The US House Financial Services Committee which oversees both the United States Securities and Exchange Commission, Public Company Oversight and the Accounting and Auditing Profession just passed legislation that would require issuers (Public Companies) to disclose certain activities relating to climate change, and for other purposes. The proposed legislation would require the US SEC to issue climate risk disclosure guidelines to the capital markets. The legislation now goes to the US House for a full vote. Meanwhile, legislation has been introduced in the US Senate for consideration as well.
Currently, public companies and investors around the world are requesting that securities regulators standardize competing reporting frameworks to reduce reporting burdens by companies and provide clarity to investors to support a thriving $3.5 trillion sustainability investment marketplace through provide greater comparability and data analytics. Many US Public Companies are voluntarily disclosing this information in separate reports from the financials (CSR Reports). The Sustainability Accounting Standards Board (SASB) says that one in five investment dollars in the United States is going to sustainability investments and clarify and direction by the US SEC is needed to support climate finance in the US and abroad to prevent marketplace confusion. Many of the new innovations in climate finance is coming from the United States to deal with climate change. Trillions of dollars from both governments and the capital markets will be need to deal with this growing international crisis.
Supporters of the bill cited a June report from Moody’s Analytics that said global economic damage related to climate change will be an estimated $54 trillion in 2100 under a warming scenario of 1.5 degrees Celsius, and $69 trillion under a warming scenario of 2 degrees Celsius.
Management accountants will play an important role in helping companies to comply if this law is approved by the US Congress and signed into law by President Trump. Climate disclosures will become part of the financial reporting process and include this additional non-financial data in its reporting process.This means management accountants will need to become educated about the various disclosure frameworks and new internal controls and data analytical resources and tools that can be used by the finance team if the US SEC were to mandate climate risk disclosure. The IMA has and will continue to serve as a resource management accountants around the world can utilize to support a connected and thriving capital markets as more and more companies move into non-financial reporting.
Meanwhile, the EU, Japan, France and China are moving full-speed ahead in passing similar legislation to drive capital markets investments into climate finance to address climate change.
The UN's Secretary General Antonio Guterres has declared war on the issue, stating that the status quo is suicide.
This move makes US public companies internationally competitive as an economic engine to address this growing global crisis. Management accountants will be one of the key players in moving to non-financial reporting to enhance the value of companies they serve and support a sustainable marketplace.
What role could technologies such as XBRL (IMA is a founding member of XBRL) now play if these additional non-financial data sets are required for public company disclosure. Could XBRL be used as another tool to help management accountants obtain greater transparency and accountability by making the data "machine-readable" for better data analytics to support investment to the companies they support? Stay tuned.
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