ESG overview: Positioning finance professionals as sustainability leaders

Investors, shareholders, and customers alike are demanding that organisations step up their game on climate-related and wider environmental, social, and governance (ESG) reporting. The reporting of ESG factors is moving from voluntary to mandatory, and the location of ESG disclosures is moving from stand-alone sustainability reports to mainstream corporate and financial reports. As core members of almost every organisation, finance professionals have a key role to play in driving sustainable strategic and operational decisions, including risk management. Their professional skillset and expertise make them uniquely qualified to measure, report, and provide assurance on consistent, comparable, and meaningful sustainability-related information.

The Association's strategy is to enhance their skillsets and position global accounting, auditing, and finance professionals as sustainability leaders, adopting ESG factors into their business strategy and services to drive long-term value creation and business resiliency.

We have created a working group at the Association to help provide our members with the training, support, and infrastructure they need to apply their skills to the challenge. The Association is the leading voice on ESG initiatives in the accounting space. We're continuing to explore how best we can help members satisfy an increasing demand for sustainability services.

Here are some important ESG issues that require awareness.

Sustainability reporting standards and frameworks

The standards-and-frameworks landscape is crowded and fragmented. They all use slightly different terms and have inconsistent language, and the numerous methodologies use various measures. Adding to the confusion is whether adoption is voluntary or mandatory and that some organisations work with combinations of standards and frameworks at the same time.

Fortunately, several initiatives are underway to address this fragmented accounting and reporting landscape and build a coherent global approach to corporate reporting.

In an important step towards this goal, the International Financial Reporting Standards (IFRS) Foundation announced the formation of a working group to accelerate convergence in global sustainability reporting standards. It is also to undertake technical preparation for a potential international sustainability reporting standards board under the IFRS Foundation. The trustees aim to make a final determination about a new board in advance of the UN Climate Change Conference of the Parties (COP26) in November.

The Value Reporting Foundation

Launched in June, the Value Reporting Foundation is a merger of the International Integrated Reporting Council (IIRC) and the Sustainability Accounting Standards Board (SASB). It recognises the synergy between the Integrated Reporting Framework, which builds connectivity across the six capitals of financial, manufactured, human, social and relationship, intellectual, and natural capital in integrated thinking and reporting, and the SASB standards. These add comparability to sustainability data across companies within the same industry. 

Key events: 2021 and 2022

COP 26: 31 October–12 November 2021

The 26th meeting of the UN climate change conference has four goals. They are:

Mitigation: Secure global net zero and keep 1.5 degrees within reach.

Adaptation: Urgently adapt to protect communities and natural habitats to avert, minimise, and address the loss and damage that is already occurring from climate change. 

Finance: Mobilise finance work to unleash the trillions in private- and public-sector finance required to secure global net zero.

Collaboration: Work together to deliver on the other three goals and show everyone that the world is moving to a resilient, net-zero economy.

Countries are being asked to come forward with ambitious 2030 emissions reduction targets and reach carbon net zero by the middle of the century. Organisations need to have these goals on their radar, as governments will be translating their targets into accelerated action through collaboration with businesses and civil society, as well as regulation. 

COP26 will also seek agreement on the setting out of rules for a carbon market trading system between countries. This has been an unresolved issue of the 2016 UN Paris Agreement.

COP15 on Biological Diversity: 25 April–8 May 2022

2021 has been a key year for biodiversity action. In February, The Economics of Biodiversity: The Dasgupta Review, commissioned by the UK Government, highlighted that:

• Our unsustainable engagement with nature is endangering the prosperity of current and future generations.

• The solution starts with understanding and accepting a simple truth: Our economies are embedded within nature, not external to it.

• We need to change how we think, act, and measure success.

The European Commission announced that it will put forward a proposal for legally binding EU nature restoration targets in 2021 as a key element of the EU Biodiversity Strategy for 2030.

In April 2022 (after an official opening in October 2021), the 15th meeting of the Conference of the Parties to the Convention on Biological Diversity will:

• Review the achievement and delivery of the convention's strategic plan for biodiversity 2011–2020; and

• Agree the post-2020 global biodiversity framework — The Kunming Declaration on Global Biodiversity.

These developments will present opportunities for organisations to reset their relationship with nature.  For finance professionals, it will require them to start to:

• Understand how their organisations and clients impact and rely on nature.

• Provide sound advice and services that reduce an organisation's negative effect on nature.

• Provide relevant and meaningful decision-making information, supporting investment that protects and restores nature.

As organisations around the world are resetting the way they think about climate and nature in an integrated way, it's truly an exciting time to be an accounting and finance professional.

— Andrew Harding, FCMA, CGMA, is chief executive–Management Accounting, and Martin Farrar, Ph.D., is associate technical director–Management Accounting, both at the Association of International Certified Professional Accountants, representing AICPA & CIMA. To comment on this article or to suggest an idea for another article, contact Oliver Rowe, an FM magazine senior editor, at Oliver.Rowe@aicpa-cima.com.

Resources

Introductory guides

Environmental Protection Introduction: Putting the E in ESG

Social Inclusion Introduction: Putting the S in ESG

Governance Introduction: Putting the G in ESG (publishes 1 October)

Sustainability frameworks and standards summaries

Climate Disclosure Standards Board (CDSB)

International Integrated Reporting <IR> Framework

Task Force on Climate-Related Financial Disclosures (TCFD)

GRI (Global Reporting Initiative)

Sustainability Accounting Standards Board (SASB)

Sustainability Frameworks and Standards: Evolution Overview

Sustainability assurance

In June 2021, AICPA & CIMA and the International Federation of Accountants (IFAC) launched a report, The State of Play in Sustainability Assurance: Benchmarking Global Practice, which looks at  the extent to which companies around the world are reporting and obtaining assurance for sustainability disclosures, and the assurance standards they are using.

ESG reporting and attestation

In February 2021, AICPA & CIMA together with the US Center for Audit Quality published ESG Reporting and Attestation: A Roadmap for Audit Practitioners. The report explores the risk and legal considerations associated with performing assurance engagements on ESG information disclosed in US Securities and Exchange Commission submissions.