New standards for sustainability reporting have seen listed companies publish non-financial information in their financial reports since 2021, but Dr Matthew Bell, global climate change and sustainability service leader at EY, says the pace of progress must “go faster” if we are to halve greenhouse gas emissions by 2030.
In a conversation with Accountancy Age, Bell explains the importance of sustainability reporting and what improvements need to be made to meet our net-zero target by 2050.
What is your opinion of the UK government’s policy paper – Greening finance: A roadmap to sustainable investing?
It was a good announcement when it was raised. We recognise that if you are going to advance initiatives around sustainability, we are going to need to significantly ramp up the pace. In order to do that, you need to have capital markets driving money into the right businesses and arguably threatening to drive money away from businesses that are unsustainable.
Do you think there is still a risk of companies engaging in greenwashing despite the positive changes to sustainability reporting standards?
I do not think there is an element of greenwashing behind the announcement or the intent of it, but there is a real risk of greenwashing and green wishing in the marketplace around sustainability.
There is a risk that companies make some pretty broad statements about their future intent in 10 or 20 years that’s transformative, but they don’t take any action to meet these statements.
Creating frameworks, ensuring greater consistency and disclosure, and then getting organisations to do that against increasing standards, is a move in the right direction.
What more do you think needs to be done to create a greener financial system?
A greater level of understanding is needed of what is truly meant by green. How do you establish what green is? It’s a really complex topic.
We recognise that biodiversity plays a fundamentally important role in creating value to society. But how does an organisation demonstrate that it is, or it is not impacting on biodiversity in a way that creates value?
We need to go faster. We have had 800 years of financial accounting, and certainly for the last 100 years we have had strong financial accounting, and we have had 15 to 20 years of sustainability accounting.
Yet, if you think about the difference between the financial and the non-financial disclosure obligations, a great deal is required around financial and very little around non-financial. We do not have a lot of time to wait for those to be perfect.
How does your scientific background influence your role?
The reason why we have hired a huge number of scientists and engineers over the years to build out our practice, rather than taking the current stock of consultants or accountants and retooling them, is because most of this is grounded in a scientific discipline.
Climate change, biodiversity, and human rights are all grounded in science, rather than grounded in hard fact. You need to increasingly understand this sort of complex social and natural world if you’re going to be able to then translate that into business performance.
What is EY doing specifically in the area of environmental reporting?
We made a commitment to being carbon neutral a couple of years ago. As of this year, we were carbon negative, which means we offset more than we produce. Then we committed to being net zero by 2025.
It is all challenging, although we are not a complex organisation, and a lot of our emissions are associated with travel, particularly flights. So, while we are a client led business, we need to make sure that we’re still being mindful of our environment.
Do you think there needs to be a global adjustment when it comes to sustainability reporting?
We have asked for this for a really long time and amazingly we are starting to see it. In Europe, we are seeing the advent of the corporate sustainability reporting directive and there will be a fundamental shift in organisational disclosures.
It’s great that everybody is finally recognising the need for these disclosures and regulators and standard setters are introducing new standards, but all of this should have been done yesterday.
Do you think more assurance professionals need stronger technical knowledge to better report sustainability?
EY has the largest group like mine of any of the big four, but we work as composite teams. For big audits, where those companies are exposed to sustainability risks like climate change, our team who understand that industry sector, the emissions processes, the climate risk associated with them, would do specialist work to underpin the broader audit function. We don’t need to be the technical accountants, we have those.
Likewise, [accountants] don’t need to be knee deep in upstream oil and gas, thermal processes, and the mass balance equations to understand how greenhouse gas emissions are occurring, we can provide that, it’s the interpretation between the two that’s important. So, I think there’s a huge upskilling required in this profession generally. Just like with anything, technical skill that compliments that to be able to do the deep technical work.
Would you say there is still room for more transparency when it comes to sustainability reporting?
We have been asking investors about the importance of sustainability disclosures for 10 years, and it was hilarious when we asked the question ten years ago. But now, 90% of investors, according to EY’s latest , tell us that sustainability disclosures are not only important, but they are assessing them in their investment decision making process.
[Investors] continuously tell us that transparency needs to improve, not just in the disclosures, but in the material nature of how those risks play out to the current business model. It is not just enough to be able to say, we think these risks are going to impact our business.
Personally, I am a strong advocate that any disclosures ensure we have double materiality. So, instead of just the impact of some topic on the business model, it is also the business model’s impact on the topic.