Progress on climate change is meaningless unless it can be measured
In the climate change arena, political debates over things like nuclear power versus natural gas versus wind power will always be more interesting than wrangling over accounting or auditing standards. File Picture: David Creedon
Assurance of the quality of what we use is something we in the Western world take for granted. We rarely question the place of origin of the food we buy as indicated on the package, or challenge if the package contains the amount it says. When we lodge or transfer money, we take it for granted that it has been properly brought to account.
For many people, the whole business of assurance, be it for quantity, quality or accuracy is a deeply uninteresting process. Until, that is, something goes wrong. Breaches of standards usually make for big news. In Germany this week, executives of the financial services provider Wirecard, which failed some years ago, went on trial. As the case developed there were allegations that the independent assurance process carried out by the company auditors on Wirecard’s assets and transactions was not sufficiently robust.
Given that in Ireland any business which holds assets in trust and all companies with a turnover in excess of €12m are subject to audit, audit failure is relatively rare. However, for audits to work, there must be commonly agreed standards by which companies make the reports, and also commonly agreed standards to be used in the course of the audit to ensure that the company’s business is properly vetted.
As part of the response to the climate change crisis, governments in most developed countries are in broad agreement that companies should be reporting on their environmental as well as their financial performance. Reporting on environmental performance should be audited in the same way as financial reporting. Reliable comparisons can be made at present say between the financial performance of a car manufacturer in Germany with the financial performance of a British car manufacturer. Without common environmental standards, it is impossible to draw reliable comparisons about the quality of emissions management between the same two companies.
This inability to provide consistent assurance matters for two reasons. Firstly the market share of any business is increasingly determined by its green credentials. One of the strengths of the Government White Paper on Enterprise, published last week, is its prioritisation of environmental concerns. As the White Paper puts it, “embedding decarbonisation into enterprise policy is no longer a choice but an environmental and economic imperative”. There is however little incentive for a company to invest in decarbonisation without being able to prove the progress it is making.
Secondly, any form of assurance is expensive for companies, and it becomes more expensive if there aren’t consistent standards by which to carry it out. The EU Commission has made significant progress in recent months in developing environmental reporting standards, which can then be followed up with corresponding standards for audit and assurance of emissions outcomes.
Unfortunately, there are now serious question marks over whether or not the European institutions will continue to provide sufficient funding to see the process through, as the costs of developing new standards mount up. Also, there are competing attempts underway at devising environmental accounting standards. The work of the International Sustainability Standards Board has been endorsed by the G7 but their guiding principles differ from the EU approach. Even if the European institutions do come up with the funds, any EU standards which may become finalised will only be enforceable in EU countries.
In the climate change arena, political debates over things like nuclear power versus natural gas versus wind power will always be more interesting than wrangling over accounting or auditing standards. Yet such standards are hardly less important. What gets measured gets done.
Brian Keegan is Director of Public Policy at Chartered Accountants Ireland
