IFAC sees need for internal controls for sustainability

The International Federation of Accountants has issued a report on how organizations can combine sustainability reporting with their existing internal control and governance frameworks.

The report, released Tuesday by IFAC, explains how accountants are positioned to leverage their organization’s existing internal control framework and apply it to sustainability information to improve data quality and the connections between sustainability and financial reporting.

The COSO Internal Control – Integrated Framework from the Committee of Sponsoring Organizations of the Treadway Commission has long offered a foundation for delivering confidence in corporate reporting. In an integrated internal control environment, it can similarly act as the foundation for enhancing the quality of sustainability data to measure progress on sustainability objectives and buttress investor confidence in companies’ sustainability and financial performance.

An integrated internal control approach can result in higher quality and more integrated reporting and help companies avoid the perception they’re “greenwashing” their sustainability accomplishments, opening themselves up to regulatory or legal action.

“The professional accountant’s skillset is instrumental in bringing about a step change in the quality of sustainability reporting through applying new reporting standards and integrated internal controls,” said IFAC CEO Kevin Dancey in a statement. “Integrated internal control can put sustainability information on par with financial information, enhance its assurance readiness, and set the foundation for transitioning to a more sustainable business model.”

Separately, AICPA & CIMA hosted an online conference Wednesday on ESG and sustainability. 

“From a professional standpoint, the standardization of measurement and reporting, and communication and ultimately, assurance that goes into it is really around the need for quality information,” said AICPA president and CEO Barry Melancon. “It ought to be standardized as much as possible. That’s the position that we’ve taken, because otherwise businesses and their supply chains will have a very difficult time of cooperating and really containing all the information that’s necessary. When we think about the quality aspects, we think about data quality, process and controls, just like we would in financial information. The notion of controls is a critically important process that goes along with this process. And then of course, governance and oversight come into play, so boards, internal audit functions and external reporting go into that process, and it all becomes part of that element. And then assurance plays a role, because frankly, it needs to be reliable and comparable, and that’s where the assurance role of our profession really plays out.”

The report and the conference coincided with the final days of the United Nations’ COP28 climate change conference in Dubai, where delegates agreed for the first time to gradually transition away from fossil fuels to net zero emissions by 2050.