Institute of Chartered Accountants of India (ICAI) underscores the accounting profession’s critical role in fostering sustainable development amidst global climate challenges. The message emphasizes the importance of sustainable finance, as highlighted by COP28 agreements and the growing focus on green finance through innovative instruments like sustainability-linked bonds. The need for global collaboration and substantial investment in sustainable infrastructure is clear, with an estimated $1 trillion needed annually by 2030 to combat climate change. The ICAI advocates for robust global standards in sustainability reporting to enhance transparency and attract investment, aligning with frameworks like those from the International Sustainability Standards Board (ISSB) and the Global Reporting Initiative (GRI). India’s proactive measures, including the Panchamrit plan and the Business Responsibility and Sustainability Reporting (BRSR) mandate, position it as a leader in global climate action. ICAI’s initiatives, such as the Sustainability Reporting Standards Board and the development of assurance standards, further strengthen the profession’s commitment to sustainability. The message calls for accountants to leverage their expertise in financial analysis and reporting to support the transition to a sustainable economy, emphasizing the importance of non-financial reporting and embracing technological advancements like AI to enhance transparency and compliance.
Institute of Chartered Accountants of India
ICAI President’s Message – September 2024
Dear Professional Colleagues,
The global economy is at crossroads of unprecedented global challenges, emanating from climate change and the accounting profession has a pivotal role to play in shaping a sustainable future.
As we steer towards the pursuit of sustainable development, issues like climate change and environmental degradation needs to be dealt with more consciousness taking into account a sustainable tomorrow. This journey towards sustainable development is long and arduous requiring collective efforts of all stakeholders i.e. Government, Industry and Public. Most importantly this journey, requires global collaboration, commitment and diverse set of resources including finance to take constructive and corrective measures to have a much-desired impact.
The Imperative of Sustainable Finance
COP28 marked the first time that nearly 200 countries agreed on the need to transition away from fossil fuels in energy systems – with action accelerating in this critical decade to achieve net zero emissions by 2050. Further keeping within the reach the Paris Agreement target of limiting global warming to 1.50. This marked the beginning of a new era in sustainability.
Recent developments in sustainable finance reflect this momentum. There is a growing focus on scaling up green finance, with new instruments such as sustainability-linked bonds and transition finance gaining traction. Additionally, the rise of digital financial technologies, like blockchain and AI, is revolutionizing the way sustainable finance is managed, offering new ways to track and verify the impact of investments. The upcoming COP29 is expected to further shape the global agenda for sustainable development. Areas of focus may include nature-based solutions, climate adaptation finance, and just transition strategies.
As per International Monetary Fund (IMF), global investments of at least $1 trillion in energy infrastructure by 2030 and $3 – $6 trillion across all sectors per year by 2050 is required to mitigate climate change by substantially reducing greenhouse gas emissions. At this juncture it is essential that private financing be attracted to finance the climate fight.
As accounting professionals, we are the fulcrum of economic activity and being able to work with both policymaker and industry. Our role in promoting sustainable finance becomes critical in enhancing trust, credence and transparency by adopting global standards which would ensure fair and standardized information to investors and foster innovation through policy making in crafting financial investment instruments.
Global Standard Framework in Sustainability Reporting
The sustainable development projects are long and complex in nature and require long-term investments. To attract large investment higher level of trust and transparency is required. Therefore, it’s paramount to develop robust global standards and relevant frameworks for the financial markets to attract sustainable investments as well as realigning businesses towards adopting sustainable and environment friendly practices.
With the rise of ESG considerations in the financial reporting, sustainability reporting has also gained prominence. The International Standard setting institutions and regulatory bodies are enhancing transparency, accountability and comparability in various sustainability reports and ESG disclosures by formulating global standards. The International Sustainability Standards Board (ISSB) set up by the IFRS Foundation in 2021, has set global baseline standards with IFRS S1 and S2 for general requirements for Disclosure of Sustainability-related Financial Information and climate-related disclosures. One of the most widely used framework ‘Global Reporting Initiative’ (GRI), set up as a collaboration between United Nations Environment Programme (UNEP) and the Coalition for Environmentally Responsible Economies (CERES) offers comprehensive guidelines for reporting diverse ESG issues, while the Sustainability Accounting Standards Board (SASB) focuses on industry-specific, financially material information. The Task Force on Climate-related Financial Disclosures (TCFD) provides recommendations for climate-related financial risk disclosures. Additionally, the European Sustainability Reporting Standards (ESRS), developed under the EU’s Corporate Sustainability Reporting Directive (CSRD), enhance and standardize ESG reporting in Europe. Incorporating frameworks like the Carbon Disclosure Project (CDP) further enriches the sustainability reporting ecosystem, providing a platform for disclosing environmental impacts and enhancing transparency. Together, these standards improve quality reporting, comparability and transparency, facilitating informed investment decisions and promoting responsible business practices as well as addressing the concerns arising from Greenwashing and other prevalent malpractices.
Climate Change & India
Climate change is one of the most pressing challenges of present time. India too has witnessed an increase in the frequency and intensity of extreme weather events, such as floods, droughts, and cyclones. As per World Bank estimates, the economic implications of climate change could cost India 2.8% of its GDP by 2050.
