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Top accounting body will not add to climate change rules overload

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By Huw Jones

LONDON (Reuters) – Rules to determine which companies investors can put their money into without fear of harming the environment need to be consolidated and one of the world’s leading accounting agencies has no intention of adding to them, its top official said.

In the first indication of the role the International Accounting Standards Board (IASB) sees for itself in policing the reporting of sustainability by companies, its chair Hans Hoogervorst signalled little appetite for mandatory rules.

Given that IASB standards are used in 144 countries, this is likely to come as a relief to many companies as they feel increasing pressure from investors to quantify “sustainability” or level of potential harm to the environment and society.

Hoogervorst, a former Dutch finance minister and a convert from scepticism over global warming, said the best way to make companies change was by having standards that focus on the impact of sustainability issues on future profit, which was not happening with the existing plethora of rules.

“To give one example, Tesla is ranked highest in terms of the sustainability index of MSCI, while FTSE ranks it as the worst carmaker globally on environment, social and governance issues,” Hoogervorst told a Climate-Related Financial Reporting conference at Cambridge University.

“Yet another agency puts it somewhere in the middle. People may be forgiven for not making head or tail of it. Moreover, with so many standards, the potential for disclosure overload is enormous,” he added.

Hoogervorst said the IASB aims instead to shape the “front end” of financial statements where companies provide commentary on financial figures set out under its mandatory rules in the “back end”, and is working on a major overhaul of its “practice statement” that guides them on the front end context.

But the ability for sustainability reporting to persuade companies to put “planet before profit” has been exaggerated in the absence of political intervention, he said, pointing to the airline industry as an example of market failure where ticket prices did not fully reflect flying’s environmental impact.

“It is good that the Group of 20 Economies is promoting climate-related disclosures. It would be a thousand times better if they could agree on the introduction of a kerosene tax.”

(Reporting by Huw Jones; Editing by Alexander Smith)

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