Sustainability & Education: What’s New—and What Hasn’t Changed

As sustainability becomes an increasingly important business imperative, including access to, and retaining talent, customers, and capital, the role professional accountants play is also becoming increasingly important. We have important roles to play in responding to the demand for increased transparency, disclosure of reliable information, and enhanced trust in sustainability-related information.

What competencies are needed for high-quality and decision-useful financial and sustainability-related information as contemplated in the IFRS Sustainability Disclosure Standards S1 and S2?

Do we, as professional accountants, need to start over and remake ourselves to continue to be relevant?

Before jumping to the conclusion that significant change is needed, new competencies are required, and a rewrite of initial and continuing education should take place, let's think about our core competencies as professional accountants.

Our Skills

We have existing skills and competencies that are equally applicable to financial reporting and sustainability-related financial information, and we operate on a foundation of ethics, integrity, and trust.

And our underlying non-negotiable—quality.

We are at the inflection point where, as accountants, we should be expanding our professional boundaries to “doing different things” through quality sustainability related services, either as a professional accountant in business or as an auditor.

Upskilling is not new, and we have an immense opportunity to move toward building multidisciplinary skills. The International Panel on Accountancy Education views this as a “what hasn’t change” and “what’s new” approach.

Our ‘What Hasn’t Changed & What’s New’ Approach

There are several benefits to this approach.

• The profession’s attractiveness will increase by performing services that embed a sense of purpose and build intellectually interesting multidisciplinary skills.
• And the depth of understanding expected by professional accountants on areas such as governance and strategy will likely increase our intellectual engagement and enhance the quality of financial statement preparation and assurance

Importantly, there are benefits to investors and other stakeholders who rely on sustainability-related information to make decisions. Professional accountants with the competencies to prepare, evaluate, or provide independent assurance over this information builds trust in the financial reporting ecosystem.

Four Focus Areas Overview

IFAC’s International Panel on Accountancy Education sees four sustainability competency focus areas emerging:

• Business acumen
• Behavioral competence
• Technical expertise
• Ethical behaviors

Using a "what hasn't changed" and "what's new" approach, the transferability of our core competencies emerges and provides direction toward those areas where we can enhance and build on our existing professional competencies.

Business Acumen

What hasn’t changed?

• We obtain an understanding of and evaluate business models.
• Business models continue to change, impacting how vendors, employees and customers interact, and how business is conducted and measured.
• As accountants, we understand regulatory, industry and other external factors in an entity's operating environment
• We evaluate the impact of strategic business decisions to assess the risk of material misstatement to financial information and reporting
• As an accountant, you may already be responsible for developing or evaluating an entity’s response to risk, including:

• a risk assessment process that identifies and analyzes changes in the business that could have a significant impact on financial reporting, and
• Identifying and analyzing significant risks of fraudulent financial reporting,

What’s new?

• The likely breadth and depth of understanding governance, strategy, and risk, and whether the related disclosure is a complete, neutral, and accurate depiction of its sustainability-related financial information.
• What is also new is obtaining a sufficient understanding to evaluate the adequacy of governance disclosures, including the entity’s development of knowledge-based assets.

As professional accountants, we contribute to or obtain an understanding of business strategy—that isn’t new, although long-term strategic measurement is new—evaluating and measuring progress toward achieving climate-based targets well into the future, for example, 10 years from now.

Behavioral Competence

What hasn’t changed?

Existing expected behavioral competence including:

• Analytical thinking
• Resilience, flexibility, and agility
• Curiosity and life-long learning, which is how we effectively respond to an environment of rapid technological change, changing macro trends, and changing expectations by employees, investors, and customers.

In addition, intellectual agility is a core skill for accountants, which means embracing new or alternative ways of working and adapting to changing circumstances quickly.

Whether we are performing services related to financial reporting or sustainability-related disclosures, these are core competencies for professional accountants that we all possess.

What’s new?

• A greater emphasis on self-learning

We have a responsibility to be professionally competent—to perform our role to a defined standard.

