By Jake Atkinson
Amongst all the announcements taking place at last year’s COP in Glasgow, it was easy to have missed what was regarded by many as the most exciting development for the accountancy profession in a generation (I’ll leave it to the reader to determine how exciting that actually is).
The International Sustainability Standards Board (ISSB) was announced, created through the merger of some of the ingredients comprising the often-maligned alphabet soup of ESG frameworks and standards. The Climate Disclosure Standards Board (CDSB), Sustainability Accounting Standards Board (SASB) and International Integrated Reporting Council (IIRC) (wait, there are more acronyms to come) joined under the International Financial Reporting Standards Foundation (IFRS) to form a new standard setting body that aims to harmonise and deliver a global ESG standards for companies to disclose against.
The climate standard prototype it published follows the same four pillar structure of governance; strategy; risk management; and metrics & targets as the Financial Stability Board’s Taskforce for Climate-related Financial Disclosures (TCFD). The TCFD, currently leading the race in ESG standards and frameworks, has been made mandatory for all large private and listed companies in the United Kingdom, with the majority of the G20 also following suit or expected to soon. ESG disclosures have now entered the inner sanctum of the accountancy standards world and the task of assessing them will fall to the profession.
The EU’s new Corporate Sustainability Reporting Directive (the new, improved and less concisely named take on the Non-Financial Reporting Directive) begins in 2023 with mandatory assurance of all reported non-financial information. With a potential 47,000 companies representing over 75% of the EU companies’ turnover falling within scope of this legislation, it’s the single greatest expansion of audit work’s scope in living memory.
Mandatory assurance of ESG disclosures is also likely to reach the UK soon, where the government has confirmed in its Roadmap to Sustainable Investing that all large companies will soon be required to comply against its Sustainability Disclosure Regime, of which ISSB standards will form the basis of. Though not confirmed explicitly, it’s expected that these will require full assurance similarly to the EU’s as standards will be managed under the IFRS.
Given the impending growth in ESG assurance and existing boom in consultancy work, there is now a race for ESG talent. Last year, PwC announced a push to hire over 100,000 staff into ESG positions over the next five years, underpinned by $15bn of investment. EY have announced the creation of EY Carbon and have committed to offering all staff the opportunity to pursue a free Masters in Sustainability at the Hult International Business school. Even outside of the world of the Big 4, the push for new talent in the ESG sector has resulted in Boston Consulting Group’s new CEO asking climate activists to swap their placards for powerpoint decks. Do I think that Extinction Rebellion will provide the next boardroom leaders of the FTSE100? No. But should the private sector’s attempts to push cognitive diversity in its workplace whilst also upskilling existing staff also be praised? Yes.
Competence greenwashing has already been flagged as a risk for the industry, with cynics arguing that awareness does not equate to the expertise required in senior positions. Most criticism seems to be levied at those moving into the most senior ESG roles, where one could argue there are enough sustainability professionals already in the business world to occupy those top positions, though whether or not they possess adequate leadership experience is another question. Those expecting all operational ESG positions to be filled exclusively by climate scientists or conservation experts, may be hoping for too much. It’s up for debate whether enough even exist in the world, let alone enough wishing to transition to corporate careers filling in timesheets and slide decks.
Beyond the lack of expertise in ESG itself, one could argue the industry is already failing at delivering its core competency in auditing financial statements. Carillion and Patisserie Valerie are two recent audit failure scandals that stick in the public’s mind, where not only a lack of competency was identified but where practices were described as “deliberately misleading and falsifying”. If a team of accountants who have been through the chartership process along with years of training are failing to identify financial mismanagement to the tune of hundreds of millions, is it likely we can expect one with limited-to-no training to adequately audit a carbon footprint or a net-zero transition plan?
This scepticism is justified, but when the reverse is asked as to whether we could expect climate scientists to audit ESG disclosures with limited training the answer is also no. Whether you believe in the adage of “what gets measured, gets managed” or not, one thing is for certain: the rapid mobilisation of private and public finance at gargantuan scale is required to deliver the investment required to mitigate and stop climate change, which will not take place without adequate disclosure and accompanying assurance. To do this at the level needed, there will be a requirement for a deluge of skilled ESG practitioners coming from all corners of the workplace coming together. This duty should not fall on the shoulders of one profession.
Jake Atkinson is a Chartered Certified Accountant (ACCA) working as a sustainability consulting manager – He is also on the steering group of Labour for a Green New Deal.