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As accountants, we’re dealing with a risk landscape that is rapidly evolving due to significant changes in ESG regulation. In the last 10 years, sustainability and ESG regulations have increased by 155%. This increase does not include the additional new accounting standards (such as IFRS 15 and IFRS 16) and other assurance reporting requirements. The incremental regulatory landscape creates heightened pressure to accountants as they need to ensure accuracy in their climate considerations when providing support to their clients.
The UK government's own climate change advisors have indicated “the country is strikingly unprepared to cope with the impacts of climate change”. 2024 began with the warmest January and February on record, as reported by the European Union’s Copernicus Climate Change Service. The volatility of changes in extreme weather are creating incremental risks impacting the decision making of accountants affecting risk assessment decisions.
The evolving risk landscape is adding anxiety and increasing mental stress for accountants who are already dealing with significant mental health concerns as raised by CABA in the 2023 and 2022 wellbeing reports (wellbeing arm of the ICAEW).
Risk assessment considerations -
In 2024, the World Economic Forum has identified the changes of extreme weather as one of the most significant risks affecting the global economy, and the UK has witnessed the hottest February and the wettest March on record (Met Office).
To respond to the complex risk landscape:
The IFRS Foundation has issued educational materials for accounts to understand how climate related risks affect the accounting and reporting of IFRS financial statements. It is imperative for accountants to be familiar with the above as pressures are mounting.
The FRC published in November 2021 (amended in 2024) “FRC staff factsheet, Climate-related matters” as part of a series that accompanies FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland.
The FRC “Audit quality inspection and supervision report” has identified the approach to climate related risk as an area of audit focus.
Mental health awareness - We note the following findings from the latest CABA wellbeing reports:
Young accountants in the UK are dealing with significant wellbeing concerns (for example due to incremental consumption of alcohol) which affects their decision making and cognitive functioning.
The 2022 report highlighted accountants are feeling overwhelming stress, with many feeling unable to prioritise their mental well-being amid demanding workloads.
Extreme weather will add further anxiety to accountants. We at Simplify Climate believe we need to better equip accountants with the right support from a mental and physical wellbeing to help improve their cognitive functioning and improve their mental health.
Key tips for accountants:
1) Self education is critical! Get familiar and start reading the information issued by regulators and provide feedback.
2) Engage with ESG stakeholders - attend regulatory consultations, engage with policymakers and provide feedback on proposed regulations to shape their development. This will help understand what the ESG related expectations are going forward.
3) Join ESG communities - connect with peers, experts, and organisations in the ESG space to be up to date. with all the key news and updates in the ESG sphere to help with your technical knowledge.
4) Understand double materiality - accountants are experts on understanding financial materiality, but we also need to understand impact materiality as this is increasing significantly in importance as a result of the growth of ESG in accounting.
How can Simplify Climate help you?
If you are an struggling to navigate sustainability and ESG landscape send us a message to help@simplifyclimate.co.uk
We want to simplify climate action! We are all in this together!
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