|
|
At this week’s COP26 climate talks in Glasgow, government ministers, finance officials, green activists and corporate leaders have paraded across the stages. One group that has not been highly visible, however, is the world’s auditors and accountants. That is a mistake.
For while the corporate and government pledges emanating from the talks have often provoked as many questions as answers, one issue is already clear: climate change action is about to put corporate auditors under the uncomfortable — and unaccustomed — glare of the spotlight. That is because companies are facing rising pressure to come clean about their carbon emissions (and other green issues). Yet the framework for measuring this is still fluid, at best.
So the onus is now on auditors to make all manner of judgment calls about green issues, to a degree that few ever expected — or have been trained for. To understand why this matters, consider two announcements in Glasgow this week, from groups with ugly acronyms: Gfanz (or Glasgow Financial Alliance for Net Zero) and ISSB (International Sustainability Standards Board).
On Wednesday Mark Carney, former Bank of England governor, declared that 450 global financial institutions managing $130tn of assets had joined Gfanz, and pledged to use their financial muscle to promote decarbonisation and meet net-zero emission targets by 2050. Green activists (correctly) complain that this eye-popping $130tn figure probably includes double-counting, and it is still unclear how much meaningful change those long-term goals will spark in the short term. Fears of greenwashing abound. But the announcement shows the speed at which the zeitgeist in finance is changing, as lenders come under pressure to prove their green credentials.
As Carney notes, seven months ago, when the Gfanz was started, it only had a measly $5tn assets. The key point that investors need to understand is that this shift is cascading into the clients of lenders — ie corporations — as well. The first test could come in the realms of steel and aviation: Jane Fraser, chief executive of Citi and a Gfanz leader, revealed on Wednesday that these two business sectors will be what the alliance targets first. However, the pressure to adopt net zero pledges will inevitably spread through other sectors.
While investor scrutiny has hitherto been focused more keenly on listed companies than unlisted entities, Larry Fink of BlackRock (and another Gfanz leader) is now demanding that targets be imposed on private capital too. Politicians are also jumping on the bandwagon. On Wednesday, the British government announced it would make it mandatory in the future for companies to reveal their net zero plans. All this will heap pressure on auditors to assess companies’ net zero pledges, but the question of how to do that is far from answered. At present, voluntary green accounting systems make up a confusing alphabet soup, swimming with different acronyms. The new ISSB framework, which is currently being developed by the International Financial Reporting Standards foundation, is supposed to create more clarity and consistency....
more at FT