May 26, 2021
As professional accountants, the chief stewards of business information, we have both an important responsibility and a transformative opportunity to engage in and lead on upcoming changes in corporate reporting, and improving the quality of sustainability information.
The voluntary approach to reporting sustainability information has been in place for a long time and it has not worked. The capital markets do not have consistent, comparable, and assurable information, and greenwashing continues to be prevalent. The immediate development of a baseline of global standards for sustainability information under the IFRS Foundation is important for the capital markets, investor protection and for companies.
Why Is This Important Now?
The world needs better corporate reporting. The demand for sustainability information is driven by institutional investors and asset managers (e.g. Blackrock Larry Fink’s 2021 Letter to CEOs) and other stakeholders wanting better information about an entity’s operations and the effect that it is having on the economy, environment and people/society at large. Stakeholders want information that is relevant, reliable, comparable, and assurable. Unfortunately, there is currently a high degree of confusion in the marketplace due to the variety of frameworks and approaches. This has led to companies using a mixture of reporting standards/frameworks that is not helpful for anybody.
There is also recognition that the climate crisis is real, but no commonly agreed way to measure progress. Commitments to climate targets are hollow if jurisdictions, and the businesses within jurisdictions, cannot measure progress.
A Global Profession Positioned to Lead
IFAC’s corporate reporting and sustainability agenda focuses on:
1. Advocating for a Global Approach to Sustainability Standards
There has been significant global momentum in which IFAC has been a leading advocate. IFAC believes setting up a new International Sustainability Standards Board – “ISSB” under the auspices of the IFRS Foundation is critical to achieve globally consistent sustainability standards that lead to relevant, reliable, comparable, and assurable information. A global approach reduces regulatory fragmentation and the proposed approach leverages a global structure that already has legitimacy.
2. Encouraging Sustainability-Related Skills and Competencies
IFAC will continue to work with PAOs and through the International Panel on Accountancy Education to demonstrate that professional accountants not only have the skills and competencies needed to prepare, assure, and utilize this information, but also the expertise to build and evaluate necessary controls and processes related to sustainability. In identifying which existing foundational skills can be leveraged to meet new requirements, and in creating access to obtain new subject matter expertise, IFAC supports the positioning that professional accountants are best placed to meet the advisory, preparatory and assurance sustainability-related needs of organizations.
3. Championing an Integrated Mindset
The insight gained from both financial and sustainability-related (or “non-financial”) information is maximized when an integrated approach connects the two. Quite simply, financial and sustainability information are not two, disconnected silos. An integrated approach leads to better decisions that deliver long-term value creation—financial returns to investors while taking account of value to customers, employees, suppliers, and societal interests. Professional accountants working in companies must continue to foster an integrated mindset that connects financial and sustainability data, processes and analysis. IFAC’s Rethinking Value Creation webpage provides case studies of integrated thinking.
4. Advancing Assurance Services
Assurance is a necessary component of the evolving global reporting system and an imperative for our profession. IFAC is undertaking a benchmarking study to better understand current and best market practices, identify gaps, and develop a shared narrative that best positions professional accountants to perform sustainability assurance. We recently published Accelerating Integrated Reporting Assurance in the Public Interest and the IAASB have released new Guidance on Applying ISAE 3000 (Revised) to Extended External Reporting Assurance Engagements.
5. Why are professional accountants best positioned?
As Professor Mervyn King has said, ”Only accountants can save the world!”.
Professional accountants are central to gathering, analyzing, and communicating high-quality information. Our role in sustainability-related reporting—and insights—represents an even greater opportunity to unlock value for companies and clients. We will have to integrate into our work new and diverse subject matters and technologies, but our core knowledge, skills, professional judgment, integrity, and code of ethics (The International Code of Ethics for Professional Accountants) are already in place. The future potential of sustainability information is too important to not get it right; together we will actively make the case that our profession is well positioned to rise to this challenge.