India at COP26 has announced its Panchamrit – Plan for Climate change and is set to achieve its short-term and longterm targets on global climate action like- reaching a non-fossil fuel energy capacity of 500 GW by 2030; fulfilling at least half of its energy requirements via renewable energy by 2030; reducing CO2 emissions by 1 billion tons by 2030; reducing carbon intensity below 45 percent by 2030; and finally pave the way for achieving a Net-Zero emission target by 2070. The nation has achieved its 2030 target of sourcing 40% electricity capacity from non-fossil sources much ahead than targeted. India is leading the climate change movement fostering global cooperation amongst the G-20 nations to fight Climate change.
Over the last few years, India is already moving ahead to build an enabling sustainability reporting framework through various regulatory measures like NGRBC (National Guidelines on Responsible Business Conduct), issued by the Ministry of Corporate Affairs (MCA), in 2019, which outlined principles for responsible business conduct that Indian companies are expected to follow for sustainable and inclusive development. Securities and Exchange Board of India (SEBI) has mandated the top 1,000 listed companies by market capitalization to disclose Business Responsibility and Sustainability Reporting (BRSR) from FY 2022-23 onwards. Recently, India introduced the BRSR Core framework to enhance assurance and ESG disclosures across the value chain as well.
As per union budget 2024-25, Government will be coming out with Climate Finance Taxonomy for enhancing capital availability for Climate adaption and mitigation related measures for strengthening the sustainability ecosystem.
To drive its growth while advancing the sustainability agenda, India needs to play a pivotal role in promoting climate financing. By encouraging regulated entities to adopt robust risk mitigation frameworks, we can facilitate access to both domestic and international capital. This approach will provide the necessary financial support for green projects, supporting sustainable development and economic growth.
Accounting Profession & Sustainability
The accounting profession in India is uniquely positioned to lead the transition towards a sustainable economy. Our expertise in financial analysis, reporting, and assurance makes us essential partner in the journey towards sustainability. To address the complexities of sustainable finance, climate change, and ESG disclosures, the Institute is committed to providing its members with the resources and training needed to stay ahead of emerging trends. We must embrace new tools and methodologies that enable us to analyse and report on ESG factors with the same rigor and precision as traditional financial information.
As professionals, we must be vigilant in ensuring that ESG practices are not merely a box-ticking exercise but a genuine commitment to sustainability. Also, we must ensure that financial and non-financial information is presented meaningfully and that the impact of business activities on society and the environment are accurately disclosed.
The demand for ESG and climate-related information is driving innovation in reporting practices. As Professional Accountants, we must be at the forefront of these innovations, developing new reporting frameworks and assurance methodologies that meet the needs of a rapidly changing world. This includes exploring the use of technology, such as blockchain and data analytics, to enhance the transparency and reliability of ESG data.
The transition to a sustainable economy requires supportive policies and regulations. The accounting profession with its insights across segments has a voice in shaping these frameworks. We must advocate for policies that encourage sustainable finance, such as carbon pricing, green finance incentives and mandatory ESG disclosures. By engaging with policymakers, we can help create an environment where sustainable business practices are not only encouraged but required.
ICAI Initiatives for Sustainability
The Institute of Chartered Accountants of India (ICAI) has always demonstrated a strong commitment to sustainability through establishing its Sustainability Reporting Standards Board (SRSB) in 2020 much ahead of the formation of ISSB in 2021. The ICAI through SRSB has been pivotal in developing and promoting standards and guidelines that enable professionals to effectively report on sustainability practices. ICAI has developed the “Sustainability Reporting Maturity Model” to help organizations assess and improve their sustainability reporting practices. Similarly, since 2021, the ICAI is organizing Sustainability Reporting awards both at national and international level to recognize best practices and inspire entities to adopt the sustainability framework.
The ICAI formulated Standards on Assurance Engagements, SAE 3000, Assurance Engagements on Sustainability Information and SAE 3410, Assurance Engagements on Greenhouse Gas Statements, which are key frameworks that guide professionals in providing assurance on sustainability reporting. The United Nations Conference on Trade and Development (UNCTAD) recognized and awarded the ISAR Honours 2023 to ICAI for its initiative Sustainability Reporting Standards Board (SRSB).
As ICAI marked its 75th anniversary, a Green Mahotsav initiative was launched by ICAI as our commitment to the nation in a crucial area of environmental sustainability, where we are gearing up to green the earth by planting 100,000 plants and trees. This initiative also resonates with our national leadership’s campaign ‘Ek Ped Ma Ke Naam’, which encourages every citizen to plant a tree in the name of their mother. Till now 23 Branches have planted around 8000 plants and 323 members have planted around 1330 plants all over India. Besides Sustainability Literacy Drive for masses, the ICAI is organising Certificate Course of Sustainability and BRSR for knowledge enrichment and capacity building of members.
