Michelle Horsfield, executive director of ESG advisory at banking group SMBC, says that compared to European treasurers, who will have to start putting in place the Corporate Sustainability Reporting Directive (CSRD) in reporting year 2024, the last UK government indicated a UK version would not be expected for another year.
“That’s fabulous, because you've got a bit of time to get your arms around it. But it’s key that treasurers use their time wisely by getting themselves up to speed.
“There's lots you can be doing because the IFRS documents are out there. And come next spring, you'll be able to look at European corporates and copy them,” she says.
Regarding the standards, the first task is to conduct a double materiality assessment, analysing both the financial impact of sustainability issues on businesses, and the impacts that businesses have on the environment and society, says Horsfield.
This will set the foundation of what companies will report. “The findings of these assessments are then used to define the scope and sophistication of reporting in alignment with CSRD. If done well, companies can generate strategic benefits: To gain decision-useful insights, put in place the necessary data collection processes, and deliver a report that will meet stakeholder expectations, companies need to think beyond doing ‘the minimum’,” she adds.
It’s key that treasurers use their time wisely by getting themselves up to speed
Most importantly, Horsfield says that treasurers need to recognise sustainability issues are inextricably linked with a corporate’s ability to generate value. “It’s the nexus of the two that is so critical,” she says, following a workshop she delivered at the ACT Annual Conference in May.
The workshop included guidance on how to understand materiality assessments and the key concepts around the financial effects of pollution, as well as case studies from companies including carmaker Ford and builder Taylor Wimpey.
In its recent report ‘Broadening the Horizon,’ the University of Cambridge Institute for Sustainability Leadership said finance functions will be looking for solutions that are simple to understand and easy (or at least manageable) to implement. It said material changes must be convincing to the board, executive team colleagues and company employees.
“They must withstand the testing of assurance and be convincing to stakeholders, particularly to the financing community and relevant regulatory bodies, and stand up to public scrutiny (eg, accusations of greenwashing),” said the report, which included contributions from specialist body Accounting for Sustainability.
The report said measures and processes need to be simple and to make business sense. The more complex a process or measure, the more time must be spent running and managing it and the more effort must be spent explaining it to non-financial executives and managers, said the report.
“In the realms of information, insight, support and challenge, whatever is provided to end users must be easily understood, otherwise it will not be used and will have no impact,” it added.
Lawrie Holmes is a freelance business and financial journalist
The ACT ESG Conference 2024 will be on 28 November. Sign up