Accounting & Auditing Board of Ethiopia (AABE) is urging accountants and auditors to adopt international standards on climate risk and sustainability disclosures. The call comes as global investors are prioritising companies that exhibit strong environmental, social, and governance (ESG) performance.

Consultants argue that failure to act risks isolating Ethiopia from global markets, jeopardising its ability to attract investment, and compounding the country’s exposure to environmental and economic vulnerabilities.

A meeting convened last week at the Ministry of Finance saw officials from the Board discuss a roadmap for sustainability auditing. Dereje Gelana, a senior consultant at AABE, noted the regulatory pressure on local companies to align their operations with sustainability practices to ensure long-term viability.

“Compliance is inevitable,” he said.

Global standards are on the horizon.

Effective January 2024, the IFRS Foundation introduced two new sustainability disclosure standards. Companies are now compelled to integrate industry-specific details on sustainability risks and opportunities into financial statements. The standard also delves into a distinction between physical and transitional risks linked to climate change, outlining how companies should set and report their climate-related targets.

Since Ethiopia adopted IFRS standards in 2019 for publicly accountable companies like banks, insurers, and government-owned enterprises, the Board has been overseeing implementation. The standards compel companies to disclose climate-related risks and governance processes. Neighboring Kenya’s recent announcement to enforce mandatory compliance by 2027 adds further urgency, according to the Board.

Financial institutions face growing pressure to comply with sustainability reporting standards. Fikadu Agonafir, director general of the Board, accentuated auditors' role in ensuring transparent and reliable disclosures. He revealed that a new proclamation presented to Parliament aims to establish an institute to train and certify auditors locally, reducing reliance on costly overseas certification programs.

"Regulatory pressure is mounting," he said.

Ethiopia has about 1,000 certified auditors and accountants, a figure dwarfed by the demand. Fikadu emphasized reforms to bolster auditors’ professional capabilities and ensure compliance with both local and international standards.

There are currently 1,000 certified auditors and accountants with AABE membership.

Fikadu noted the ongoing reforms sought to align with local and international auditing standards and enhance the professional capabilities of auditors. He said they are facilitating a smooth transition to these standards through ongoing training, guidance, and advocacy initiatives.

“We’re working to establish a national institution for training and certification,” he said.

While efforts are underway to ease the transition, limitations remain. Auditors have raised concerns over limited resources, high turnover, and insufficient technological capacity. Gobeze Desalegn, director at HST auditing firm, noted the cost and complexity of sustainability audits, compounded by the absence of reliable data.