Recognizing the growing importance of social sector, the ICAI played significant role in promoting and developing social audit in India by institutionalising Institute of Social Auditors of India (ISAI). Further ICAI has formulated 16 Social Audit Standards, along with guidelines and frameworks for conducting social audits. Through these efforts, ICAI is fostering greater transparency, accountability, and ethical practices in organizations, contributing to the broader goal of sustainable and socially responsible development in India.
Importance of Non – Financial Reporting
Non-financial reporting is increasingly becoming important as it provides stakeholders with a comprehensive view of an organization’s performance beyond traditional financial metrics. Non-financial information helps assess the long-term sustainability, ethical practices, and overall impact of a company on society and the environment. It enhances transparency, builds trust, and supports informed decision-making by revealing risks and opportunities that may not be apparent through financial data alone. As global emphasis on sustainability grows, nonfinancial reporting is going to play a vital role in shaping the future of business and societal well-being.
Artificial Intelligence in Reporting
Artificial Intelligence (AI) is transforming financial and sustainability reporting by enhancing accuracy, efficiency, and compliance with standards and disclosure requirements. AI-powered tools can automate the collection, analysis, and presentation of financial and non-financial data, reducing errors and streamlining the reporting process. In auditing, AI is enabling real-time analysis and continuous monitoring, improving the detection of anomalies and ensuring adherence to regulatory standards. In sustainability reporting, it can help organizations track and report on environmental, social, and governance (ESG) metrics, aligning with evolving disclosure requirements. As AI technology advances, its integration is poised to further elevate the quality, transparency, and timeliness of reporting.
The Path Forward
The challenges of shaping a sustainable future (Sustainable finance, Sustainability reporting and assurance) are numerous, but they also present opportunities for our profession to make meaningful impact and remain relevant in the 21st century. As Professional Accountants, we have the skills, knowledge, and ethical foundation needed to drive meaningful change in how businesses operate and how they impact the world around them.
In conclusion, the accounting profession stands at the forefront of a global movement towards sustainability. As the expectations of stakeholders continue to evolve, the accounting profession must rise to the occasion, providing the expertise, assurance, and ethical leadership to support transition to a more sustainable and resilient global economy.
Developments of Profession’s Interest
ICAI Elections 2024
The quadrennial election to the Twenty-Sixth Council and Twenty-Fifth Regional Councils are scheduled to be held on 6th and 7th December, 2024 in cities qualifying for two days’ voting and on 7th December, 2024 at all other places in terms of the provisions of the Chartered Accountants (Election to the Council) Rules, 2006 as specified by the Central Government. The details of relevant notification in this regard are covered in this journal.
Standard on Auditing for Less Complex Entities
The Institute is in process of coming out with Standard on Auditing for Less Complex Entities (LCEs). The Exposure Draft for public comments has been issued, with a submission deadline of September 9, 2024. This standard is tailored to meet the specific needs of LCEs while ensuring high-quality audits. It assumes that audit firms follow relevant quality management standards and emphasizes the importance of careful planning, professional judgment, and skepticism. Members are requested to share their comments on the Exposure draft with AASB.
Accounting Standard and Standard on Auditing for LLPs
As per section 34A of the Limited Liability Partnership Act 2008, recommendations of the ICAI regarding Accounting Standards for Limited Liability Partnerships (LLPs) have been considered by the NFRA and it has been decided that Accounting Standards notified as Companies (Accounting Standards) Rules 2021 will be applicable to LLPs. For the purpose of applicability of Accounting Standards LLPs will be Classified into two categories viz. Large LLPs (Turnover above 250 Cr and Borrowings above 50 Cr) and Small & Medium-sized LLPs – (Turnover below 250 Cr and Borrowings below 50 Cr). Exemptions/ relaxations which are currently applicable to Level III and Level IV non-company entities will be applicable to all Small & Medium-sized LLPs with the exception of exemption from AS 18 and AS 28 to LLPs with Turnover below 50 Cr and Borrowings below 10 Cr. These recommendations have been sent to MCA for their consideration.
For non-company entities to whom Accounting Standards issued by the ICAI apply, Similar changes with regard to classification and relaxations/exemptions are being made.
Further, the Institute has recommended that the Standards on Auditing (SAs), should also apply mutatis mutandis to the audit of Limited Liability Partnerships (LLPs). In line with this recommendation, ICAI submitted its proposal on Auditing Standards under Section 34A of the Limited Liability Partnership Act, 2008. This submission underscores ICAI’s commitment to ensuring consistency and rigor in auditing practices across different types of business entities, thereby enhancing the quality and reliability of financial reporting for LLPs in line with established standards for companies.
Teacher’s Day
On upcoming Teacher’s Day, our deepest gratitude to the educators and mentors who lay the foundation for the future of the accounting profession. Let’s continue to empower our future leaders to build a stronger, more prosperous India, shaping minds that will drive the nation’s growth and innovation.
On this occasion I conclude with the words of Dr. APJ Abdul Kalam “If a country is to be corruption free and become a nation of beautiful minds, I strongly feel there are three key societal members who can make a difference. They are the father, the mother, and the teacher.”
CA. Ranjeet Kumar Agarwal
President, ICAI
New Delhi, 31st August, 2024
