People and Planet in the Accounts: our wake-up call is here. It’s time to act

The momentum for recognising the environment as a business issue has come to a head, says ICAEW’s Technical Thought Leadership Director Richard Spencer and Capitals Coalition CEO Mark Gough.

The past two years have been our environmental wake-up call. First, we had our ‘Greta’ moment of grassroots activism. Then our ‘corona’ moment of a lived experience. Now, we can no longer look the other way and ignore climate breakdown, massive biodiversity loss and increasing inequalities as strategic business issues. The WEF business risk report now firmly puts all five of the likeliest and biggest impacts as environmental, with societal risks coming up fast. It is now front and centre as a business and finance issue.

A green and fair recovery; build back better; the great reset. Phrases like these are the tentpoles of the rebuild narrative. They speak of a shared ambition of governments, business and civil society, although turning this ambition into a reality will be the real test of our commitment to this goal.

While this has dominated headlines, there are some landmarks. When president-elect Biden is sworn into office, one of his first actions will be to take the USA back into the Paris Agreement. Just last week, the UK government announced its Ten Point Plan for a Green Industrial Revolution. Japan and South Korea have committed to eliminating net CO2 emissions by 2050 and China by 2060.

As part of this, we see growing momentum in how these issues find their way into management decisions and reporting. The global collaboration curated through the Capitals Coalition goes from strength to strength, with over 370 organisations now working together to build nature, people and society into organisational decision making. It highlights how businesses are increasingly seeing these as strategic issues.

On the disclosure side, there is increasing ambition for a global non-financial reporting framework. The EU’s decision to explore the feasibility of a non-financial reporting standard through EFRAG is a significant step.

The five most recognised standard-setters – CDP, CDSB, IIRC, SASB and GRI – have announced their ‘Statement of intent to work together towards comprehensive corporate reporting’. This was followed closely by an announcement that IIRC and SASB will merge to form the Value Reporting Foundation.

The UK government has announced that it will mandate climate-related disclosures for large companies and financial institutions within five years. On 10 November, the FRC announced that it would ‘consider how best to help companies to achieve reporting under TCFD and SASB that meets the needs of investors’. And the IFRS Foundation has also entered the space with its current consultation.

We also see initiatives to put people and planet into the numbers. There is the well-known Nick Anderson IASB paper on climate change and others who have been interviewed for this series.

This action and the push for harmonisation are all exhilarating and welcome to see. However, everything isn’t necessarily going in the same direction. For example, there is a significant difference between approaches that are looking to update the old model of capital markets and shareholder profit maximisation and the change in public mood towards the recognition of stakeholder capitalism. Some are taking a stepping-stone approach, focusing just on climate change, with the thin promise of coming to other things at a later date. Others (including us) think that it is important to recognise the interconnections and dependability between nature, people and the economy from the outset.

One also wonders where putting these issues into the numbers will lead. There are some very different but fascinating approaches in these interviews. One couldn’t help but think that a few felt like Trojan Horses. For us, they beg the question of how long the framework of financial accounting can cope with requirements to contain an ever-increasing gamut of issues it was not designed to contain. We may well be on the cusp of an evolution in accountancy.

This article was first published by ICAEW. You can visit the original page here.