SME accountants at risk of being left behind amid sustainability surge, cautions IFA

SME accountants at risk of being left behind amid sustainability surge, cautions IFA

Administrative pressures should not deter accountants from upskilling around sustainability, argues IFA chief executive, John Edwards

A natural focus on the here and now, combined with the significant administrative pressures of recent years, is causing accountants to possibly overlook the opportunity of upskilling to embrace sustainability best practice. This could leave accountants with a potential skills shortfall over the next three years, as sustainability regulations trickle down to incorporate SME businesses. And though environmental reporting is not yet mandatory for SME businesses, it presents a great opportunity to accountants to provide additional reporting services.

March is BCorp awareness month, and while BCorp is an optional certification for businesses. It is fast becoming something that businesses are undertaking to demonstrate their commitment to reducing their environmental impact. The theme of BCorp month is #WeGoBeyond, showcasing the businesses which are exceeding expectations, and reflecting the appetite of consumers for businesses which align people and planet alongside profits. BCorp certification requires significant monitoring of impact areas such as emissions, as well as governance standards.

BCorp may be voluntary, but the pending regulatory requirements are not, and SME accountants need to prioritise their upskilling to keep pace. The Companies (Strategic Report) (Climate-related Financial Disclosure) Regulations 2022 have been in place for the UK’s largest companies since 6 April 2022, driving environment reporting across the board. The expectation is that these standards will be mandatory for all businesses in the medium term – likely by 2025.

However, even before then, SMEs that supply the UKs largest businesses will be the first to tackle reporting, as their clients demand insight into their environmental risks and metrics. All SMEs will need to meet the reporting thresholds not long after. Accountants have the opportunity to reap the rewards of being a trusted adviser with the right knowledge, if they upskill now ahead of mandated change.

Currently, there are two core standards that will drive climate-related financial reporting in the UK, but it is likely that one will supersede the other. In force now is the Companies (Strategic Report) (Climate-related Financial Disclosure) Regulations 2022, which have been modelled on the recommendations from the Taskforce for Climate-related Financial Disclosure (TCFD). The UK government accelerated development and rollout of this standard, with a view to becoming the first G20 country to enshrine TCFD-aligned requirements into law. They seek to deliver the greenest financial system in the world, following publication of the UK’s landmark Net Zero Strategy. The standards require the largest businesses to report on:

  • Governance and relationships in relation to the assessment and management of climate-related risks and opportunities.
  • How these risks and opportunities are identified, assessed, and managed.
  • The actual and potential impact of these risks and opportunities on the business model and organisational strategies.
  • Resilience of the business model to different climate scenarios.
  • Metrics and targets the company uses to manage climate-related risks and opportunities.

Simultaneously, the International Sustainability Standards Board (ISSB) has been developing its own set of standards, publishing the Exposure Draft IFRS S2 Climate-related Disclosure back in March 2022. Following stakeholder consultation and feedback, which closed in February 2023, it is expected that the final version will come into force towards the end of June / Q2 2023. Both the UK and ISSB versions are closely modelled on the recommendations from the TCFD, so it is anticipated that the UK will adapt its regulations to meet the ISSB standards. Some have suggested that the UK has acted prematurely by rolling out separate standards that will later change, but the government has highlighted the value in getting to grips with reporting earlier enabling businesses to gain an advantage from the lessons that can be learned. Furthermore, it is viewed as an essential part of the UK’s net zero strategy, and any changes to align with the ISSB will likely focus on how information is reported rather than what data is collected, giving the UK economy the edge.

More: Cooper Parry becomes UK’s largest accountancy B Corp – will more firms follow?

According to the joint report Accounting for Climate Change from CIMA and A4S, the UK is at the lower end of the scale when it comes to accountants’ role in reporting on climate functions. Just 44% of UK accountants consider it part of or a future part of the finance role, despite the discipline and numeric insight they can easily provide. Key barriers are lack of time (the main reason for 42% of respondents), lack of knowledge (38%), and short-termism focusing on things like budget and financial planning, meaning that sustainability falls behind in priorities.

It is very easy to maintain focus on the most pressing timeline issues and the turbulence of the last few years has certainly left many accountants feeling like they are constantly firefighting. Though this is entirely understandable, it undermines the value that accountants can potentially bring to their role. It’s also a major risk-factor to the future of their own businesses. We are recommending that accountants prioritise updating their knowledge of the regulatory requirements, giving themselves time to adopt new skills at a pace that fits in with their other business responsibilities.

As trusted advisers, used to grappling with the complexity of business reporting, accountants have a significant advantage to becoming leading experts in sustainability standards. Digitisation and integrated reporting offer further advantage, making it simpler to access and present the relevant statistics required to undertake the reporting. The main change for clients will be evaluating the factors required for the regulation which are not yet recorded and identifying the processes and procedures for securing that input. In being best placed to undertake the process accountants will continue to be indispensable to their clients.

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