The 101 series: Sustainability and the accounting and finance profession

Sustainability has become a pivotal concern for businesses, investors, and governments worldwide, driven by factors such as the race to net zero carbon emissions, instil fairer working conditions and practices along supply chains, and establish gender equality, among many others.

Sustainable and green finance, sustainability in auditing, environmental, social, and governance (ESG) reporting, and sustainability risk management are integral components of this shift. As the business world embraces these practices, accountants and finance professionals must adapt by developing specific skills to navigate this evolving landscape.

Sustainable finance

Sustainable finance refers to the process of integrating ESG considerations into investment decision-making in the financial sector. It aims to support investments that contribute to long-term economic sustainability while promoting positive environmental and societal impacts. This practice goes beyond the traditional financial analysis of risks and returns, incorporating factors such as climate change, resource scarcity, and social inequality. Sustainable finance encourages the use of capital to fund projects that address global sustainability challenges, such as renewable energy, clean technology, and affordable housing.

The growing demand for sustainable finance has been driven by a range of stakeholders, including institutional investors, regulatory bodies, and consumers. These stakeholders recognise the importance of managing sustainability risks and opportunities in financial portfolios. Accountants in this space will need to possess a thorough understanding of both traditional financial analysis and sustainability issues, enabling them to assess the long-term impact of investments on people, the planet, and profitability.

Sustainability in auditing

Sustainability in auditing involves the evaluation and verification of a company’s sustainability practices, ensuring that they are aligned with established frameworks and standards. Auditors are now tasked with examining sustainability disclosures to confirm their accuracy, completeness, and compliance with regulatory requirements. This marks a significant shift from the traditional audit, which primarily focused on financial performance, to a broader examination that includes ESG considerations.

The role of auditors in sustainability is increasingly critical as companies face growing scrutiny from investors, regulators, and the public regarding their environmental and social impacts. To be effective in this role, auditors must develop expertise in sustainability reporting standards, such as the Global Reporting Initiative (GRI), the Sustainability Accounting Standards Board (SASB), and the International Sustainability Standards Board (ISSB), among others. They must also understand the specific risks associated with sustainability issues, including carbon emissions, water use, and human rights violations, and apply this knowledge to their auditing practices.

Sustainability and ESG reporting

Sustainability and ESG reporting refers to the process by which organisations disclose information about their ESG practices. These reports provide stakeholders with insights into a company’s sustainability performance, outlining both achievements and areas for improvement. ESG reporting is becoming increasingly mainstream, with many companies voluntarily adopting frameworks such as the GRI and SASB to guide their disclosures.

The demand for transparent and credible ESG reporting is driven by investors, who are looking to assess the sustainability risks and opportunities within their portfolios. Additionally, regulators in many jurisdictions are beginning to mandate ESG disclosures, making it essential for companies to adopt standardised reporting practices. Accountants play a crucial role in preparing and verifying ESG reports, ensuring that the data presented is accurate, consistent, and aligned with recognised standards. Skills in data analysis, sustainability metrics, and knowledge of ESG frameworks are becoming essential for accountants in this area.

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Sustainability risk management

Sustainability risk management involves identifying, assessing, and managing risks related to ESG factors. These risks can have significant financial implications for businesses, affecting their operations, reputation, and long-term viability. For instance, climate change poses risks to companies through physical impacts, such as extreme weather events, and transitional risks, such as changes in regulation and consumer preferences.

Effective sustainability risk management requires a comprehensive approach that integrates ESG considerations into a company’s overall risk management framework. Accountants and finance professionals play a key role in this process, helping to quantify sustainability risks and incorporate them into financial planning and decision-making. They must develop skills in risk assessment and management, particularly in relation to emerging sustainability issues such as climate risk, resource scarcity, and social inequality.

Green finance

Green finance refers to financial activities aimed at supporting environmentally sustainable projects. This includes investments in renewable energy, energy efficiency, sustainable agriculture, and other projects that contribute to the reduction of environmental degradation. Green finance is a critical component of the broader sustainable finance agenda, with the goal of directing capital toward projects that mitigate climate change and promote environmental sustainability.

Accountants working in green finance must be able to evaluate the financial and environmental benefits of green projects, ensuring that they meet the necessary criteria for green bonds, loans, and other financing mechanisms. They need to be familiar with frameworks such as the Green Bond Principles and the EU Taxonomy for Sustainable Activities, which provide guidelines for identifying and reporting on green investments.

Skills required for accountants

As sustainability becomes increasingly integrated into the financial and business landscape, accountants must acquire new skills and knowledge to remain relevant. Key competencies include:

• Understanding of sustainability frameworks (eg GRI, SASB, ISSB) for accurate reporting and compliance.
• Analyse and shape organisation’s strategy, policies, practices and relevant business activities in response to key domestic, regional and global taxonomies that classify green and transition economic activities.
• Risk management expertise, particularly related to climate and sustainability risks.
• Proficiency in ESG data analysis and sustainability metrics, enabling better decision-making and reporting.
• Familiarity with green finance instruments such as green bonds and loans.
• Interdisciplinary knowledge, combining traditional accounting skills with insights into environmental science, social governance, and ethical finance.
• Effectively communicating green goals and findings from audits or reports to non-financial people.
• Synthesise information on climate change and climate policy developments to shape an organisation’s strategies and policies, products and/or services.
• Lead the development of the organisation’s stewardship strategy, focus areas, policies and practices, and implement stewardship to achieve organisation’s investment and sustainability goals.

By acquiring these skills, accountants will be well-positioned to contribute to the growing field of sustainable finance and drive positive change across industries.