The swiftness of change in our profession necessitates each of us to proactively seek out knowledge and not wait for someone to tell us what to learn or wait until standards are issued or adoption is required.

• Applying professional skepticism and judgment to a new subject matter is new

International Education Standard, IES 4, Professional Values, Ethics and Attitudes, sets forth learning outcomes for professional skepticism and professional judgment. One learning outcome is to apply a questioning mindset critically to assess financial information and other relevant data

This learning outcome continues to be applicable, and as applied to a new type of information, different questions emerge:

Can you evaluate whether changes in emissions for an entity is reasonable?

What is considered contrary evidence to disclosed strategic goals, long term cash flow projections, or changes in emission rates?

Technical Expertise

Using IES 2, Technical Competence, we can see that existing learning outcomes are aligned with sustainability-related disclosures, for example:

• Interpret reports that include non-financial data and information.
• Analyze data and information to support management decision making.
• Analyze the adequacy of systems, processes and controls for collecting, generating, storing, accessing, using, or sharing data and information.

We can analogize to existing financial statement concepts, for example, financial statement assertions. Whether you are a preparer or auditor of financial statements, completeness is a relevant financial statement assertion.

For example, in a greenhouse gas context, the completeness risk can be described as: all sources and sites with GHG emissions are not included in disclosed metrics.

Obtaining an understanding of processes and controls is not new. The Committee for Sponsoring Organizations of the Treadway Commission (COSO) issued guidance on how its 17 principles apply to sustainability in a way that is comparable to traditional financial accounting and reporting. We can leverage control activities and documentation from financial transactions and reporting to sustainability-related financial information.

As a professional accountant in business, you may be writing, reviewing, or evaluating your employer’s policies and procedures. As an auditor, you may be assessing whether those policies are consistent with applicable regulatory standards.

This isn’t new.

What is new is performing those activities in the context of sustainability related disclosures.

As a professional accountant in business, you may be reviewing the disclosure related to significant concentrations that pose a greater near-term financial risk, such as accounts receivable or revenue concentrations with a single customer.

This isn’t new.

Reviewing the disclosure about the current and anticipated effects of significant sustainability risk on an entity’s business model, including concentrations in the value chain, for example in geographical areas, facilities, or types of assets, is new.

What’s New?

• Understanding different ways to measure, for example, metric tons of CO2 equivalent per unit of physical or economic output
• Understanding science-based metrics
• Understanding causes, sources, and likelihood of physical risks

As professional accountants, we understand the flow of information and data related to financial reporting.

What is new is understanding energy flows and emission sources.

Additionally, we will need to ask ourselves, what are the uncertainties associated with reported quantities? (both scientific and estimation uncertainties)

Using specialists will become increasingly important. The fundamental expectations do not change, for example, evaluating their competency, and evaluating the data, significant assumptions and methods used.

In addition, there likely will be more emphasis on using information obtained from external sources.

An entity’s carbon footprint can be obtained from a third-party source that states its assessments are underpinned using internationally recognized emission factors databases including the use of an ISO standard

Obtaining third party information on which we rely and that is used in financial reporting isn’t new to us; we evaluate relevancy and reliability of information from external sources that have a financial statement impact.

What is new is applying these concepts in a sustainability context that impacts measurement and disclosures.

Do we understand the methods used in preparing the information and its application? Do we understand the assumptions and other data applied by the external information sources? What is the authority of the external information source?

We understand currencies and monetary amounts. What is new is understanding emission factors and how they are determined based on source, type of emission and geography to measure global warming potential.

Ethical Behaviors

Expectations of ethical behaviors are not new for accountants. In particular, we are expected to adhere to the fundamental principles, which per the IESBA code include professional competence and due care.

Professional competence is a requirement to attain and maintain professional knowledge and skill to provide competent professional service and act diligently based on current technical and professional standards.

The international education standards are aligned with the IESBA code and set forth the minimum requirements for aspiring and professional accountants and defines professional competence as the ability to perform a role to a defined standard.

What’s new

There is a possible increased risk of management bias where there are new pressures to achieve disclosed long-term strategic commitments.

