Pamela Steer, FCPA, FCA, is president and CEO of Chartered Professional Accountants of Canada (CPA Canada).
When the average Canadian thinks of some of the world’s biggest challenges – climate change, pollution or promoting social justice – the chances are that their first thought is rarely, with apologies to Superman: “This looks like a job for accountants.”
But, in both Canada and around the world, the accounting profession has been thinking quite a lot about these problems.
That’s because today there is strong demand for high-quality environmental, social and governance (ESG) reporting as the impact of these issues on business and financial resiliency becomes more apparent.
How does an investor, employee or ordinary citizen know what good sustainability performance looks like? How do we gain greater visibility into the financial implications of the transition to a low-carbon economy? That’s where accountants come in.
In a world overloaded with data, accountants are central to successful decision-making. Our profession has a proven history of providing the relevant analysis, reporting and assurance necessary to evaluate performance and manage risk. Now we must turn those skills to some of the most pressing issues of our time.
A first and vitally important step is setting universally accepted sustainability-reporting standards. People may ask why having a set of common standards matters. The answer is simple: Standards engender trust and accountability. You cannot begin to improve until you can accurately measure where you are, set goals and then measure progress toward meeting them. That is how financial performance has been evaluated for centuries.
Right now, ESG reporting is often hit-and-miss and, worse, potentially misleading. While many organizations are trying to track their ESG performance, there is no consensus on what sustainability information should be reported and how.
The myriad of voluntary ESG reporting frameworks and standards in the market can lead to reporting that is inconsistent and not comparable.
Many ESG exchange-traded funds have been accused of not following their mandates by taking positions in oil and gas producers. In some cases, companies may be producing reporting that paints a prettier picture of their efforts than what is merited – what’s often described as “greenwashing.”
Substantive progress has already been made on the ESG standards-setting front. For example, last year’s founding of the International Sustainability Standards Board (ISSB) was strongly supported by the global accounting community, businesses, investors and regulators. This initiative was strongly backed in Canada, which led to the creation of the ISSB centre in Montreal. The standards the ISSB develops will specify what sustainability information should be disclosed in an entity’s reporting for the capital markets – the equivalent to International Financial Reporting Standards (IFRS) used for financial reporting.
But our experience with financial accounting has taught us that even the most comprehensive standards will not deliver the intended benefits to users, if they are not implemented properly or consistently. For example, will the requirements to disclose an entity’s climate-related scenario analysis provide investors with the useful, comparable information they require, given the significant subjectivity and lack of standardized practices? Time and experience will tell.
That is, of course, complicated, and we are witnessing some pushback to ESG and questions about the cost and value associated with expanded reporting and regulation. Recent media reports suggested that major U.S. banks, concerned with legal risks, are considering dropping out of the former central banker Mark Carney’s green-banking alliance.
Some ESG critics are calling for a return to “business as usual,” with the total focus being the bottom line.
That approach is wrong.
Now is not the time to waver on ESG because we are running out of time to get this right. And to do so, organizations across all sectors need access to objective, reliable and relevant data. Accountants will be ready and waiting to do their part.