How accounting and reporting can grow sustainable finance

by Carol A Adams

How can the financial sector support a more sustainable and inclusive economic system which is low carbon and resource efficient?  This question was tackled by a European Union (EU) ‘High Level Group of Experts’ in a report published last month.

It notes the increasing relevance of sustainability information for investors and calls for better integration of sustainability issues into accounting standards.  It particularly expresses concern with the definition of assets in IFRS 9 as not supporting long-term financing.  Such is its dissatisfaction with IFRS Standards that it recommends removal of the current requirement that EU companies follow them where they are not aligned with the EU’s sustainability and long term investment objectives. It does not however propose an alterative accounting approach.

Integrated reporting supports this convergence qualitatively through reporting that links sustainability factors with company strategy. (p 56)

It calls for disclosures on the governance approach to addressing long term sustainability risks and opportunities – which is also compatible with integrated reporting.

Further, the report of the EU High Level Group of Experts expresses concern over the lack of assurance of sustainability information.  It is a long time since I wrote, following an examination of the reporting-performance portrayal gap of a large chemical company:

Room for doubt as to whether reporting reflected performance on the scale highlighted here would not be tolerated in financial reporting. Adams (2004, p 752)

I’d examined sustainability reports published in the 1990s and documented material omissions and misleading information noting:

This degree of incompleteness would not be tolerated in financial reporting. (Adams, 2004, p749)

And yet despite the warnings about climate change and a substantial body of academic research evidence of poor sustainability reporting and reporters that hide behind voluntary reporting guidelines cherry picking what they disclose, there are submissions to the UK Government’s Environmental Audit Committee’s Green Finance Inquiry advocating a voluntary approach to the recommendations of the Financial Stability Board’s Task force on Climate related Financial Disclosure (TCFD).  This was not the line taken, of course, by the Climate Disclosure Standards Board (CDSB) or by Russell Picot Special Advisor to the TCFD in his verbal evidence recorded here.

Research demonstrates that when Boards are involved in the development of corporate reports that take a long-term focus and recognise that value is more than profit they are cognisant of a wider range of risks and opportunities (see Adams 2017).  They then set strategy accordingly, i.e. strategy that addresses sustainable development risks and opportunities. Incorporating the TCFD recommendations and a requirement to consider sustainable development risks and opportunities into the UK Companies Act Strategic Report requirements would therefore be effective because it is a report of the Board Directors.

The EU High Level Group of Experts advocates a ‘Think Sustainability First’ Principle which hard-wires sustainability thinking into legislative and policy making processes for financial regulation. It sounds simple enough.

But such change requires education on the impacts of climate change and the need to address the Sustainable Development Goals and how to incorporate this into decision making.  Governments could encourage professional accounting bodies to address it in the training.   Incentives are needed to encourage Business Schools to research and develop expertise in this area rather than follow journal rankings and lists (such as the FT 50 list[1]) which discourage research on approaches to and benefits of integrating sustainability into accounting and corporate reporting and particularly research conducted outside North America.  Of course, such incentives won’t help unless academics are encouraged to respond to consultation calls and the bodies and experts developing guidance include them. But whether they are involved or not there is a significant body of academic research which addresses recent national and regional government and UK FRC consultations.



Adams, CA, (2017) Conceptualising the contemporary corporate value creation process, Accounting Auditing and Accountability Journal 30 (4) 906-931. Read here

Adams CA (2004) The ethical, social and environmental reporting – performance portrayal gap Accounting, Auditing and Accountability Journal 17(5): 731–757. Read here.

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