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The Chancellor Rishi Sunak speaking at the Global Investment Summit dinner at the Guildhall in London
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Accountants to bear brunt as UK floats new sustainability standards

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Accountants and finance teams must have a better understanding of their climate impact under new sustainability reporting standards set to be unveiled by the government, but there are questions over the detail inside the environmental disclosure requirements.

20th Oct 2021
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Big businesses will have to disclose their emissions and true climate footprint to investors under new proposals announced by Chancellor Rishi Sunak, who is taking aim at so-called greenwashing.

The lack of common definitions around environmental sustainability allows businesses to muddy their true impact on the planet and mislead investors, Sunak said. This “is leading to greenwashing, misleading investors and consumers about how green a product really is,” he said.

Environmentally-conscious consumers will have more information about where to place their money and businesses will get a more transparent view of suppliers, the government said about the new standards it has labelled Sustainability Disclosure Requirements (SDR).

Announced ahead of the 2021 United Nations Climate Change Conference (Cop26) and the UK’s Budget, SDR will apply to pension schemes, investment products and asset managers and owners.

“We want sustainability to be a key component of investment decisions, and our plans will arm investors with the right information to make more environmentally-led decisions,” said Sunak.

A government report, Greening Finance: A Roadmap to Sustainable Investing, outlines further detail of the numerous legislative and regulatory updates required to make the proposals a reality.

First announced at the Chancellor’s Mansion House speech earlier in the year, the integrated regime will collect and streamline existing climate reporting requirements – such as the UK’s commitment to implement mandatory reporting aligned with the task force on Climate-Related Financial Disclosures (TCFD).

This includes requiring every investment product to set out, for the first time, the environmental impact of the activities it finances, and justify clearly any sustainability claims it makes. Asset managers will also need to set out how they incorporate sustainability into their investment strategy to allow consumers to make informed judgements about the kind of firms they want to invest in.

Next month, the UK welcomes global leaders at the Cop26 climate conference in Glasgow. The UN event has been positioned as a way of making countries live up to the standards set in the 2015 Paris accord.

As the event nears, several large firms have promised to cut their emissions to net zero by 2050, in line with the date set by the government to apply to the whole UK. 

Soft disclosures, missing detail

Reaction has been mixed from the accounting sector, given the profession will be responsible for interpreting the environmental metrics and reporting taxonomies.

“The trouble is that greenwash is exactly what this proposal will deliver,” said tax and accounting expert Richard Murphy. 

The proposals will be based on accounting standards issued by the new global International Sustainability Standards Board, but not aligned with International Accounting Standards.

Many of the disclosures are also ‘soft’, Murphy said, “that will be found in the front part of a set of accounts where the management waffle or greenwash might be found”. 

None of the metrics require that any figure be included in a set of accounts to reflect the impact on the financial position of the company of the supposed climate reporting being made, he added.

Murphy expects investment companies and pension funds to protest about what will be demanded of them because they will be unable to deliver it due to not having access to the necessary data. The result will be a showdown that the government will lose, he said.

“We cannot afford a few wasted years whilst this is resolved,” Murphy said. “The future of life on this planet is dependent on the government getting this right. And it isn't.”

Direction of travel clear

Finance teams have a crucial role to play in the UK’s push to become net zero, said Julia Penny, principal of technical and training consultancy JS Penny. The industry should prepare for more such standards to come thick and fast.

“The requirements to report on sustainability have been increasing quite rapidly for the largest of companies but a variety of standards, recommendations and options makes this a complicated area,” said Penny. “Without measurement it is difficult to know if you are on track to meet targets or how to make investment decisions which promote the drive to net zero.”

Although all the full details are still to be finalised, the direction of travel in terms of increased disclosure requirements for an ever-widening net of companies is clear, she said.

“Many large companies are only just getting to grips with the requirements which are changing all the time to achieve further alignment internationally,” Penny told AccountingWEB.

It is vital that companies and those advising them invest the time in understanding the disclosure requirements and link this with strategic actions to reduce carbon emissions and increase sustainability more generally, she said. 

“As with all disclosures it is usually the accountant that bears the brunt of this work – so be prepared and start to educate yourself in the language of climate change and related disclosure requirements,” Penny said.

She will be discussing the green accounting alongside Yogesh Patel and others at the AccountingWEB Live Expo on 1-2 December.

Meanwhile, organisations that fail to manage their climate-related risks “increasingly present financial risks to individuals and investors,” said Jessica Fries, executive chairman of Accounting for Sustainability.

“Importantly, the proposals recognise the need for an economy-wide framework, joining the dots along each link in the investment chain from individual savers and investors through asset owners and asset managers to companies,” said Fries. 

