Mark Babington, board member of the International Ethics Standards Board for Accountants (IESBA) and Executive Director of Regulatory Standards at the UK’s Financial Reporting Council.
Babington, who is also Executive Director of Regulatory Standards at the UK’s Financial Reporting Council (FRC), told IPA members “even when a government is skeptical about climate, they still want to attract capital and investment”.
“We still know that in significant parts of the investment landscape, climate and sustainability is really important, and it is used to determine whether or not an investment will be made” he said.
The newly released International Ethics Standards for Sustainability Assurance (IESSA) are set to transform the finance profession by strengthening how sustainability information will be verified. The standards, which take effect from December 2026, establish rigorous ethical requirements for practitioners who provide assurance on sustainability reports.
The standards address the uncertainty from the long time horizons and assumptions used in sustainability reporting. Unlike traditional financial statements that look backwards, sustainability commitments can be made decades into the future.
“If you look at a company reporting on its commitments to deliver net zero, you may be looking at something that is delivered 30-plus years in the future,” Babington said.
“The pension funds in the UK are still all saying because we are investors for the long term, unless there is a proper consideration of climate and sustainability, we’ve got no grounds to invest because we don’t know what’s going to come if you don’t take account of that.”
“We still know that in significant parts of the investment landscape, climate and sustainability is really important, and it is used to determine whether or not an investment will be made.”
Mark Babington, board member of the International Ethics Standards Board for Accountants (IESBA), Executive Director of Regulatory Standards at the UK’s Financial Reporting Council
New framework a “one-stop shop”
The standards create a standalone section in the ethics code specifically for sustainability assurance.
“Ethics matters because it gives a justifiable basis for public confidence,” Babington said. “If it’s not there, it undermines everything. We’ve heard a lot about greenwashing in financial information and the damage it can do.”
He said this “one-stop shop” approach covers all practitioners, whether they’re accountants or specialists from other fields, to ensure they have consistent guidance on ethical requirements.
The new framework acknowledges that sustainability assurance often requires expertise beyond traditional accounting. “Sustainability reporting and assurance brings in a different cadre of people,” Babington said. “You have different expertise, coming from different professions and different sorts of practice.”
Smaller entities are likely to use external experts for specialist help in technical areas such as measuring greenhouse gas emissions. However, it has yet to be determined how non-accountants will be regulated and who will monitor their compliance with the code.
“The systems that underpin sustainability reporting certainly aren’t well established like they are with financial reporting,” Babington said. “The controls and the internal controls around them are perhaps less well developed, less mature. The information itself is probably more judgmental, with higher levels of uncertainty.
“This information is real sort of public interest information. It is of high importance.”
Sustainability reporting rolling out in Australia
Australian Group 1 entities, the country’s largest organisations, began mandatory reporting from January 2025, with smaller entities following in subsequent years. The new law requires large Australian companies and financial institutions to disclose their climate-related risks and opportunities.
The new requirements are aligned with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), a globally recognised framework for climate-related financial reporting. This alignment positions Australia alongside other major economies that have adopted similar measures, including the UK, EU, New Zealand, and Singapore.
Under the new rules, impacted companies will be required to conduct scenario analyses, perform financial modelling of potential climate impacts, report their carbon footprint and disclose their progress against emissions reduction targets. The legislation also mandates the disclosure of Scope 1, 2, and 3 greenhouse gas emissions, transition plans in accordance with Australia’s commitment to net zero emissions by 2050 and climate scenario analysis.
Smaller businesses in the supply chain not directly subject to the new reporting requirements may need to measure and manage their carbon footprint to remain competitive.
The Australian Accounting Standards Board (AASB) is currently working on simplifying climate reporting requirements for smaller entities. This approach recognises the need for proportionate regulation and reflects a global push to make sustainability reporting manageable for organisations of different sizes. This proportionate and phased approach for smaller entities has been a major focus for the IPA’s advocacy in this area.
Channa Wijesinghe, Vice Chair of the IESBA and CEO of the Accounting Professional & Ethical Standards Board (APESB) said definitions in the Australian context had been aligned with those of IESBA.
“For public interest entities, we’ve maintained consistency — if you’re classified as one for financial statement audits, you’ll be treated the same for sustainability assurance,” he said.
PwC sharpened focus on governance and culture
Recent ethical breaches across multiple jurisdictions such as the Pw-C scandal have increased the focus on firm governance and culture.
When firms behave unethically, it impacts not only their reputation but the entire profession,” Wijesinghe said. “We’ve seen this in Australia, UK, US, South Africa, and Canada — everyone gets tainted with the same brush.”
The changing business model of accounting firms presents additional challenges. “Over the last decade, we’ve seen remarkable growth in non-audit services,” Wijesinghe said.
“For the Big Four in Australia, audit services now comprise just 15% of revenue, with non-audit services to non-audit clients accounting for nearly 80%.”
Following extensive global stakeholder engagement, Wijesinghe led a working group on firm culture and governance. “Senior leadership must set the tone for ethical behaviour,” he said. “We’ve found that in countries with independent non-executives, such as the UK and Japan, there’s better governance because these individuals question and challenge leadership.”
He said incentives play a significant role in influencing corporate behaviour. “If I had to focus on one area, it would be aligning rewards and incentives,” Wijesinghe said. “Misaligned incentives often drive unethical behaviour.”
Continuous education and a culture of consultation will help raise ethical standards. “Ethics training isn’t a one-time event — it requires constant reinforcement,” he said. “Similarly, we need to foster an environment where consultation and challenge are encouraged across all service areas.”
More information on IPA’s CPD here.
