As the global voice for the accountancy profession, IFAC is working with Accounting for Sustainability (A4S) and others to ensure the global profession, comprising over 3.5 million accountants, are – in their various roles in business, advising business, and in audit and assurance – playing a key part in decarbonization of economies, and achieving global, national and corporate climate commitments.
This year’s Climate Week event, Finance Leaders Plugging the Net-Zero Information Gap: Exploring the critical role of CFOs and finance teams in the climate transition, was IFAC’s fourth and focused on climate transition planning and the critical contribution of finance leaders in enabling companies to achieve their climate commitments and enhancing reporting to stakeholders.
Many more companies have set climate and emissions reduction targets. This means that these companies are planning pathways and actions to meet these targets and decarbonize. Finance leaders are finding themselves as stewards and implementers of these climate transition plans working closely with other corporate functions. To understand how finance and accounting leaders are enabling decarbonization strategies and transition planning, and what obstacles they are facing, IFAC and A4S brought together this panel to explore their perspectives. Moderated by Brad Sparks, Executive Director, A4S, the panel featured:
- Shamsul Bahar, VP & Group Financial Controller, PETRONAS
- Patti Humble, IMA Board Member, and Chief Accounting Officer, UPS
- Kee Chan Sin, Assistant Treasurer - Capital Markets & Corporate Finance, Verizon
- Swami Venkataraman, Associate Managing Director, ESG, Moody’s
- Jing Zhang, Head of Climate Research, IFRS Foundation
The journey towards robust climate disclosure is only at its start. The greater integration of climate and financial information, and their supporting processes and systems under the stewardship of finance teams and accountants, should lead to better reporting in the years to come.
One of the key aspects discussed by the panel is the need to improve the quality of sustainability-related data and reporting processes to enhance reporting internally and to external investors and stakeholders.
In many organizations, sustainability data can be produced sporadically and vary widely in reliability and consistency – creating reporting inefficiencies and investor risk. Both UPS and Petronas are making investments in systems, processes and controls to put climate information on the same footing as financial information. At the same time, there was a reminder that imposing data quality requirements across all sustainability areas that are overly onerous might deter companies from making sustainability commitments and innovating to achieve their targets.
IMA Board Member and Chief Accounting Officer, UPS
- UPS is an innovation-driven company with a long history of sustainability-related efforts, and recently issued its twentieth sustainability report.
- Sustainability is a process, not an outcome, and starts with engaging a broad stakeholder base to determine what is important for the company to get right.
- UPS has in place 2050 goals across scopes 1,2,3 for its global operations with interim milestones in 2025 and 2035. It is focused on delinking volume with GHG emissions through deploying new technologies and new solutions.
- UPS’s accounting team is part of a company-wide cross-functional approach to sustainability.
- The office of the CFO provides connectivity across functions in relation to governance, risk management and integrating corporate reporting processes.
- Accountants are uniquely positioned to take meaningful action, particularly to deliver the same rigor to sustainability information as is applied to financial information for both internal decision making and external disclosures.
- The accountant’s skillset in delivering high quality data applies to sustainability data – implementing systems and internal controls to instill trust and confidence, providing insights and analysis, and connecting this data to business activities.
- Current priorities include:
- Keeping abreast of changing regulatory landscape and applying new regulations and standards whether from the US (SEC), global (ISSB), and Europe (EFFRAG),
- Clarifying roles and responsibilities across functions, and
- Ensuring that sustainability data matures through applying robust systems, repeatable controls and processes, and regular reviews.
- Responding to information and reporting needs, UPS has focused on a data first approach. UPS recruited a data scientist into its cross-functional team to help improve the quality of GHG emissions data to help bring it to the same quality as financial information in terms of reliability and timing (e.g., reporting on a monthly basis rather than annual basis).
- UPS is also providing grassroots education on sustainability for all employees across the organization. From a finance function perspective, finance and accounting professionals have an inherent intellectual curiosity and are always seeking learning opportunities to support the company’s sustainability journey.
VP & Group Financial Controller, PETRONAS
- Malaysia has a national net zero GHG emission 2050 commitment. At COP26, Malaysia announced an economy-wide carbon intensity (against GDP) of 45% in 2030 compared to 2005 level.