There are examples today where companies may exaggerate or overstate the environmental and sustainability aspects of their products or services or they may make unsupported claims about their environmental or sustainability actions. This is often referred to as greenwashing.

Investors’ concerns about greenwashing erode trust in what companies say about how they are addressing the sustainability risks and opportunities facing their business. These concerns also make it difficult for the investment profession to allocate capital to where it needs to go.

What does this mean? As professional accountants, we need to understand what is being reported, how it was developed; is the information reliable, relevant, or contrary to decisions, assumptions and models used for financial reporting?

Similar to financial reporting, misleading sustainability disclosures could be the result of inadequate processes, controls, and unreliable data—inadvertent greenwashing; or possibly due to incentives and pressures when intent may be involved—risk of fraud related to greenwashing.

International Panel on Accountancy Education Project

Aligned with IFAC’s strategy, and underpinned by macro trends, standard setting activities and current and expected regulation, the International Panel on Accountancy Education identified sustainability-related competencies as a strategic priority.

Access to capital fueled by investor-grade stainability related disclosures is core to this strategy.

The IPAE has begun a sustainability reporting project that will obtain stakeholder input on the professional competencies needed by aspiring and professional accountants to enable them to deliver quality and trust-based services, whether as a professional accountant in business or as an auditor.

The overall expected outcomes include:

• Demonstrating our foundational competencies that align with sustainability reporting through a “what isn’t new” and “what is new” approach.
• Demonstrating that our competencies are transferable and are effective in the context of sustainability-related financial information.
• Reduce uncertainty and the barriers it creates in professional accountants “doing different things”.
• Increase the confidence in our ability to provide quality service
• Promote life-long learning; and
• Maintain our relevance and enhance the profession’s attractiveness

Importantly, there are benefits to investors and other stakeholders who rely on sustainability-related information to make decisions. Professional accountants with the competencies to prepare, evaluate, or provide independent assurance over this information builds trust in the financial reporting ecosystem

The international education standards will be evaluated, and if sufficient evidence is obtained, the sustainability working group, in consultation with the IPAE, will consider whether a new IES is warranted, or whether the current IESs require revision.

You have an opportunity to provide input, influence outcomes, contribute to the profession, and make a difference.

We ask that you actively engage with IFAC, the IPAE and the sustainability working group as we all work together to lead our profession.

What You Can Do Now

For those in the profession new to the sustainability-related financial information journey, what is the best way to begin upskilling to meet the demand from various stakeholders for sustainability disclosures?

We have a responsibility to be professionally competent—to perform our role to a defined standard. “Professional competence goes beyond knowledge of principles, standards, concepts, facts and procedures, it is the integration of technical competence, professional skills and professional values, ethics and attitudes.”

The swiftness of change in our profession necessitates each of us to proactively seek out knowledge and not wait for someone to tell us what to learn.

There are significant amounts of sustainability related information publicly available

For example, leveraging the training available through professional accountancy organizations, reading IFRS S1 and S2 exposure drafts, and when issued, the basis for conclusions, listening to podcasts, videos, free webcasts provided by accounting firms and accessing material on IFAC’s website.

In addition, the Committee of Sponsoring Organizations (COSO) of the Treadway commission recently issued “Achieving effective internal control over sustainability” or ICSR, report. We can read that report and see how internal controls apply to both the preparation of financial statements and sustainability-related information.

Reading publicly available sustainability reports is another way to increase your sustainability disclosure acumen.

We read these reports to see the integration between financial reporting and sustainability reporting, we can obtain an understanding of how companies are applying existing frameworks, and we increase our understanding of the current state in sustainability reporting.

We can break down our focus into manageable chunks and start with those areas that easily analogize to the preparation or audit of financial statements.

We no longer look at the abstract or broad conceptional notion of sustainability, we start to think about processes, controls, existing reporting structures, and the interplay between financial accounting and sustainability disclosures.

We start to see how sustainability is data driven and fueled by a company’s governance and strategy, and we also see the transferability of our core competencies, which are equally applicable to financial reporting and sustainability-related information.