Green-tech and other climate friendly businesses have flourished over the last 18 months, added Emma Wall, head of investment analysis at Hargreaves Lansdown, but there may be a hidden sting. “The popularity of responsible funds has become problematic as investment providers jump on the bandwagon, leading to accusations of greenwashing – saying you have better environmental credentials than you do,” Wall said. “The EU has already cracked down on providers and the US has launched investigations, and now the UK is following suit.”

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Julia Penny will be speaking about the green finance strategy at AccountingWEB Live Expo on 1-2 December. Register now and reserve your place on over 60 panels, workshops and lectures.

Replies (9)

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By Duggimon
21st Oct 2021 10:21

Any business large enough to be hit with these requirements who leaves it up to the accountants to handle the disclosures instead of having a person or department specifically responsible for environmental and sustainability concerns is playing with fire, and not a nice clean fire but one fuelled by a load of low heat coal and old tyres.

Just because it goes in the accounts doesn't mean it should be written by accountants, the two sectors are completely disparate.

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By Springfield
21st Oct 2021 11:43

Agreed- what on earth is this to do with accountants? Why not require accountants to comment on the quality of the products, or customer service standards, judgements on political donations etc, etc?

This is complete nonsense which unchecked will lead to paralysis by analysis. Endless pages of heavily caveated guff which will mean absolutely nothing to anyone.

You can just see where this is heading....... "the company failed following a huge internal fraud not spotted by the auditors, but the auditors did do a good job on the environmental status of the company, which was excellent at the time of the collapse".

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By Hugo Fair
21st Oct 2021 12:21

To be fair, whilst I agree with Duggimon's take on the article ... the problem would appear to be the fault of journalistic sloppiness.
Julia Penny refers to the need for involvement by Finance (presumably the in-house function that will need to be involved in the strategic impact), whereas the main article refers to the 'accounting sector'.
That's like saying new rules for astronaut pilots are of interest to all other pilots!

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By Paul Crowley
21st Oct 2021 12:24

Nothing here for accountants that deal with SMEs

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By SJH-ADVDIPMA
21st Oct 2021 12:56

Wokenomics can only end in less wealth, less efficiency.

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paddle steamer
By DJKL
25th Oct 2021 13:16

Like any other form of regulated measurement this will take a fair bit of time to evolve and mature.

Accounting for companies re profits/balance sheets took time to evolve(is still evolving) and we should all remember that standard accounting measurements is itself relatively recent. (The debits and credits may be old but that is about it)

Carbon is an interesting measurement and whilst I have not been exposed to measurement on a business scale I did get involved reading a bit about government NDCs and their difficulties of measurement when my daughter was writing her undergraduate final year dissertation (MA Sustainable Development, St Andrews), if not professionally involved I think it will be fascinating (and I will not be involved, retirement's siren song is getting louder)

Climate accounting is like MTD, some might think it pointless, that measuring everything in £s is all that matters, but like MTD it does not matter what we individually believe, changes will keep occurring and governments will get their way, it is imho here to stay.

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By ASF
25th Oct 2021 15:04

Whilst the issue of climate change is clearly very important, the idea of someone writing the paragraph below on this topic just made me laugh at how bad a state we must be in, if it really is true, or anyone believes it to be:

“We cannot afford a few wasted years whilst this is resolved,” Murphy said. “The future of life on this planet is dependent on the government getting this right. And it isn't.”

I am as fond as the next person with a good bit of old-fashioned hyperbole, but, really.......?!

I share much of the earlier comments regarding the role that large company finance departments should, or shouldn't play in the reporting of such matters, but as the companies are quite likely to have a Board director and teams responsible for ESG matters, surely it is they, in concert with finance staff to help produce the info, who will have to do it. Of course, some bright spark will definitely want to make these statements "auditable" so that someone can be held accountable for the inevitable gross exaggerations that are going to happen.

And finally, God help us all if SMEs are told do anything like this. What a bl***y fiasco.

Let's actually get on and sort out climate change properly, not tie ourselves and armies of bureaucrats in knots for the next 40 years or more, reporting on it, please.

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Replying to ASF:
paddle steamer
By DJKL
25th Oct 2021 16:10

The need to measure everything appears to have been inculcated within our governing classes , it is the same syndrome we have in Scottish schools, they test the kids so often the time this takes then being lost from actually teaching them anything.

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By AndrewV12
24th Nov 2021 11:06

'The proposals will be based on accounting standards issued by the new global International Sustainability Standards Board, but not aligned with International Accounting Standards.

Many of the disclosures are also ‘soft’, Murphy said, “that will be found in the front part of a set of accounts where the management waffle or greenwash might be found”. '

New ISSB, worth being aware of. Sustainability is the new buzzword.

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