After another busy but successful year end, I settled down to work through my reading list that had built up. Unlike most avid readers, my list contained IFRS emails, CPD updates and tax news, among others. One thing, however, jumped out to me as something that needed more attention: the IASB’s announcement in March of the founding of a working group looking at global sustainability reporting. 

The working group will “accelerate convergence in global sustainability reporting standards focused on enterprise value and to undertake technical preparation for a potential international sustainability reporting standards board under the governance of the IFRS Foundation.”

Why have I picked this out as the key item on my reading list? This year end, the theme of sustainability and climate reporting in general in our annual accounts had received a definite uptick in enquiries and general interest from key stakeholders. As the stewards of the nation’s railway, the impact of sustainability and climate is clear.

Network Rail approved our environmental sustainability strategy in July 2020 and it was published in September 2020. The internal thrust and importance is apparent within Network Rail - however, the noted external interest in relation to the annual accounts was clearly growing. 

The IASB’s publication “Effects of climate-related matters on financial statements” was a useful starting point for thinking about the impact of climate change in our annual accounts. Beyond that, however, the current plethora of guidance and thought pieces provides a fertile ground of ideas and information but can be overwhelming when auditors ask how we have considered the impact of sustainability reporting and climate reporting on our financial statements. It can be overwhelming because as the technical accounting team within Network Rail, we are very used to going to one source of truth when asked how to account or report on something – our IFRS books.

This is the reason that the working group being formed by the IASB moved high on my reading list. An acceleration and convergence leading to potential international sustainability reporting standards will, I hope, provide one source of truth for how reporting is done in this area. As someone very used to picking up a well-read IFRS book and knowing that everyone preparing IFRS accounts is looking at the same book, the lack of one source of guidance in reporting in sustainability gives an increasing level of concern. This is even more so when we consider the wide range of how and what is reported and how it is measured. However, with the board working on this project expected to be appointed by November 2021, I can’t help but feel that my search for one source of truth is not going to receive any answers before next year end.

While the search for one source of truth goes on, one thing that occupies my mind is how wide the reporting envelope goes and how emerging reporting practice can influence practice and vice versa. When I am thinking about the envelope, I am thinking about what is being reported on. In reporting CO2 emissions, are we purely looking at the direct CO2 emissions of Network Rail, Network Rail and its supply chain or wider? 

Network Rail will play a massive part in reducing the country’s carbon footprint. By having a great railway, we will reduce the number of lorries and cars on the roads. However, the reporting envelope and disclosures need to be appropriate to ensure that the benefits for the country are being captured when we disclose what we are doing – too narrow an envelope may limit the “good news.” 

For instance, if Network Rail only reports on our own carbon emissions then there is a chance this metric will not capture the good news – that all of our work has taken a lot of lorries and cars off the road and therefore decreased carbon emissions overall for the country. However, by going that wide, we are starting to push the traditional boundary of the financial statements which has always concentrated on the company reporting. Whatever the IASB produces, it is likely that the next few years are going to be a real breeding ground of innovative ideas and reporting, without any distinct one source of guidance around how to do it.

Leadbetter will be leading a discussion group on what central government finance teams can do to support the path to net zero at the ICAEW virtual public sector conference on 10 December. You can book on to the conference here.