This article first appeared in ICAS’ CA magazine.
Finance can help forge a cleaner future for all, and the contribution of accountants will prove essential, says James Alexander, CEO of the UK Sustainable Investment and Finance Association
Earlier this year, the UK Sustainable Investment and Finance Association (UKSIF) celebrated its 30th birthday by publishing its policy vision for the future. Built around eight core recommendations, the ambitious document is a testament to how far sustainable finance has come in the space of a generation, as well as its place in the wider movement towards values-driven business. It’s not just about the money – UKSIF envisages a future in which sustainability, diversity, education and political diplomacy are closely linked.
It’s all headed up by James Alexander, who became Chief Executive in October 2020. Alexander brings a career’s worth of expertise to the organisation, informed by time spent at the Scottish Council for Development and Industry and then climate advocacy group C40 Cities. Some may also recognise him as a former President of the National Union of Students Scotland. Now, at UKSIF, he’s in charge of a navigating a community of 260 member organisations, representing some £10trn in assets, through the future of sustainable finance, its emergence as mainstream practice evidenced by the presence at UKSIF of names such as HSBC, Barclays and Bloomberg.
“The bulk of finance in the UK is part of our association,” says Alexander. “We have members across the breadth of financial services, from banks, asset managers and pension funds through to financial advisers, wealth managers, data providers, service providers, law firms and not-for-profits. Our work is about influencing government and policy. We do a lot of work with regulators, politicians and the media. On the other side, we do a lot of work to move the industry forward – connecting members and sharing best practice.”
Alexander’s own career has evolved alongside the growth of sustainable finance as a sector. But he highlights the pandemic as especially impactful in transforming the attitudes of customers, employers and investors and accelerating change. As an existential threat, similar in many ways to the challenges posed by climate change, the pandemic has highlighted that sustainable finance is a necessity rather than a nice-to-have.
“Covid has demonstrated just how fragile we are as a global society,” he says. “And we’re increasingly seeing the true impacts of climate change. We’re currently around 1.2°C of warming – close to the Paris Agreement stretch target of 1.5°C – but we’re already seeing big changes in our climate. This year, we saw forest fires across Europe, record-breaking temperatures in Canada and devastating flooding in Germany. People are seeing the effects of climate change and waking up to the fact that we do have a serious problem.
“The other side is that, in financial services, people are seeing clients, regulators and staff change their opinions. That’s shaping a new future for the sector, where firms are committing to net zero, and not just as a publicity statement. People are realising that if they don’t follow this trajectory, then their business model is not going to be viable for much longer.”
Tackling climate change has become a reputational issue for the UK as a nation, too. As the world convenes in Glasgow this month for the COP26 climate conference, the UK has set some bold targets for the coming years. UKSIF is seeking clarity on the how, what, where and when so that sustainable finance, and the private sector more broadly, can all play their parts.
“We have legally binding targets to become a net-zero country by 2050 and to cut emissions by 78% by 2035,” says Alexander. “That is world leading. But it is also going to make huge changes to how we live, some of which are not clear yet. We’re pushing the government to give much more clarity on what their vision for a net-zero world looks like. What do we eat? How do we heat our homes? We need that clarity, because how they tax, spend and subsidise will set the direction, and then investors can follow that. People realise there is an inevitability to this transition, and they want their businesses to remain viable, value-adding businesses in the future.”
The UK’s part in combatting climate change, at home and abroad, is also playing out against the backdrop of Brexit. Its recent departure from the EU has raised fresh questions about the nation’s role in the world – not just as the sixth-largest economy, with significant purchasing power, but as an influence on the direction of global politics. The government has, of course, been keen to silence its doubters – see Liz Truss’s global tour as Secretary of State for International Trade – but COP26 is perhaps the first real test of its sway as a political entity.
