IFAC pushes for accountants to measure sustainability

The International Federation of Accountants convened a meeting of leaders of accounting organizations to advance sustainability reporting as momentum builds worldwide for consistent environmental, social and governance reporting.

IFAC brought together more than 150 chief executives and other leaders last week from groups including the International Financial Reporting Standards Foundation, the International Organization of Securities Commissions and the International Integrated Reporting Council. One of the main focuses was the future of corporate and sustainability-related reporting, and how these fit into the wider context of sustainable business and finance, where professional accountants will need to play a pivotal leadership role based on their core competencies and ethical codes. The IFRS Foundation is considering a proposal to set up an international sustainability standards board after groups like IOSCO have complained about the varying standards from groups like the IIRC and the Sustainability Accounting Standards Board (see story). The IIRC and SASB have agreed to merge later this year under the oversight of an organization that will be called the Value Reporting Foundation. They are also working with three other groups — the Global Reporting Initiative, the Climate Disclosure Standards Board and the Carbon Disclosure Project — to harmonize their standards and make them more consistent to meet the needs of investors who have been pouring more money into ESG funds.

“As we consider the future of global economies and capital markets, and the need for better reporting on sustainability and value creation, there remains a clear need for the skills, business acumen, judgment and ethical core that have always been the domain of professional accountants,” said IFAC CEO Kevin Dancey in a statement Friday. “As a profession, we are actively ensuring that we are ready to address this next generation of challenges and opportunities, including by calling for the creation of an international sustainability standards board under the auspices of the IFRS Foundation that stands to serve the public interest and ultimately the development of sustainable economies.”

Courtesy of IFAC

At the meeting, Lee White, executive director of the IFRS Foundation, discussed the IFRS trustees’ current consultation on the proposed formation of a new sustainability standards setting board, while Tajinder Singh, acting secretary general of IOSCO, discussed IOSCO’s sustainable finance agenda, along with its work plan and progress on the recommendations of a Monitoring Group of international financial regulators. Mervyn King, chair emeritus of the IIRC, spoke about the strategic importance of the accountancy profession’s leadership and engagement in integrated thinking and sustainability reporting matters.

The U.S. government is making the climate crisis more of a priority under the Biden administration. Earlier this week, the Department of Labor rolled back rules that were completed in the waning days of the Trump administration and were seen as discouraging ESG funds. The DOL issued a statement of non-enforcement of the rules on “Financial Factors in Selecting Plan Investments” and “Fiduciary Duties Regarding Proxy Voting and Shareholder Rights.”

“We intend to conduct significantly more stakeholder outreach to determine how to craft rules that better recognize the important role that environmental, social and governance integration can play in the evaluation and management of plan investments, while continuing to uphold fundamental fiduciary obligations,” said the DOL news release.

Environmental groups were glad to see the move by the Labor Department. “We welcome this statement of non-enforcement by the DOL on these two rules which were hastily finalized and ignored the large body of evidence that environmental, social and governance considerations and proxy voting are suitable for ERISA-governed retirement plans,” said Lisa Woll, CEO of US SIF: The Forum for Sustainable and Responsible Investment, in a statement.

The two rules, which went into effect in January 2021, would have made it much harder for retirement plans to integrate ESG risks into their investment practices. Ali Khawar, principal deputy assistant secretary for the DOL Employee Benefits Security Administration, expressed concern that the Trump rules have already had a chilling effect on sustainable investing in retirement plans, and said the DOL is undertaking a broader review “to determine how to craft rules that better recognize the important role that environmental, social and governance integration can play in the evaluation and management of plan investments, while continuing to uphold fundamental fiduciary obligations.”

Also this week, the United Nations adopted a new framework that includes the contributions of nature when measuring economic prosperity and human well-being. The new framework — the System of Environmental-Economic Accounting — Ecosystem Accounting (SEEA EA) — was adopted by the UN Statistical Commission and goes beyond the commonly used statistic of gross domestic product that has dominated economic reporting since the end of World War II. The new measure would ensure that natural capital — forests, wetlands and other ecosystems — are recognized in economic reporting.

“This is a historic step forward toward transforming how we view and value nature,” said UN Secretary-General António Guterres in a statement. “We will no longer be heedlessly allowing environmental destruction and degradation to be considered economic progress.”

The new framework may help with decision-making at two conferences coming up later this year — COP15 on Biodiversity in Kunming and the Glasgow Climate Conference, COP 26. The COP26 conference is where the IFRS Foundation plans to present its plan for an international sustainability standards board.

The Global Reporting Initiative recently released its comments on the IFRS Foundation proposal. “GRI welcomes the direction of travel IFRS is taking, which has the potential to strengthen financial reporting by taking into account the financial opportunities and risks of a company’s sustainability impacts,” said GRI chairman Eric Hespenheide in a statement. “GRI believes that such strengthened financial reporting complements sustainability reporting, which focuses on disclosing a company’s impact on the world."

However, Hespenheide also exprssed some reservations about the IFRS Foundation proposal. "With regard to climate change, the limited scope as outlined will not address the wide-ranging impacts that companies have on the planet," he said. "We urge the IFRS to set their ambition commensurate with the needs to support companies in articulating the impacts of the full range of sustainability issues on their financial health; including, for example, social issues, tax and biodiversity. Recognizing investors’ needs for reporting that identifies the effects on value creation linked to social and environmental issues is a step forward. However, companies need to be accountable to a multiplicity of stakeholders. This is why financial reporting and comprehensive sustainability reporting, as enabled by GRI, need to be on an equal footing. The case for multi-stakeholder reporting, which applies the principle of double materiality, is clear. We will continue to work with IFRS, the European Commission and others to support global changes that fulfil these aims.”