Brazilian accountants have until the end of the year to become sustainability experts – 06/28/2023 – Rodrigo Tavares

There are around 530,000 accountants in Brazil, around 200,000 finance professionals linked to medium and large companies and a few hundred specialists in corporate sustainability. They will all be directly impacted by a historic announcement made this week that few paid attention to.

The IFRS Foundation, which is responsible for the accounting standards practiced in around 140 countries, including Brazil, launched the first global sustainability reporting standard (IFRS S1 and IFRS S2). It will come into force on January 1, 2024. Brazilian regulators have already indicated that they will support the initiative.

Why is this relevant? The sustainability profile of a product, project or financial asset needs to be communicated to the market with precision and consistency to allow comparability and rationality in the decisions of consumers, investors and banking entities.

However, currently, there are more than 30 sustainability reporting methodologies, more than 100 ESG rating agencies, more than 50 national regulators with contrasting orientations, more than a dozen financial materiality identification tools (selecting the ESG metrics that have the most financial impact) and thousands of ESG metrics –many of them not very relevant from a financial and mathematical point of view.

Since COP26 in Glasgow, expectations have been very high regarding the ability of the IFRS Foundation to fix the global sustainability market through the launch of universal sustainability reporting rules. The day has come.

But why is this not a technicality, an administrative fluff? All companies are required to report financial data. In Brazil, since 2016, listed companies are required to also report sustainability data, as a company’s ESG profile impacts its risk profile.

SMEs that sell their products and services to larger companies, mainly European ones, are also being forced to report their ESG profile. The new IFRS global sustainability reporting standard is fully aligned with IFRS accounting standards, as expected, but also with GAAP accounting standards, widely used in the US.

The coming years will be marked by structural changes in behavior. Businesses and financial institutions will need to invest in training. National regulators will have to focus on the absorption of the new rules by the domestic market, including from a legal point of view. The coming months and years will see a significant reconfiguration. Everyone will have to learn a new language to do business.

Currently, around a third of all assets under management are invested also considering ESG metrics, to more accurately identify risk and opportunities. But investors have always expressed discomfort about the lack of standardization in the market. Fixed this issue, it is possible that the volume of capital that integrates ESG metrics will grow.

Despite the good news, the new IFRS global sustainability reporting standard is not immune to challenges.

The merit of the new standard is that it identifies the specific slice of the big world of corporate sustainability and sustainable development that companies and investors need to pay attention to with greater visual acuity. The focus is exclusively on the piece of the pie that affects the company’s financial statements and financial information.

In the column, Aron Belinky, one of the most recognized sustainability consultants in Brazil, reinforces that “this filtering can be seen as positive, in that it directly serves capital holders, who will be able to decide with broader criteria the businesses they will carry out “.

But what about the rest of the sustainability pie? The concept created in the 1980s is much broader and unifying than the handful of ESG indicators that are financially relevant.

What if there are companies that decide to contribute to the mitigation of some ESG problems, even if this does not translate into direct financial benefits?

Belinky reinforces: “sustainability does not mix with simplicity and immediacy, but, unfortunately, time pressures and resource limitations often severely narrow the scope and completeness of business and financial analyses.”

Another limitation concerns the impact (positive and negative) on society and the environment of financial transactions. European legislation (SFDR) obliges financial institutions to report it, regardless of the financial relevance of these externalities. But the new IFRS reporting standard has neglected this issue.

“The fact that some impacts are not perceived today as relevant for business does not make these impacts less important from an ethical, political or scientific point of view”, says Belinky.

The gradual and global adoption of the new IFRS sustainability reporting standard will impact the work of accountants because, in many cases, they will be the ones who will be responsible for reporting sustainability data, in addition to financial ones.

Today they know how to account for the annual variation in Ebitda, but in the future they will also have to learn to calculate the emission of metric tons of CO2. If the automation of accounting processes in the 1950s allowed the old bookkeepers to become accountants, sustainability will enable accountants to increasingly become financial advisors.

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