“From what we’ve seen from politicians, there’s a real willingness for the UK to play a leadership role, and hosting COP26 is part of that,” says Alexander. “UKSIF is pushing the government to build that global leadership, partly because it puts the UK in pole position, but also because it will make other countries see what we’re doing and want to catch up, and the whole world moves faster as a result. We think there is going to be a lot of change happening in the UK. I’m part of the Treasury’s Green Technical Advisory Group, advising on the UK’s green taxonomy and its implementation. We’re also seeing disclosure regulations being developed for the UK, which will build on the EU ones.”
Re-establishing the UK’s position as a global leader is one challenge, but the minutiae of introducing new regulations and standards around sustainability is another. In other words, even though tackling climate change will require international collaboration, some differences in approach are inevitable, especially between the former bedfellows of the UK and EU. Alexander is optimistic here but advises that businesses act cautiously for the near future.
“The EU has gone first in a lot of these areas, and what happens in the EU still has a major impact on us,” he says. “But we can learn some of those lessons and build our own regulations that take us a step forward. There are challenges to operating outside a market that we’ve been tied to for so long. A lot of clients are in Europe – and we want to maintain that business.
“So, how do we simultaneously align both to EU regulations and potential new UK ones? In the short term, you want to see how closely you can align with what’s going on in Europe. But in the long term, we recognise that divergence is likely, and we expect it to take us further.”
Naturally, talk of new regulation and standards puts sustainable finance squarely in the realm of accountancy. Embedding sustainability at the heart of business, and creating a framework via which to compare and analyse information around sustainability, will require the detailed involvement of the profession. And the more things that accountants can reliably measure, the faster they will be integrated into decision-making across the economy.
“We need to start seeing companies reporting much more of the data around how they perform against different ESG characteristics,” says Alexander. “And the work that accountants are doing in financial and non-financial reporting is going to be key.
“As well as the Task Force on Climate-related Financial Disclosures, we’re now seeing the development of the Task Force on Nature-related Financial Disclosures, which we strongly support and were pleased to see highlighted in the G7 finance ministers’ communiqué this year. And we’re seeing a lot more impetus being put on non-financial reporting. The new standards that the IFRS is working on, and the International Sustainability Standards Board being set up, will be a big part of that.”
These developments, including the establishment of the Green Technical Advisory Group on which Alexander sits, are coming through thick and fast. But the amount of information needed to capture the true cost of doing business is huge. There are the more easily quantifiable areas, such as individual businesses’ directly generated pollution, as well as the more amorphous. Alexander explains that “we don’t yet fully understand” scope-three emissions, which describes the pollution created by a product during its usage. The challenge for CAs, then, is to be leaders in an evolving space, translating the science into a language that business can understand and integrate into its operations.
That requires investment in education and training, too. Today’s workforce, and accountants in particular, will not be strangers to the importance of professional development. As the pace of change escalates, employees need to be continually upskilling, keeping themselves relevant and ensuring they add value to their businesses. That has only become more relevant in a world rocked by the pandemic, as working practices and labour relations are yet to settle around a new equilibrium. When it comes to sustainability, accountants will need to identify the relevant climate-related risks for their business, use appropriate and robust metrics in measurement, and maintain their technical competence as new reporting standards compete for mainstream adoption.
“This is something that’s not going to go away. For most people in work, this is going to be something that will keep coming up throughout their careers. Any time invested in learning more, and building your skills and knowledge about sustainability, will definitely not be wasted, because this will be a recurring theme for decades to come,” advises Alexander. “We’re looking to develop some core qualifications that can help address specific skills gaps that we’re seeing across the industry. Watch this space.”
Closing the conversation, Alexander jokes that the goal of UKSIF is essentially a simple one. If customers, employers, investors, politicians and accountants all agree on net zero in principle, and are all moving in the same direction, then it’s only a matter of time before emissions are completely offset. The crucial question, however, is when exactly that net-zero point will be reached. As the IPCC “code red” report explained during the summer, there are mere years, not decades, left on the clock before global warming hits 1.5°C.
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