Corporate emissions reduction reporting is full of inconsistencies, and the lack of comparability of target disclosures continues to create challenges for investors, regulators and other stakeholders who need actionable information, according to a new report.
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The report found that 66% of the large, exchange-traded companies reviewed by IFAC included some type of emissions reduction target in their corporate disclosures. The emissions targets used a variety of terminology and only 39% incorporated so-called "Scope 3" emissions, which come from activities from assets not owned or controlled by the reporting organization, but that indirectly impact its value chain, such as through a supplier, vendor or customer.
Most companies (90%) that disclose emissions targets also provide a disclosure about how they plan to reach their target, according to the report, but only 24% of companies with a plan include some past expenditure or future estimate of expenditures to implement the actions in the plan.
"With COP27, this is a perfect time to dig into what is being disclosed and explore how emissions disclosures need to become more decision-useful," said IFAC CEO Kevin Dancey in a statement. "The accountancy profession is well positioned to drive improvements in climate reporting, ensuring information is trusted and decision-useful for management and boards, investors, and all stakeholders."
The report found that the terms "carbon neutral" and "net zero" are often used interchangeably, and that can lead to inconsistencies in what stakeholders understand about what is or is not included in an entity's emissions reduction target. Scope 3 disclosures can also vary. Some companies may include all 15 categories from the Greenhouse Gas Protocol standards, only material categories or only selected categories of Scope 3 emissions.
The concept of materiality is a major issue for investors, and they're part of the standards being developed by the ISSB, as well as the climate-related disclosure rule proposed by the Securities and Exchange Commission, and ESG standards from the European Financial Reporting Advisory Group.
The objective of the ISSB is to set a global baseline of sustainability standards specifically of interest to investors. That means it may not provide the kind of information other stakeholders may desire when they want to know what a company is doing about climate change.
"I am specifying for an investor audience because there are multiple audiences for some of this information, which could result in some differences around materiality," said Marc Siegel, EY Americas corporate and ESG reporting leader and a former member of the Financial Accounting Standards Board and the Sustainability Accounting Standards Board, during a session Tuesday at Financial Executives International's Current Financial Reporting Insights conference in New York.
Separately, the Association of Chartered Certified Accountants and the CFA Institute partnered on the launch of a climate finance course Wednesday designed by experts from both organizations in conjunction with the COP27 conference. The course offers an introduction to climate change and its related economic and environmental impacts. It also covers carbon pricing, sustainable business models, and climate risk and opportunities in the context of business, as well as portfolio construction and investment analysis. It requires approximately 10 hours of self-paced study.
"This climate finance course is unique in its holistic approach, looking at the perspectives of both issuers and of investors, and so we're confident that learners will gain a strong practical understanding of climate implications to apply to their day-to-day work," ACCA chief executive Helen Brand said in a statement. "Both accountancy and investment professionals have a vital role to play in the fight against climate change and creating a better world, so we're delighted to be working with CFA Institute on this."
One of the goals of the sustainability standards is to curb so-called "greenwashing" by companies touting false claims of environmental action.
"Concerns over greenwashing and a demand for products and skills to support sustainable investing have created a real need for finance professionals to develop a deeper understanding of how these factors are impacting the industry, clients and the world at large," said CFA Institute and president and chief executive Margaret Franklin in a statement.