- Supporting the national goal, PETRONAS has set a net zero carbon emissions target by 2050 and an interim target of building renewable energy capacity of 3 gigawatts by 2024 and 30-40 gigawatts by 2030. PETRONAS also has revenue targets for developing new sources of revenue from non-traditional areas by 2025, and is seeking to generate 30% of its revenues from non-oil and gas sourcesby 2030.
- Being responsible for group financial reporting, Shamsul is charting the finance function’s involvement in sustainability reporting in collaboration with the corporate sustainability function.
- PETRONAS’ four sustainability lenses are:
- Driving long term value creation through responsible business investment,
- Safeguarding the environment by transitioning to low carbon energy solutions and deploying innovative technology in operations,
- Creating a positive social impact through alliances with communities and protecting the well-being of employees, partners and society, and
- Responsible governance – safeguarding commitments through strong governance and ethical business practices
- Much data is needed to monitor climate targets. The biggest challenge is collecting and processing sustainability data which is sourced from upstream and downstream business activities across international boundaries. PETRONAS is focused on moving away from the manual data collection processes and using the skills of its finance team to enhance data quality. The finance team will also be well positioned to apply ISSB disclosure standards as well as local reporting requirements.
Kee Chan Sin
Assistant Treasurer - Capital Markets & Corporate Finance, Verizon
- Achieving net-zero targets require trillions of dollars in capital. The huge expansion in green finance - loans, bonds and markets - to fund decarbonization requires the skills of accountants and treasurers to secure the right type of financing and to bring confidence to financial instruments and investors.
- The key questions for treasurers include:
- How to attract new capital at a required rate of return,
- How to scale investments and solutions quickly and globally, and
- How to provide investors and stakeholders with confidence that these financial instruments are leading to impact and to the achievement of targets
- Verizon’s Green Financing Framework provides a common language and understanding between the company, its investors and stakeholders. It has led to the acceleration of capital into Verizon to scale its investment in renewable energy to accelerate the transition to greener electrical grids
- Verizon is an early adopter of green financing and one of the largest issuers of corporate debt in the US. Since 2019, it has issued four-green bonds totaling $4 billion. With leadership comes responsibility in terms of the management of proceeds and measuring impact.
Associate Managing Director, ESG, Moody’s
- There is a big role for information providers to support capital markets and companies to enhance transparency and disclosure.
- Through credit ratings and research services, Moody’s:
- Advises on where climate risk is a significant credit rating factor for a company – certain industries are more exposed to decarbonization and the climate transition,
- Developed a carbon transition assessment framework for each sector to measure their exposure to climate risk, and
- Provides transparency to companies on the factors being used to assess credit ratings.
- Moody's also provides a second party opinion service on the issuance of green and sustainability-linked bonds to help avoid greenwashing. The biggest risk to sustainable debt finance is greenwashing
- Moody’s works with external standards bodies and regulators to help develop requirements that lead to better climate-related disclosure. This includes collaborating with the Glasgow Financial Alliance for Net Zero to define what disclosures are needed to support effective net zero transition plans.
Head of Climate Research, IFRS Foundation
- The International Sustainability Standards Board (ISSB) is developing a comprehensive global baseline of sustainability disclosures for investors and capital markets to bring about a harmonized, global system of consistent, comparable, reliable, and assurable information. IFAC supports convergence in global sustainability disclosure.
- ISSB’s aim is to enable companies to provide sustainability-related information on an equally rigorous basis as financial information.
- The ISSB’s two new proposed Sustainability Disclosure Standards cover general sustainability-related disclosure requirements (IFRS S1) and specific climate-related disclosure requirements (IFRS S2). IFRS S2 covering Climate-related Disclosures is based on The Financial Stability Board’s Taskforce on Climate-related Financial Disclosures (TCFD) recommendations. Over 700 responses were received on the proposed standards. The ISSB aims to issue the final S1 and S2 standards in early 2023.
- The ISSB standards are designed to meet investor needs in relation to enterprise value creation. The standards should enable users of general purpose financial reporting to understand the effect of climate risks and opportunities on strategy and decision making including its transition plan. The standard requires disclosures on how a company plans to achieve its targets, performance and progress of climate transition plans, including the use of carbon offsets, and its critical assumptions about legacy assets.
To learn more about climate transition planning and plugging the net-zero information gap, explore these sources from A4S and IFAC: