Opening the second day of ICAEW’s Financial Reporting, Audit and Assurance Conference, Lord Callanan, parliamentary undersecretary of state at the Department for Business, Energy and industrial strategy (BEIS), outlined the government’s ongoing work on the reporting of climate-related financial disclosures and audit reform, both of which have a role to play in delivering the UK’s net zero ambitions.
Pointing to the government's 10-point plan for a green industrial revolution, published last year, and the government’s priority to “build back better” from the global pandemic, Lord Callanan highlighted the role of the UK financial sector to encourage private investment into supporting innovation and managing climate financial risk.
“The cornerstone of our approach to recovery must be ensuring that corporate reporting provides transparency about climate risks and opportunities,” he confirmed. “We have been exploring introducing mandatory climate-related disclosures to some companies, and in doing this we hope to reduce the damaging practice of so-called greenwashing, which risks, investors and the public losing faith in corporate reporting.”
The government believes that the UK needs to be one of the first countries to introduce mandatory disclosures aligned with the recommendations of the Task Force for Climate-related Financial Disclosures (TCFD). An ambition that is planned for no later than 2025, with “most requirements” set to be introduced before then, according to Lord Callanan.
Consistent standards around the world
In his speech, the BEIS minister went on to reaffirm the government’s support for the International Financial Reporting Standards (IFRS) Foundation’s work to establish a new international sustainability standards board, which is due to be announced at COP26 next month.
Alongside outlining the government’s hope that the board could be located in the UK, Lord Callanan confirmed: “The government strongly support the development [of global sustainability reporting standards] and aspires to be among the first countries to adopt them for use by domestic companies.”
He also highlighted the vital importance of international collaboration on the issue of sustainability reporting. “We want to try to ensure that we work together with all the other major jurisdictions to ensure that we get consistency of implementation, consistency of standards across the world.”
Pointing to the IFRS Foundation’s long history in setting global reporting standards, Lord Callanan said that the government had confidence that new sustainability standards will gain similar recognition to their financial counterparts.
“The standards will help direct capital toward more sustainable projects and encourage climate innovation. International standards will ensure that this is achieved in a consistent, comparable manner, with high-quality and transparent information,” he said.
Careful balance between accuracy and cost
Lord Callanan told the event attendees that the UK’s goal was to drive business accountability on climate change both domestically and internationally while acknowledging the need for reporting requirements to provide clear, accurate and comparable data without becoming overburdensome.
“The market for climate disclosures is evolving fast. I'm keen to ensure that these reporting requirements remain valuable to investors and proportionate to companies and the audit sector,” he said. “There’s a careful balance to be struck between enforcing new thorough sustainability reporting requirements, that can reduce greenwashing and direct green investment, and at the same time, preventing this from being an excessively costly and onerous demand on some companies who may not as readily see the benefits.”
Careful consideration of PIEs
The minister highlighted responses to BEIS’s recent consultations on audit reform and proposals to require a resilience statement from certain companies, so-called Public Interest Entities (PIEs). The definition of PIEs, he confirmed is one of the areas where the department received a range of views and is the subject of careful consideration ahead of the publication of the consultation response.
“It was one of the subjects that was most often raised during the various consultations and I’m aware of the concerns,” he said. “We want to try and go with the definition that has the maximum level of support… we’re still looking at options.”
Lord Callanan also revealed international interest in the UK’s proposed audit reforms. “We've had a lot of contact from other major economies asking us how the proposals are going what we're looking at doing, so they can reflect them in their recommendations, and their policies as well,” he said.
“This is something on which we want to take the lead, but we also need to make sure that we work closely with other jurisdictions to make sure that this is reflected in their regulations and proposals as well.”
While unable to provide an exact timeline, Lord Callanan confirmed that BEIS was hoping to publish its consultation response and its roadmap on the UK’s planned sustainability disclosure regime “as soon as possible”.
“The timetable for changes will reflect both the clear need for reform and the importance of recovering from the pandemic,” he said.
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