Time for mining and other companies to recognise the cost of their climate obligations
By Terry Blackman, London Mining Network Treasurer
The accounting world was recently taken by a minor storm when the International Financial Reporting Standards Foundation launched a consultation exercise on its proposal to create a new Sustainability Standards Board.
This may have passed you by, but it’s quite significant in its way. International Financial Reporting Standards (IFRS) govern how most companies put their accounts together, and as a former auditor myself I can confirm that they constitute quite a tough regime. That said, they haven’t prevented corporates such as major mining companies abusing the planet with impunity, but perhaps this unassuming-looking initiative actually contains the seeds of positive change. If a body with clout like the IFRS Foundation is thinking about setting rigorous unified standards for sustainability reporting, which many of us see as just another slick exercise in greenwashing by the big corporates, this should rattle a few cages, right?
It’s certainly a job that needs doing. As the Chair of the International Accounting Standards Board (which oversees IFRS) noted in a speech in 2019 ‘there are at least 230 corporate sustainability standards initiatives across more than 80 sectors’. A bit of a mess, frankly, and largely unaudited as well. Bringing sustainability reporting into the company audit regime, which the IFRS Board seems to suggest, would add a lot more credibility to the reports companies currently put out to try and convince us that all in the garden is rosy in this best of all possible worlds etc.
That said, unless some fundamental changes are made to the IFRS themselves, there is a risk that this will all come to nothing, when we really need it to come to net zero. As Richard Murphy of the Corporate Accountability Network has set out in his response to the consultation, the proposed establishment of a Sustainability Standards Board is based on the assumption that financial reporting and sustainability reporting should continue as entirely separate exercises, when they are fundamentally connected. Indeed, we should see financial reporting as just a subset of sustainability reporting. After all, companies won’t be able to do any financial reporting if they destroy the planet that they operate (and we live) in.
Most importantly, he also argues that companies that accept the obligation to achieve net zero carbon emissions (the wonderful BHP aims to do this by 2050) should recognise this in their balance sheets through a liability equivalent to the cost of actually doing this. (‘Obligation’ has a specific meaning in the accounting world – if you accept an obligation, you have to express this in the form of a liability. For example, mining companies have Asset Retirement Obligations to rehabilitate the major messes they’ve made where sustainable indigenous communities used to live, and it’s a moot point whether these are sufficient.)
If net zero obligations were to be accounted for realistically, it may well transpire that certain companies are so far down the path of planet-trashing that they are ‘carbon insolvent’ and no longer going concerns from a rational perspective. Armed with this information, investors might then act rationally and use their influence to change company behaviour. We can always hope. In fact, that’s all we have. The IFRS Foundation will ‘hopefully’ wake up to the logic of Richard Murphy’s case once it has a proper think about it. Richard also argues that the consultation document’s focus on doing this primarily for the investment community is too narrow, and of course he’s right. We all have a stake in what mining and other companies are doing to our world. But it’s a start.