What’s this got to do with accountants?
In short, a lot. Here are three areas where the accountants have a role to play:
- Climate change will increasingly impact the annual report and accounts. This includes new reporting requirements – business advisors must be aware of these so they can help their clients stay on the front foot and ahead of the regulations.
- Accountants often play a decision-support role. Those business decisions need to consider new factors – you need to know what those are and help your clients bring them into decisions.
- Accountants are great at providing an objective viewpoint, ensuring we’re comparing apples with apples. The sustainability space is ripe with generalisations and greenwashing (intentional or not). The finance professional’s objective eye can bring rigour and consistency to the data and regulations will help drive this.
Reporting requirements that already exist
Outside of any sustainability-specific reporting requirements, the reporting standards we already know give us many reasons to think about climate change (and sustainability more broadly) when preparing or auditing the annual report and accounts.
What are the biggest risks facing the business? Increasingly this is going to include climate change. Through creaking supply chains, floods or fires, changing government regulations (e.g. if you’re a car or boiler manufacturer), changing consumer and employee demands, investor requirements and access to funding, many of these issues will be material to your business.
Let’s review the balance sheet through a sustainability lens. Does anything need to be restated? Do you need to create new provisions? Do assets need to be impaired? What has been valuable until now might look very different in the changing external context for example, a massive oil reserve that might never leave the ground.
Worst case scenario, is the business a going concern? Could the whole business model become obsolete? If so, what are management doing about it?
Both IFRS and FRS102 require judgement about what information the financial statements’ users need to get a full understanding of a company’s financial position. Nothing material should be omitted, and climate will become increasingly material for all businesses.
There are already sustainability-related reporting requirements for large companies. Where these are included in the annual report and accounts your role is to ensure that the numbers in the accounts and the other disclosures, such as TCFD, line up.
New reporting requirements coming down the line
The International Sustainability Standards Board (ISSB) has developed new sustainability disclosure standards for IFRS – IFRS S1 and S2. This will help us get to a place where we have globally consistent reporting standards and help with comparability. IFRS S2 includes the requirement that if an entity has a climate-related transition plan they must disclose it. The UK government is adopting these standards, and we expect an announcement on this in Spring 2025.
Large, listed and FCA-regulated companies are affected first by mandatory sustainability disclosures but these are expected to become mandatory for other companies over time, or at least influence them as more sustainability-related questions are asked during the procurement process. UK-registered companies whose value chain extends outside the UK are also impacted by international regulations such as CSRD in Europe.
There are also plans to develop a UK Green Taxonomy. This will provide a consistent definition of what activities count as ‘green’ and so help avoid greenwashing. Exact timelines aren’t confirmed but this is something to stay abreast of.
There’s likely to be growth in non-financial reporting as well. So ask yourself the extent to which you want to support clients with that.
An interesting area which isn’t on any kind of roadmap, yet is around how we put a value on the non-financial assets and liabilities of a company. If you’re interested in this then it’s worth tapping into the thinking of the Capitals Coalition and reading chapter 14 of this free book from the Economics of Mutuality.
Mandatory or voluntary disclosure?
At the risk of repeating myself – the direction of travel is clear. Regulations and reporting requirements are changing. And the market demand is there – “72% of people are tired of brands pretending they want to help society when they just want to make money” and “59% of people would stop buying from companies that don’t respect the planet or society” (Havas Meaningful Brands Report 2023).
Businesses can wait until sustainability disclosures and reporting are mandated. Or they can get ahead of the curve. Those that do will arguably capture market share and be the leaders in the net zero world. As their business advisor, you can help them do that.
Next steps for your practice
- Now is the time to start building capability. Create a plan for upskilling your workforce and staying abreast of what regulations will change and when. One of the best ways to do this is through your professional body. The ICAEW is providing lots of free advice on their Climate Hub, as are Chartered Accountants Worldwide on their Climate Change Hub and A4S in their Knowledge Hub.
- Now is the time to identify opportunities for you to add more value for your clients. And to get clear on what you do and don’t want to offer or focus on.
- Create your own sustainability roadmap. There are huge opportunities to add more value to your clients – but to be credible you need to start your own sustainability journey first. This is where Keartland & Co focuses, helping businesses move from sustainability commitments and plans into action that makes a meaningful difference – get in touch if you’d like to find out more.