Hello and welcome to our series of talks, Ethics for a Better World. Today we join you from London on Global Ethics Day, which happens to also be the same day we launch our guide, Ethical Dilemmas in an Era of Sustainability Reporting.
Sharon: What this guide does is showcase the important role that professional accountants play when it comes to sustainability reporting. Through this guide, we outline the types of ethical dilemmas presenting to professional accountants in sustainability reporting and its assurance. To support the navigation of such ethical dilemmas, we also include a checklist of questions to help professionals apply the professional scepticism they need — the curiosity and that all-important probing — to identify threats and then go on to mitigate them. We also outline the work that IESBA is doing to ensure the continued currency of the ethical code, and of course provide an outline of the value proposition to all professional accountants in complying.
So today I'm joined by my co-author, Lisa Weaver, who joins us from Warwick Business School, where she's a professor and expert in assurance, audit, and ethics. Hello, Lisa.
Lisa: Hi Sharon, thanks for asking me to talk about these issues today.
Sharon: It's great to have you here as well, and I have to say I've really enjoyed developing the guide with you. So for our audience today, a few key questions. Let's start off with what you foresee the role of the accountancy profession being in sustainability reporting, and perhaps outline some of the key developments they need to be thinking about.
Lisa: Sure. Well, I think this is a really exciting time to be in the profession, and as we know, the profession has been tasked with developing the sustainability reporting standards. Just recently we've had two standards issued — IFRS S1 and S2, a bit of a mouthful — and even more excitingly, these have recently been endorsed by IOSCO. So what we're going to see is that these standards, being developed by the profession, are going to be mandatory for the largest listed companies all over the world. So for the profession, it's a really exciting time. When IOSCO published these endorsements, the IFRS Foundation came out and said they see this as a real milestone moment. Whereas before, financial reporting was seen as a separate entity from sustainability reporting, they're now two sides of the same coin. So the accounting profession is really at the forefront in the drive for good-quality sustainability disclosures, and there's a huge role for the accountancy profession in that.
Sharon: So let's take a bit of a deeper dive and evolve our discussion around some of the ethical risks that may well present themselves. If we think about some of the reporting dates — they're happening imminently, systems to do the reporting are likely to be required at pace, and we know that reporting for sustainability will continue to evolve just as the sustainability matters themselves evolve. So we know organisations are going to be turning to professionals for this particular insight. It would be really good if you could outline some of the ethical considerations for preparers.
Lisa: Sure. Well, I think the key issue for me at the moment is professional competence and due care, which is of course one of the ethical principles in the ethical code. I think this is really significant because, as you just said, everything is very new — very much in its infancy — and things are moving fast. So we need to make sure, as professional accountants, that we operate with due care. There's definitely a skills gap, a knowledge gap, a learning curve, and we can't rush to make sure we comply with everything. Things probably won't be perfect for the first reporting period, and maybe the next two or three. So I think we have to recognise this and not strive to get everything absolutely perfect the first time around.
I think there's also an issue that we might be tempted to put a lot of emphasis on the work of the few people who have the necessary skills — and perhaps a little knowledge can be a dangerous thing. We need to make sure we have good-quality reporting processes and decision-making, and to support that, we need a good, thorough education process in these sustainability standards. So quite a lot to unpack there.
Sharon: And I'm going to pick up on something you said with regards to knowledge and skills. We know from the work of the World Economic Forum, IFAC, and indeed ACCA's own work in this space, that sustainability matters — and their reporting — are going to be of vast interest to many, many stakeholders. And therefore the risk of greenwashing is increased — the intentional or unintentional painting of a false picture. So I wonder what your thoughts are on that, and the role of the professional in navigating that particular problem.
Lisa: Yeah, I think this is a really significant problem. As well as greenwashing, I've come across recently the phrases "green dazzling" and "green spotlighting," where organisations are perhaps exaggerating their successes in sustainability in a hope to detract from things that may be less positive. So I think greenwashing is definitely a big issue. Really, how this links to ethics is that, as you said, individuals working in a business could be influenced — either consciously or subconsciously — to perhaps paint a pretty picture and detract from the reality of what's going on in the business. For me, this is really an issue of integrity and objectivity, and professional accountants really need to make sure they're not unduly influenced to allow greenwashing in their reports.
I think we also have to recognise there may be a conscious issue here — individuals may rationalise greenwashing. They might think, "Well, if we have this great image, we'll perhaps attract more investment, grow the company, secure jobs." So there's sometimes a rationalisation — a very conscious thing — but we mustn't compromise here. We must make sure we act with integrity when we're producing these disclosures.
Sharon: And that brings me on to something else very much linked to quality reporting: verification, or assurance. Something you alluded to right at the start was around the talent pool, I think, by what you were talking about. We have some evidence that really suggests the talent pool capable of doing sustainability reporting at this time is pretty small. So I guess there's a risk that one might be involved on the preparation side and then find themselves having to verify what they've prepared — that independence piece. I wonder what your thoughts are on that.
Lisa: Yeah, so definitely I think independence and objectivity are significant issues, and the firms that are providing — or going to be providing — assurance on sustainability reporting need to really carefully consider how serious these threats are and put safeguards in place if necessary. The obvious one would be using separate teams, if that's possible, but also making sure there's not a self-interest threat — making sure they don't offer services they're not really competent to do. I've heard the phrase "competency washing" recently as well, so I think firms also need to be careful not to exaggerate their skills in this area.
Sharon: Yeah, I completely and utterly agree with you. And actually, something that's been really quite purposeful in this discussion is that, as we've been going through, you've been highlighting the relevance of the code principles. So it's probably a good idea to outline some of the developments IESBA has in this space. Of course, they're undertaking a review of the code to ensure its principles continue to be current, but one big thing that's relevant here is the development of profession-agnostic code principles. That's going to be really important when we consider that, as of today, approximately 60% of assurance is conducted by professional accountants —
Lisa: Yes.
Sharon: — but that's a sizable number, 40%, conducted by non-accountants. So I think it'd be good to end this section of our discussion around the value proposition in complying with the code.
Lisa: Yes, so I think because the code is very much principles-based, it's going to be relevant in different jurisdictions and used by different firms — whether you're a preparer or an assurer, whether you're an accountant or not an accountant. So I think it also helps companies, assurance providers, and us to stand back and take a more holistic view of what's happening in the sustainability area.
Sharon: Excellent. So now for a little bit more of a grilling, let's move our conversation on to the final section, where I'd like to ask you three really quick questions.
Lisa: Okay.
Sharon: So, when it comes to identifying and mitigating ethical dilemmas, what works best — rules or principles-based approaches?
Lisa: Definitely principles.
Sharon: Excellent. Next question: for professionals, do the benefits of being involved in sustainability reporting outweigh the effort?
Lisa: Definitely. The benefits are going to be immense, not just for the profession but for the world.
Sharon: Okay. And given we've been talking about the principles, I wonder if you could tell me what your favourite principle is.
Lisa: I think the most important principle at this time is professional competence and due care.
Sharon: Brilliant, thank you. And finally, one more demand on you — final words from you: ten words on what your call to action will be for professionals.
Lisa: I think professionals need to get to grips with the sustainability disclosures, and also not forget the importance of the ethical code.
Sharon: Thank you very much, Lisa — your insight is amazing. And thank you to our audience for watching today. It just leaves me to give you a call to action: watch our session tomorrow, which will be held in Singapore, where our two presenters will be talking about ethics and leadership. Goodbye.
