along with sustainability experts from Deloitte, the technology companies Salesforce and Datamaran, the World Business Council for Sustainable Development, and the Financial Times to discuss the role of the accounting profession in responding to calls for more rigorous ESG (environmental, social and governance) reporting and sustainability practices.
“Climate change is a very serious issue, huge,” said IFAC CEO Kevin Dancey in introducing the panel. “This is one big, scary, global multifaceted societal problem. There is no long-term planning horizon. The threat to economic and financial stability is here and now. There’s really just no time. Things will get worse before they get better. The amount of emissions will continue to grow. We need a healthy dose of honest, realistic dialogue.”
Jimmy Greer, head of sustainability at ACCA, moderated the panel discussion. “We’re here to talk about climate change today and the climate emergency,” he said.
Rodney Irwin, an accountant who is managing director of the World Business Council for Sustainable Development’s Redefining Value and Education program, pointed to the urgent need to respond to the climate crisis. “What we have tried to do at the World Business Council is call a spade a spade, and bring a clear signal that the current direction of travel with reporting and disclosure — whether it’s financial or nonfinancial or extra-financial, pre-financial, whatever we’re calling it this season — is broken,” he said.
Irwin doesn’t believe the various standard-setting groups and regulators are responding with enough urgency to the climate crisis. He noted that there are 2,002 reporting provisions today from 71 countries, but only 79 of them relate to climate, or less than 4 percent. Out of those 79, only 39 of them are actually reporting requirements, of which only 19 are mandatory.
He thinks accountants need to respond with greater urgency to the crisis. “That to me is not indicative of a community that thinks this is a crisis,” said Irwin. “Otherwise there would be a hell of a lot more reporting obligations placed on the business community to act differently. So we’re still in the world of hoping that leadership and courage will manifest itself in the accounting world and the business world and lead to change, and I just don’t think that’s realistic.”.
“It’s like we’re passengers on the Titanic and the accountants are just counting the deck chairs,” he later added.
Kristen Sullivan, a partner at Deloitte who is also Americas region sustainability services leader at the firm and chairs the AICPA’s Sustainability Assurance and Advisory Task Force, sees an important opportunity for the accounting profession to provide information and assurance services. “We’re trying to answer this call to action,” she said. “There’s a tremendous opportunity for the profession to play.” She pointed to the statement last month by the Business Roundtable on corporate purpose signed by 181 CEOs who committed to lead their companies for the benefit of all stakeholders and go beyond profits and return on investment. However, she believes there needs to be more maturity in climate reporting and providing external assurance services by accountants.
“The purpose of disclosure is to meet the information needs of your intended audience,” said Sullivan. “As the market is growing in sophistication, there’s a growing appetite for information in terms of insights around how business is thinking about a broader aperture of business risk and opportunity with climate, broader ESG challenges. As we sit in the position of the public accounting profession and the services that we provide, we have a public interest obligation in terms of the value of the financial statement audit in the marketplace to drive that confidence and efficiency in the markets. There’s an expectation that as the reliance on ESG information more broadly increases, one of the opportunities to move through some of these barriers is to increase the confidence that users of this information — investors but also other stakeholders — have in how meaningful, how credible, and how decision-useful the information is.”
In a new report on social and environmental value creation released Monday by the ACCA in conjunction with the CFA Institute and Datamaran, the ACCA called for more concerted action to deal with the challenges of social and environmental value creation.
“Ethical business practice is no longer a nice to have, but on many aspects, such as human rights, waste management and climate change, it's the law,” stated Datamaran CEO Marjella Alma, who was also on the panel. “However, some companies are still lagging. Our data shows that although the volume of reporting on key social and environmental issues has increased from 2014 to 2019, a number of key areas, such as animal welfare and human trafficking, still receive low coverage. A systematic monitoring of trends, made possible with technology, can help companies stay ahead of the curve and proactively address these issues, fulfilling their commitments and responsibilities. And this starts with better, more strategic disclosure.”
Later in the day, the Sustainability Accounting Standards Board and the Climate Disclosure Standards Board hosted a separate event at Bloomberg LP’s headquarters in New York to launch the TCFD Good Practice Handbook to help organizations with the Task Force on Climate-related Financial Disclosures’ reporting principles and requirements by offering some specific examples of effective TCFD reporting. “The handbook we are launching will help you understand how organizations are implementing TDFD recommendations and will provide insights into good practice techniques to enhance your own climate-related financial disclosures,” said SASB CEO Madelyn Antoncyc.
“For me, the TCFD recommendations have garnered a lot of attention, frankly more attention than I ever thought they would garner when we launched them,” said Curtis Ravenel, global head of sustainable business and finance at Bloomberg. “It’s been just over two years and we’ve got over 850 organizations supporting them now and over 400 financial institutions.”
However, he believes that climate disclosures still have a way to go, and some businesses are missing the forest for the trees.
Richard Samans, a managing director of the World Economic Forum, pointed out that societal expectations are changing and capital markets are asking for climate disclosures. Namita Vikas, a group president and global head of climate strategy and responsible banking at Yes Bank in India, said her bank has been very proactive in aligning with the TCFD climate risk disclosures and sees climate change as one of the top material risks for her bank.
One of the challenges has been aligning the various sets of standards among the different groups involved with sustainability reporting. The Corporate Reporting Dialogue — an initiative that aims to bring together the major standard setters and framework providers globally — released a report Tuesday showing high levels of alignment between the various standards and frameworks on the basis of the TCFD recommendations. As part of the Dialogue’s Better Alignment Project, the Carbon Disclosure Project, the Climate Disclosure Standards Board , the Global Reporting Initiative, the International Integrated Reporting Council and the Sustainability Accounting Standards Board collaborated to assess their alignment on the TCFD’s disclosure principles, recommended disclosures, illustrative examples and metrics.
The report, “Driving Alignment in Climate-related Reporting,” maps the Better Alignment Project participants’ standards and frameworks against the seven principles for effective disclosure, the 11 recommended disclosures and 50 illustrative example metrics detailed in the TCFD recommendations. It also documents the similarities and differences between the various participants within the parameters of the TCFD recommendations’ example metrics.
At the U.N.’s Climate Action Summit on Monday, Swedish climate activist Greta Thunberg emphasized the need for urgent action to world leaders. “People are suffering,” she said. “People are dying. Entire ecosystems are collapsing. We are in the beginning of a mass extinction, and all you can talk about is money and fairy tales of eternal economic growth. How dare you!”