2020 Annual Report

4 min read

How accounting is helping to reach sustainability goals

From disruption to products, services and supply chains, to the acceleration of policy and regulatory change, businesses are waking up to the drastic action needed to transition to a low-carbon economy and protect our planet.

But as companies increasingly pledge actions to reach sustainability goals, tracking and monitoring progress towards these goals poses a real challenge.

At the same time, climate and ESG (environment, social and corporate governance) information is crucial for the healthy operation of the world’s capital markets.

Investors, employees, suppliers, policymakers and other stakeholders need to have access to transparent data about companies.

This information can help distinguish well-governed companies and their ability to mitigate disruption and provide a better understanding of the resilience of business models to withstand potential global shocks – yet it is not consistently reported in annual reports and accounts.

Enter the accountants

“The accounting profession has a leading role to play in tackling climate change. We at Deloitte recognise this and are integrating climate change-related risks into the core of our audit approach”, said Veronica Poole, partner, global IFRS leader and head of accounting and corporate reporting.

In practice, sustainable accounting is tasked with challenging the narrative included in disclosures of strategies and governance of climate-related risks and measuring the impact of these risks in financial statements.

“Climate change is a risk to financial stability and it impacts businesses in all sectors. No one is immune” Veronica continued.

“It is also a business opportunity. Consistent and clear reporting of climate-related risks and impacts is critical if we are to direct capital to resilient businesses and succeed in achieving the goals set out in the Paris agreement.”

In 2019, we introduced a climate leadership category at the A4S Finance for the Future Awards. The awards showcased organisations that are accelerating their response to climate change, providing solutions to enable the transition and embedding climate change within organisations’ strategies and business models

Pledging change

As a firm we are committed to a sustainability journey for the long term in which we address our own environmental impacts, while supporting clients as they seek to do the same.

During the World Economic Forum’s annual meeting at Davos 2020, we joined some of the world’s largest companies in signing up to a new environmental disclosure scheme that aims to support our transition to net-zero carbon emissions.

We have also signed up as a supporter of the Taskforce on Climate-related Financial Disclosures (TCFD) recommendations which is now supported by 1,000 organisations globally and looks set to expand further.

UN special envoy for climate action Mark Carney has launched an initiative to secure global agreement to a pathway for mandatory TCFD reporting at next year’s 26th UN Climate Change Conference, COP26.

Transforming corporate reporting and audit

Society needs to have confidence in the completeness and accuracy of climate and ESG reporting, and we recognise the critical role the audit product has to play in that regard too.

“Corporate reporting and audit should continue to evolve to meet societal needs” said Katie Canell, audit product strategy managing director at Deloitte.

“Clear, consistent reporting on climate, broader environmental and societal matters are a critical part of understanding the modern corporate business model.”

The future audit product envisaged by Sir Donald Brydon recognises that a number of changes from all market participants are needed to restore confidence.

Sir Donald’s report talks about the need for “audit to inform as well as assure” and be relevant to broader stakeholders. Clarity around, and assurance on business model risks, controls and metrics are central to this.

“We are committed to this evolution of corporate reporting in the public interest” added Katie “and developing our audit product as part of this evolution is a priority.”

Boosting training and sharing resources

Resources we have developed to help our auditors and clients integrate climate risks into the core of our audit approach include:

  • Learning models covering ESG issues which align with new mandatory reporting requirements for directors to consider stakeholders’ needs in promoting companies’ success
  • A dedicated climate change website and video learning programme launched in collaboration with the ICAEW in June 2019 – now a ‘go-to’ resource that is open to all and is there to help leaders ask the right questions about climate change at the board level
  • Events on climate change at the Deloitte Academy have included seminars to mark the launch of Chapter Zero (affiliated with the World Economic Forum) which convenes non-executive directors to increase board action in response to the impact of climate change on business.

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