How accountants will save the world

Kristof Stouthuysen

By Kristof Stouthuysen

Professor of Management Accounting & Digital Finance

22 November 2021

We will remember COP26 as the moment when accountants definitively put sustainability – and how to report on it – on the map.  For  example, the International Sustainability Standards Board (ISSB) is being  established as part of the IFRS (International Financial Reporting Standards) Foundation. The ISSB will develop a new global standard for sustainability and climate-related reporting, with the ultimate goal of ensuring smoother financing for companies that focus on sustainability and the climate.


These days, annual accounts published by listed companies come in for a great deal of criticism due to their perceived lack of relevance. For example, academic research indicates that investors only use 5% of the information in financial statements when making their decisions on capital. One important reason for this is that a company’s accounting value often fails to represent its market or actual value. It is mainly the customer base,  know-how,  reputation and/or business processes of a company that determine the real value. However, many of these ‘value drivers’ are actually regarded as a cost in accounting terms. This gives the organisation a lower accounting value, although investors often see things differently.

An important step towards bringing the accounting value of a company more into line with its actual value now seems to have been taken. The IFRS Foundation, which establishes the way in which (mainly listed) companies report in more than 140 countries – including Belgium – announced the launch of the ISSB in Glasgow. The ISSB will develop a new global standard for sustainability and climate-related reporting. Its arrival will also immediately put an end to the fragmented landscape of recommendations on sustainability reporting. As it stands, these recommendations often lack a legislative framework, and the proliferation of recommendations makes it tricky terrain for many organisations.

The announcement of the ‘prototype climate and general disclosure requirements’ also shows that the IFRS Foundation means business. This memorandum states that listed companies must pay more attention to the various sustainability and climate-related risks and opportunities in their  annual  financial  reports. They must also disclose how their activities affect the environment and society and what this means in terms of current and future cash flows. They will need to provide more details on the company's governance model, strategy and risk policy. Concrete  sustainability and climate-related goals and standards must also be published and monitored.

The fact that the ISSB believes in the ‘to measure is to know’ principle is evident from the numerous cross-industry, industry-specific and activity-related measures and objectives that it is putting forward. Whereas cross-industry objectives are independent of a particular industry, industry-related objectives are relevant for companies within a particular sector and activity-related measures provide for the standardisation of cross-industry and industry-specific objectives in order to enable benchmarking. After all, objectives and actions need  to be considered in relation to a number of factors, such as the size of the company.

The ISSB memorandum also covers the nature of the various standards, such as those related to the climate, in more detail. Companies will not only have to report Scope 1, 2 and 3 CO2 emissions, but will also have to indicate how much capital is being used to tackle the climate issue, how much of their assets (or % of the business activities) are subject to physical and/or transition risks and which climate-related opportunities arise (again expressed in terms of their impact on revenues, assets or other business activities). Moreover, an internal cost price for each tonne of greenhouse gas emissions will have to be reported, and there will also have to be more  transparency around the amount of management compensation that is linked to the implementation of climate-enhancing actions.

Additionally, companies will have to report on the motivations behind their sustainability and climate  policy, their various objectives and respective time horizons, and whether these objectives are absolute or linked to intensity criteria, and are scientifically substantiated and validated by a third party. The new annual reports will also include interim results and follow-up.

In short, it very much seems that the launch of the ISSB and the prototype memorandum form important steps towards the establishment of a global, unambiguous sustainability and climate-related reporting standard, with the ultimate goal of ensuring smoother financing for companies that focus on sustainability and the climate. However, further streamlining and coordination of the proposal will be necessary and it is also important to see how Europe will respond. What is certain, however, is that the role of the accountant will shift further towards helping companies to monitor their impact on the climate and their transition to sustainable value creation. Smart measurement systems and proactive advice will have an important part to play here, also allowing tomorrow's accountants to contribute to a better world.

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Kristof Stouthuysen

Kristof Stouthuysen

Professor of Management Accounting & Digital Finance