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The Professional Accountants in Business (PAIB) Committee of the International Federation of Accountants (IFAC) has published Investor Demand for Environmental, Social, and Governance Disclosures: Implications for Professional Accountants in Business. The report considers trends in investor demand for and use of environmental, social, and governance (ESG) information, and recommends how professional accountants can better support their organizations in responding to these demands, and ultimately improve the management and reporting of ESG performance.
The report highlights an evolving trend toward greater interest in ESG factors, and integration of these factors and ESG performance information into investment processes and decisions. It also reviews investor approaches to acquire information on ESG factors, including positive and negative screening, engagement, and ESG integration. To alert professional accountants to essential ESG metrics and indicators sought by investors, the report provides a sector-neutral list of core performance indicators most frequently used by investors to evaluate ESG performance, and a review of how investors might consider the financial implications and monetization of these factors.
“As professional accountants both support and fill leadership roles in management operations and control, as well as stakeholder communications, they are well placed to apply accounting discipline and rigor to the collection, analysis, and reporting of ESG data, and to support the incorporation of ESG factors into their organization’s management processes, systems, and reporting,” said Roger Tabor, chair of the PAIB Committee. “Their involvement in improving the relevance and quality of their organization’s internal and external business reporting will be critical to meet the challenge of increasing the use of ESG information.”
In response to the challenges of ESG integration, the report recommends five actions for the accountancy profession and professional accountants in business:
- engage investors effectively to understand their information needs and communicate performance;
- incorporate ESG factors and non-financial performance information into governance and accountability arrangements to improve information and disclosure quality;
- link financial and non-financial performance and outcomes to improve understanding of sustainable value creation;
- ensure that ESG disclosures meet investor needs by being material, timely, consistent, and comparable in order to improve usefulness of reporting and greater transparency;
- bring together data that may be dispersed in different parts of the organization or its supply chain to supportinternal and external decision making.
Source: International Federation of Accountants
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