My current engagement as technical author on the BSI sustainable finance guide (PAS7340) has been no different. Having worked for a long time in sustainable finance, it was certainly of great personal interest. The concerns that tempered my excitement were based on previous experience of working in different areas of finance (principally investment and insurance). I had seen different terminologies and different, independently developed approaches applied to very similar problems. Moreover, a largely unplanned mid-career move into risk management reinforced the idea that there wasn’t enough interaction between functions within individual organisations on cross cutting issues like sustainability.
The guide has come out of the work of the UK Green Finance Taskforce (reflected in the recent UK Green Finance Strategy) fulfilling a commitment to ‘working with industry and the British Standards Institution to develop a set of Sustainable Finance Standards’. I felt there could be a significant challenge in developing a framework guide that met the expectations of a whole range of parties with their divergent terminology and opinions. Of course issues such as climate also arouse a passion and level of interest that I haven’t experienced in other risk areas (my daughter certainly never challenged me about what I was doing to counter the threat of cybersecurity for example).
In one sense those concerns have been realised, much of our discussion has focussed on definitions for example, but the overall experience has been very, very positive. Agreement on overall principles to underpin the document is obviously a key element and consensus came relatively easily from a steering group representing NGOs, academics, Government and financial services organisations.
This was reinforced in the subsequent public consultation. While not wishing to tempt fate (the guide isn’t planned to appear until later in 2019) it hopefully has played a small part in bringing together different parts of financial services and different professional disciplines. Of course this is a very personal (and partial) perspective and it’s clear there are many outstanding challenges, perhaps reflected most strongly in the development of the TCFD initiative.
The last 18 months have witnessed a great deal of activity in the sustainable finance space and while the UN SDGs are assuming a central role in sustainability target setting it is probably the TCFD developments that I see as most significant.
There has been a lot of good material appearing on TCFD (the TCFD Knowledge Hub is very impressive and the ICAEW’s own guide to reporting on climate risks and opportunities is an excellent starting point) but there are also signs, approximately two years in, that all is not resolved, particularly in terms of engagement across business functions.
A recent COSO study found limited integration of risk management and sustainability and the Climate Disclosure Standards Board’s (CDSB) Gemma Clements has commented that TCFD typically remains a responsibility of the sustainability departments under the guise of a CSR initiative highlighting the challenge around making climate a mainstream disclosure topic.
The primary aim of TCFD falls squarely in the remit of the accountant: identifying the nature of the financial risk posed by climate change to the financial services sector.
Those financial risks (and opportunities) must be derived from an understanding of the sustainability impacts and risks associated with financial services. These mainly reside outside of the direct control of the bank/insurer/investor in their clients/investees and understanding them presents particular challenges, not least because of significant uncertainties and timescales longer than those commonly applied in business planning. This is likely to result in assessments and subsequent disclosures that rely heavily on professional judgement.
Chartered accountants, with their long established credibility in this regard, are accordingly very well placed to play a key role in working across organisations and applying critical thinking to the numbers, models, interdependencies and assumptions underpinning disclosure. Moreover the scenario analysis approach on which much of the TCFD is based is certainly capable of being applied more broadly than climate change to the range of social of environmental concerns highlighted by the SDGs.
There is also an opportunity for businesses to develop new products and services that support the transition to sustainability and these actions will also require appropriate scrutiny, for example in terms of strategy development and budget implications.
We are undoubtedly facing great challenges in terms of our response as society to climate change and appropriate critical review challenge is more necessary than ever. It is perhaps this ability to look across sectors/disciplines and functions that presents the most important role for accountants in the public and private sector, not only ensuring reinvention of wheels is minimised but ensuring proper choices are made between emerging techniques for integration into mainstream management and disclosure.
Paul Pritchard, Independent Sustainability Adviser, Iken Associates