Accountants to play central role in ESG developments: CPA Australia

The speed and scale of sustainability reporting architecture is expected to continue in 2022, and with it demand for accounting professionals with ESG skills, according to CPA Australia.

CPA Australia predicts that more entities will set net zero commitments this year, and there will be greater scrutiny to address greenwashing, to examine balance sheets and business models for resilience in the face of climate change, said CPA Australia general manager external affairs Jane Rennie.

The "mixed outcomes" from COP26 mean that Australia is at the margins of global efforts to address climate change, Rennie said, but she noted that the result of the upcoming federal election could "provide a circuit breaker to propel stronger government action on climate change."

The Task Force on Climate-related Financial Disclosures (TCFD) guidelines are increasingly embedded as the default climate and emission reporting mechanism, and CPA Australia expects to see further increases in the depth and sophistication of recommended metric and targets.

"Irrespective of Federal government action or inaction, Australia's financial regulators will continue to play a leadership role in responding to climate change," Rennie said.

APRA began a bottom-up supervisory climate vulnerability assessment (CVA) exercise in 2021, with the cooperation of the five largest Australian banks. APRA said it plans to publish the results of the CVA in 2022.

APRA has also finalised Prudential Practice Guide CPG 229 Climate Change Financial Risks (CPG 229), designed to assist banks, insurers and superannuation funds in managing climate-related risks and opportunities as part of their existing risk management and governance frameworks.

Beyond climate change, other aspects of ESG-related reporing and management is expected to continue to play an essential part of the agenda. Rennie noted that this will happen at the local and the global level, pointing to the forthcoming work of the International Sustainability Standards Board (ISSB), which will develop the IFRS Sustainability Disclosure Standards

"The development and disclosure of forward looking metrics and targets is likely to accelerate," Rennie said. "Traditional accounting metrics are oriented towards backward looking measures, which is something the profession is addressing. A critical challenge for the profession will be ensuring that financial accounting and reporting responds to climate-related risks and opportunities and is compatible with the sustainability disclosure standards to be developed by the ISSB."

As a result, the accounting profession is front and centre in its role around reporting and analysis, but the scarcity of ESG-related skill sets is a double-edged sword.

"The accounting profession is building its capability to measure, report and assure climate risks but much more is required," Rennie said. "There's a global shortage of accounting professionals, not just those with ESG capabilities. This may hamper ESG skills development within the profession.

"The demand for accountants with ESG skills will intensify as the focus on environment-related disclosures shifts to biodiversity and ecosystems, and momentum around the social attributes of business gathers pace.

Read more: CPA AustraliaAPRAJane RennieTCFDInternational Sustainability Standards Board