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Accountants should take ownership of climate-related financial disclosures

The TCFD's recommendations could be a golden opportunity for the management accounting profession, according to Carlos Martin Tornero, senior reporter at Responsible Investor.

This week the Institute of Management Accountants (IMA) held its annual conference in Denver. The USA-based international professional body is getting closer to its hundredth anniversary. 

By then, in two years' time, IMA wants to grow its membership to the landmark figure of 100,000 from its current 90,000.

Such an ambitious goal might be within reach if IMA successfully continues its global expansion. In other words, its growth will very much rely on international professionals joining the professional body.

I had the opportunity to moderate a panel at IMA's annual conference about international trends in the management accounting industry, a topic that used to be my bread and butter when I was the editor of The Accountant - and given IMA's growth plans outside the USA, it seems a very relevant subject to discuss. 

I set the scene for the debate with the panelists arguing that, before tackling any trend within the remit of their own countries of origin, we should acknowledge that there is one universal trend that should be a top priority for the profession. 

Such a trend is Environmental, Social and Governance (ESG) reporting. I was honest, though, and I disclosed why I was so keen in picking the panelists' brains about this topic: I now work for Responsible Investor, the global news service that sets the agenda on sustainable finance among institutional investors.

The previous day at the conference, Marc Siegel, FASB member board, had given an extraordinary talk on Non-GAAP measures where he had also touched upon ESG reporting issues. 

His point, as previously expressed in an insightful article this year, was that sometimes there is an overlap in ESG reporting and FASB's financial reporting rules that fall within the boundaries of the USA standard-setting body.

Such an idea reinforces the fact that ESG reporting is becoming more and more mainstream, possibly driven in part by the responsible investment community which is also catching up with what is normally referred to as mainstream investors. 

I offered just a small handful of examples. Recent studies show that almost half of all the assets under management globally follow at least one ESG strategy. The two biggest assets owners in the world, the Japanese and Norwegian government pension funds, are active players in responsible investment. Similarly, the world's largest asset manager, BlackRock, follows sustainable investing with interest.

All this comes at a time when the USA President has announced his intention to withdraw from the Paris Agreement, signed by 190 countries to keep global warming under two degrees Celsius relative to the pre-industrial period. 

The USA, the world's second CO2 emitter after China, would then join Nicaragua and Syria. However, it should be taken into account that Nicaragua didn't sign the Paris Agreement because it wanted the treaty to pursue tougher commitments; and Syria, unfortunately, was in 2015 and is still today a war-torn country.

I mention all this because, with or without the USA on board, climate change remains a material financial risk that impacts the bottom line of companies and it's an ESG risk that investors factor in when they make investment decisions.

Also because the Task Force on Climate-Related Financial Disclosure (TCFD) will be this month publishing its final recommendations.

The high-level group, chaired by Michael Bloomberg and convened by Mark Carney, has a mandate from the G20's Financial Stability Board to address the risks and opportunities  of climate change within the whole financial supply chain.

From companies, to insurers, to asset managers, asset owners, investment consultants, everyone is called upon to disclose this information.

Reading between the lines of the TCFD's draft report published in December last year, my understanding is that the TCFD might be tapping management accountants on their shoulders to position themselves at the driving seat of climate-related disclosures.  

To illustrate this, let me quote the TCFD’s draft report:

"The Task Force recommends that preparers [i.e. management accountants] of climate-related financial disclosures provide such disclosures in their mainstream financial fillings."

It also stated: "These disclosures should be subject to […] governance processes similar to those used for existing public financial disclosures and would likely involve review by the CFO and the audit committee [i.e. again, the accounting profession]."

It also highlighted the need for “forward-looking information” to "incorporate scenario analysis in strategic and financial planning”.

This, I would say, is management accountants' turf, their core skills. 

The Task-force also describes the "interconnectivity” of climate-related disclosure and “existing financial disclosure requirements".

For example, it includes a chapter on accounting considerations where it hinted that IAS 36 (impairment of assets) and IAS 37 (provisions, contingent liabilities and contingent assets), as well as FASB's ACS 360 and 450, could be good starting points to deal with climate disclosures. 

On this topic the Climate Disclosure Standards Board is investigating how can accounting standards be used to deliver the TCFD's recommendations in a consultation it recently issued.

Never mind the USA President's short-termism and tweeting incontinence, everyone is getting ready for the transition to a low carbon economy.

The TCFD's recommendations could be a game changer for the profession, and particularly the management accounting profession. Let's make non-financial reporting great again.


Carlos Martin Tornero is a senior reporter at Responsible Investor, the global news service reporting on sustainable finance for institutional investors. He specializes in corporate governance and stewardship plus a focus on broader ESG issues emerging from the Spanish speaking world. Previously he was the editor of The Accountant, the oldest news source of the accountancy industry established in 1874, as well as a member of the International Accounting Bulletin’s editorial team. He holds an MA in International Journalism from City University London, a law degree from Spain’s Oviedo University and a Diploma in Legal Studies from Cardiff University. He is also a non-practicing member of a Spanish bar association. Carlos won the 2014 State Street UK Institutional Press Awards for Regulatory Issues and was shortlisted in 2015 in the category of Investment.

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