Proposed IFRS Sustainability Standards shall require disclosing the impact on ESG compliance of the overall environment of lacking rule of law and free speech and inability of inspecting audit working papers for those entities listed abroad by foreign accounting authorities such as US PCAOB.
Author：CPA Jim from Himalaya Washington DC
On 5 June 2021 G7 Finance Ministers and Central Bank Governors published Communiqué, the fourth point in which
“welcome the International Financial Reporting Standards Foundation’s programme of work to develop” “a baseline global reporting standard for sustainability”.
On 7 June 2021 the IFRS Foundation Trustees announced the establishment of an Eminent Persons Group to provide strategic advice and counsel to the Trustees on the proposed formation of the International Sustainability Standards Board and its connectivity with jurisdictional initiatives. Trustees encourage stakeholders to respond to consultation on proposed amendments to the Foundation’s Constitution, which sets out the institutional arrangements to accommodate the formation of the proposed new board within the governance structure of the organisation.
According to the announcement, the Eminent Persons Group is chaired by Jean-Claude Trichet, former President of the European Central Bank. Other membership is: Sheila Bair, former Chair of the US Federal Deposit Insurance Corporation; Nandan Nilekani, Chair and co-founder of Infosys; Guillermo Ortiz, former Governor of Banco de Mexico; former Chair of the Bank of International Settlements; and Min Zhu, former Deputy Managing Director of the International Monetary Fund.
Min Zhu is chairing National Institute of Financial Research, Tsinghua University. According to IMF website, before assuming Deputy Managing Director of the IMF, he served as Special Advisor to the Managing Director of IMF from May 3, 2010 to July 25, 2011. Mr. Zhu, a native of People’s Republic of China (PRC), was a Deputy Governor of PRC central bank. Prior to his service at PRC central bank, he held various positions at the Bank of China where he served as Group Executive Vice president. Mr. Zhu also worked at the World Bank and taught economics at both Johns Hopkins University and Fudan University.
It could be easily inferred that Min Zhu is acting as an agent of CCP to earn illegitimate interest for CCP by influencing the process of making IFRS Sustainability Standards (IFRSSS).
Misstatement in Sustainability Reporting is likely to mislead financial market severely. For example, a research report, published by Climate Bonds Initiative (CBI) & China Central Depository & Clearing Co. Ltd Research Centre (CCDC Research) with the support of HSBC on 29 June 2020, classified into green finance the bond issued by CGN Power Company International, a CCP’s PLA military entity.
According to what was uncovered by Lude Media，Hong Kong CitizenNews reported that a permission paper made by PRC Ministry of Ecology and Environment in 2017 informed that the six-unit Daya Bay Nuclear Power Plant of CGN, which is only 50 kilometres away from Hong Kong, emitted an average of 20% of the upper limit of liquid tritium emissions per year, or about 49.5 MB, which is ten times higher than the emission standard set by the Fukushima Nuclear Power Plant in Japan. How dare they to classify CGN bond as green？
Due to Great Firewall and US PCAOB’s inaccessibility of working papers of audit, the information included in both sustainability reports and consolidated financial statements of both PRC entities and multinationals with PRC operation such as Volkswagen, JP Morgan and Citi Bank will be misleading, distorting international financial market. Emissions fraud scandal has occurred to Volkswagen, in which it admitted that it manipulated cars sold in PRC.
Therefore, specific IFRSSSs shall be responsive to the historic challenges created by CCP on faithful information because the CCP challenges are globally impacting entities, investors and financial markets.
One IFRSSS is advised to deal with impact on ESG and related information faithfulness of lacking rule of law and lacking free speech, such as impact of Great Firewall on accuracy of contingent liabilities, revenue and comprehensive income. The disclosure shall be made on the top page.
Another IFRSSS is advised to deal with impact on ESG related information faithfulness of rejecting foreign inspection of working papers of audit on financial reports and sustainability reports of entities listed abroad.
Besides, IFRSSS is also advised to deal with ESG concerns on entities which have businesses in countries where FATF recommendations on anti-money laundering and counter terrorist financing are not fully adopted.
At the same time, corresponding amendment is advised to be made to International Standards on Auditing to deal with the CCP challenges by requiring disclosing impacts of elements mentioned above on auditing on the top page of auditor’s reports.
(This article only represents the author’s own views)