The finance profession needs to adapt to climate risks and place greater emphasis on environmental, social and governance (ESG) matters.
Discussion about the importance of climate and ESG-related matters has increased but, with possibly the limited exception of the IFRS Foundation, all this talk has not translated into noticeable changes in the profession. For now, there are simply not enough accounting and auditing professionals with the requisite understanding of the potential impact of ESG and climate change on the company operations and financial statements.
As part of the ongoing discussion, the Institute’s COP26: Race to Zero Webinar series explores the IFRS Foundation’s efforts to create an International Sustainability Standards Board (ISSB) that would stand along with the International Accounting Standards Board (IASB) in setting standards for ESG and climate change reporting to match traditional financial reporting requirements. The IFRS Foundation has plans to have the ISSB in place before the COP26 UN Climate Change Conference in November in Glasgow.
Climate-related financial disclosures are increasingly important for companies around the world. In the very near future, it may be impossible for auditors to sign off on accounts without a clear understanding of potential impairments of assets or write-downs that could be caused (or have been caused) by climate change or ESG-related matters. However, at a practical level, there may simply not be enough focus within the profession to meet the significantly higher ESG and climate reporting requirements that companies will have to meet in the years ahead. This is not only a Hong Kong issue, but a global one.
These risks are no longer distant or theoretical considerations. They are very real and immediate. Flooding in coastal areas could affect agricultural production, manufacturing facilities, real estate holdings or mortgages, to name a few examples of potential impacts on business revenues. There are also transition risks to consider. Mainland China, for example, has plans in place to hit the peak of carbon emissions by 2030 and be carbon neutral by 2060.
The accountant of the future will need to have a thorough understanding of ESG topics. Financial institutions like banks, insurance companies or asset management companies are all looking for ESG professionals with a financial background. These individuals are few and far between, for now. This also means that there are significant opportunities for those in the profession – who are willing to proactively upskill themselves – to be proficient in ESG matters.
The implementation of the ISSB could help raise the urgency of the issue. In Hong Kong, the Green and Sustainable Finance Cross-Agency Steering Group developed a strategic plan with five action points to implement in the near term, including requiring disclosures aligned with the Task Force on Climate-related Financial Disclosures recommendations by 2025, as well as adopting a common taxonomy, supporting the establishment of the ISSB, promoting the use of more climate-focused scenario analysis and creating a platform to coordinate cross-sectoral capacity building. Upskilling future finance professionals with ESG skills will be key for Hong Kong to remain competitive going forward.
About the webinar
At the webinar on 5 July, hear from Ashley Alder, Chief Executive Officer of the Securities and Futures Commission, and Chairman of the Board, International Organization of Securities Commissions, about how Hong Kong’s Green and Sustainable Finance Cross-Agency Steering Group is preparing for the application of the ISSB climate reporting standards in Hong Kong. Teresa Ko, Vice-chair of IFRS Foundation, provides insights into the next steps at the IFRS Foundation for the creation of the new board. Panellists, including myself, discuss the key considerations that are critical for the success of the ISSB, and what companies and their auditors need to do prepare for reporting in accordance with ISSB standards.
The time is right to develop more talent with in-depth expertise in this increasingly important intersection between ESG and climate reporting requirements and finance. The profession has a golden opportunity to prioritize talent and professional development in these areas and lead the way forward, rather than be left to react to changes forced upon by regulators.
If you can’t make the webinar, look out for the recording, which will be available soon after alongside others from the series on the Institute’s website.
Pat Woo CPA (practising) is Partner, the Head of Sustainable Finance, Hong Kong at KPMG China and is the Global Co-Chair for Sustainable Finance for KPMG IMPACT. He has been active for over 14 years in the field of sustainable development. He is also a member of the Institute’s Sustainability Committee.