We at IFAC, alongside many of our partners and stakeholders, consistently advocate for relevant, reliable, and comparable sustainability-related information, including enhanced climate risk assessment and disclosure. We believe professional accountants have an essential role to play as companies strive to meet rapidly increasing demands from investors, policy-makers, and other stakeholders for enhanced information addressing the global climate crisis.
“Accountants can help bridge the climate information gap, first to inform investors and stakeholders about the climate risks and opportunities facing the company and the financial implications, and second to navigate their companies toward climate mitigation and adaptation.” - Kevin Dancey, IFAC CEO
To better understand the information gap between business and investors and what might be done to address it, IFAC and ACCA this week hosted their third annual Climate Week NYC event: Plugging the Net-Zero Information Gap.
The event began with a welcome from Helen Brand, ACCA CEO, and closed with remarks from Kevin Dancey, IFAC CEO. Moderated by Patrick Temple-West of the Financial Times, a panel discussion featured:
- Merilee Buckley, Chief Accounting Officer, Etsy
- Richard Manley, Managing Director, Head of Sustainable Investing, Global Leadership Team at CPP Investments
- Munazzeel Riasat, Chief Executive Officer, IBC Power Limited
- Wan Shamilah Saidi, Senior General Manager, Group Corporate Finance, PETRONAS
- Jen Sisson, EMEA Head of Stewardship, Goldman Sachs Asset Management
Climate change is unprecedented in scale and presents a complex and interrelated set of risks and opportunity on which a large number of companies still do not report. There is still a long way to go decarbonize economies, but accountants are positioned to help close the information gap between business and investors.
Here are a few key takeaways from the event.
There’s no time to lose sight of the fact that climate change is already having a profound effect on people’s lives.
“Bangladesh like many other low-lying coastal nations is often referred to as ground zero for climate change with two thirds of the country lying less than five meters in elevation above sea level and nearly 28 of the population residing in coastal areas. It's estimated that the current rate of global emissions, 17 percent of the country's landmass will become submerged dispersing 35 million Bangladeshis between the years 2050 and 2100, but that isn't to say that the effects of climate change aren't already having a profound impact on the lives of my countrymen.” - Munazzeel Riasat
There’s no quick fix towards achieving climate commitments but companies need to understand and communicate their climate-related risks and opportunities.
“There’s a lot of hard work here. Accountants need to translate risks and opportunities into numbers. Without quantification of the risks and opportunities, companies will find it very hard to evaluate the financial impact and the resilience of the business.” - Kevin Dancey
Investors want corporate engagement and comparable data.
Investors and asset managers are looking to engage with businesses around actions to address climate change. Their focus is on companies setting relevant targets, relaying transition plans and strategies, and supporting efforts to harmonize and standardize reporting and metrics.
“[At Goldman Sachs Asset Management, we] encourage companies to do good public disclosure. We like TCFD. We like SASB. And of course the Climate Disclosure Project. We like consistent, comparable data. There's a whole bunch of different things you have to think about. Everything's always going to be case by case, but we're very much thinking about those frameworks as being a good way to go... The baseline issue is that some companies just aren’t reporting this at all.” - Jen Sisson
“You can’t wait to be ready with the information. It’s about being progressive with what you disclose. You have to engage with investors. You have to engage with stakeholders. So while you are still in a journey of getting to grips with your own numbers and disclosures and narrative, you need to act now.
[Accountants] are the front line in dealing with investors... We need to be courageous and engage with the marketplace and learn each other’s perspectives.” - Wan Shamilah Saidi
“For investors, it's not just about what gets reported, but it's the engagement discussions we have, and it's how management talks to driving value or mitigating risk through integration.” - Richard Manley
The creation of the ISSB will bring much needed consistency and comparability to sustainability reporting.
There was broad support for the development of global sustainability standards under the IFRS Foundation and the formation of a International Sustainability Standards Board.
”We don't have a single industry report the same metric on the same basis and have it third party assured anywhere in the world. We've got a long way to go. It feels like we're still 1920s financial reporting in the ESG arena, but I don't doubt we'll see considerable process in the in the next couple of years ahead... The IFRS foundation setting up the ISSB has further accelerated momentum [to harmonize standardization]." - Richard Manley
"We will be looking to guidance from the ISSB when when it's formed.” - Munazzeel Riasat
“There isn't a specific framework we are in the process of adopting, but we do look to the guidance of standard setters, like the ISSB, when it issues its standards. We look to adopting those measures as soon as possible, at least on a private basis.” - Wan Shamilah Saidi
Finance function stewardship and collaboration across departments is required to advance climate commitments with enhanced disclosure.
Working effectively across functions is needed to ensure the development of short, medium, and long-term plans to meet NetZero emissions targets. Companies are also turning to finance functions to integrate climate and sustainability at all levels including strategy, planning, capital allocation and reporting. In their stewardship role, finance functions also ensure that climate-related information for decision-making and reporting is of high quality.
“Sustainability reporting and financial reporting are really cross-functional in nature. They are company goals and not just goals of any one department. [Etsy’s] accounting and reporting team took over the sustainability reporting from the sustainability team to streamline the work and marry up both the financial and non-financial information, and we work very closely with IR in having them be able to communicate that message to the investors.
We are one of the few companies that reports our ESG information in our 10-K. We don’t look at our business and our impact on the world and sustainability as two separate things. From a governance perspective, it’s both that our sustainability agenda is managed both from the top down, meaning board, CEO, management team, as well as the bottom up. It’s integrated across the company. This is really near and dear to our employees’ hearts.” - Merilee Buckley
Climate literacy is essential to plugging the information gap.
Developing the climate awareness and literacy of climate matters among finance and accounting professionals and preparing the leaders of tomorrow is now a priority. Accountants need to expand their knowledge of climate and sustainability language and issues.
“As accountants are serving in a public interest capacity, I think they have an additional responsibility toward the businesses, and as financial advisors, to be up to date on all the salient issues in relation to climate change, and drive the conversation in terms of transitioning to that net zero target, a very ambitious target by the way because 2050 isn’t that far away.” - Munazzeel Riasat
“I do think it’s a really great inflection point and opportunity for finance and accounting people to consider how [climate literacy] is a career development opportunity. This is not going away. This is only going to get bigger and bigger and bigger. For me personally, I reflect back on Sarbanes-Oxley and how that shifted accountants’ jobs and career development. I think we are there.” - Merilee Buckley
“It's an opportunity for accountants to be literate about this topic. It’s such a central topic for the business. You need to speak the language of the business. We need to start early with the next generation.” - Wan Shamilah Saidi
“It's not just regulation and carbon markets, it's also data, technology, and importantly, talent. That's been a recurring feature of today's panel.” - Richard Manley
There’s no shortage of climate related resources to explore. In addition to speaking with investors and benchmarking against other companies, a few resources mentioned by our panelists include:
- Climate Disclosure Project (CDP)
- Global Reporting Initiative
- Task Force on Climate-Related Financial Disclosures (TCFD) Resource Hub
- Value Reporting Foundation
- Investor Leadership Network
- Institutional Investors Roundtable
- Chapter Zero
- IOSCO - Report on Sustainability-related Issuer Disclosures
- Reporting on enterprise value Illustrated with a prototype climate-related financial disclosure standard
- Climate Action 100+
For more information about each of the panelist’s positions, journeys, and insights, watch Plugging the Net-Zero Information Gap on YouTube.
For information how, and the extent to which, companies and accountants can address the climate-related concerns of investors, regulators, and policy makers in the 2021 reporting cycle, read IFAC’s statement.