Richard Barker calls for the EU and the IFRS Foundation to collaborate, as a matter of urgency, to mandate carbon reporting
Written by Professor Richard Barker
Triggering climate change and potentially devastating economic effects, the greatest issue of our time is global warming. The corporate sector is at the heart of this issue; it is a major contributor to global warming and is also greatly exposed to the effects of climate change.
We remain resolutely focused, however, on quarterly earnings as an indicator of corporate performance. While sustainability accounting and reporting is increasingly common, it is also marginal, and largely inadequate for investors’ decision making.
Global corporations cannot be held to account in the absence of effective accounting. This is well understood for earnings, the measurement of which is standardised, and audited. Accountability needs to be equally well understood for greenhouse gas (‘carbon’) emissions, the reporting of which is currently voluntary, incomplete, lacking in comparability, largely unverified, and inadequately linked to science-based targets for carbon reduction.
Fortunately, of all the many and varied environmental, social and governance (ESG) metrics, carbon emissions are the easiest to deal with. For the most part, we measure them already, according to a generally accepted protocol. They are also straightforward to audit.
Equally fortunate, there exists a political and institutional framework for making carbon reporting mandatory. The EU has the will and the statutory authority, and while it does not have expertise in setting accounting standards, nor credibility with investors in that regard, it can achieve both by partnering with the International Financial Reporting Standards (IFRS) Foundation. This is the very same partnership that led rapidly to global financial accounting standards. With modest increment to IFRS structure and funding, it could lead equally well - and even more rapidly - to a global standard for the reporting of carbon emissions.