As the world begins to count the days to the start of the summer Olympics, a far more importance race for the human race has also begun in earnest.
Whether due to the fast-approaching COP26 conference due to be held in Glasgow in November, efforts are now taking place at considerable pace to move the dial in terms of corporate reporting on climate change and other sustainability related matters. There may be no gold medals to be given out in this particular race, but the prize is undoubtedly much greater.
Consequently, the race is now on for all governments, and jurisdictions, to demonstrate the urgency with which they are tackling the issue of climate change. As host of this year’s COP, there is some pressure on the UK to secure a place on the podium.
The UK Government is certainly amongst the front runners at the moment, setting out its aim of making climate-related financial disclosures mandatory for large companies and financial institutions across the economy by 2025. Making this announcement in November 2020, the Chancellor, Rishi Sunak, highlighted that this went further than the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), making the UK the first G20 country to do so.
The government has certainly wasted little time in setting this ambition in motion. In March of this year, the Department for Business, Energy and Industrial Strategy (BEIS) issued its consultation on mandatory climate-related financial disclosures for publicly quoted companies, large private companies and Limited Liability Partnership (LLPs). The consultation period closed on 5 May 2021 and proposed that these disclosures would become mandatory for those entities in scope for accounting periods commencing on or after 6 April 2022. An ambitious timescale, but one which reflects the urgency of the climate emergency and the role that business and the accountancy profession needs to play.
The ICAS response to this consultation was generally supportive of the BEIS proposals. Whilst we recognised that bringing large private companies and LLPs within the scope of the requirements would introduce an additional reporting threshold, we acknowledged that the emissions generated by such entities could be just as significant as their publicly quoted counterparts. Therefore, if we are to truly meet the commitment to the Paris Agreement of maintaining global temperature increases to below 2ºC, large private companies and LLPs must also assess and manage the impact that their activities and operations are having on the planet.
ICAS was also supportive of a move towards some form of assurance over these disclosures. We believe that this is key in the interest of providing some credibility and confidence in what is reported. Although not specifically part of the BEIS proposals, the EU is hot on the heels of the UK with their proposed Corporate Sustainability Reporting Directive (CSRD) in which assurance will be mandatory for those entities in scope, initially at a limited assurance level, but aiming towards reasonable (high but not absolute level of) assurance as the ultimate objective. If the UK wants to be seen as a global leader in this space, then a move in this direction is surely inevitable.
Whilst the current focus is on the climate-related financial disclosures that will appear in the front-half, or narrative section, of the annual report, we must not overlook the potential impact on the back half, i.e. the financial statements. The ICAS response emphasised this point and referred to an article by International Accounting Standards Board (IASB) member Nick Anderson, highlighting that, just because International Financial Reporting Standards (IFRS) do not explicitly refer to climate change within their requirements, they do address issues that relate to climate-change risks and other emerging existential risks.
So, who will be the winners of this race? All of us, we hope, if the various world leaders that descend on Glasgow in November step up the pace in the race for the preservation, and survival, of the human race. World leaders must ensure that by the time the baton is passed over to the host of the next major climate conference that the talking has turned into action. Success in a relay depends on each team member playing their part; the same is also true when it comes to making the changes necessary to ensure that we leave an inhabitable planet for future generations.