True and Fair: A Legal Imperative for the Financial Sector

New discussion document strengthens the case for integrating sustainability into mainstream accounting - and highlights the role investors can play. 

Social Value International (SVI), in collaboration with the Centre for Climate Engagement (CCE), has published a new discussion document exploring how the legal requirement for company financial accounts to present a “true and fair” view aligns with investors’ fiduciary duties, and the implications this has for integrating sustainability into financial reporting. 

This research forms part of SVI’s True & Fair Project, which is challenging how profit is calculated by revealing the hidden costs of doing business. These costs may not feature in the accounts, but society pays the price. 

Legal alignment already exists

A 2024 legal opinion authored by George Bompas KC confirms that directors in the UK must ensure that accounts give a “true and fair” view of a company’s position. The opinion asserts that, where sustainability-related risks and impacts are material to financial performance, directors may need to reflect these matters in financial accounts. In certain circumstances, this could require departure from accounting standards. 

For investors, this is significant. Investment intermediaries, including pension fund trustees and asset managers, operate under fiduciary duties to act in the long-term interests of clients and beneficiaries. Sustainability-related risks increasingly affect long-term value. By reflecting these risks in financial reporting, directors provide investors with the information necessary to discharge their own legal obligations.

“By reflecting sustainability-related risks in financial reporting, directors provide investors with the information necessary to discharge their own legal obligations.”

A systemic misalignment

Despite this legal imperative, current financial reporting practice remains misaligned with sustainability. A key source of this misalignment lies in the conceptual framework underpinning financial reporting. The IFRS Foundation’s Conceptual Framework for Financial Reporting (last updated in 2018) retains a relatively narrow interpretation of financially relevant information and makes no reference to sustainability in terms of decision making and information. While the IFRS has created some parallel sustainability disclosure standards, they remain separate to and disconnected from financial accounting. 

The result is a fragmented system in which material sustainability risks often sit outside financial accounts, limiting the usefulness for long-term decision making. 

A meaningful opportunity for investors

As primary users of accounts, investors have both influence and responsibility. 

The discussion document identifies two pathways for action: 

• Be explicit about information needs: Investors can clearly articulate the sustainability-related information they need for robust decision making, and request that this information is reflected within the accounts. Strengthening dialogue between them and directors can create a positive feedback loop, supporting better reporting, better decisions and more resilient markets. 

• Engage in shaping the accounting ecosystem: Investors can play a role in evolving the current international accounting framework, assessing whether it is fit for purpose in addressing systemic sustainability risks and opportunities. 

About this work

This discussion document forms part of a broader effort that SVI is leading via the True & Fair Project, which challenges how profit is calculated by revealing the hidden costs behind it. These costs - like carbon use, water consumption, and unpaid labour - may not show up on a balance sheet, but society pays the price. The Project works with legal, accounting, business and investment experts to examine both practical mechanisms and systemic reform. 

This document was developed in partnership with the Centre for Climate Engagement (CCE), with contributions from the Commonwealth Climate and Law Initiative (CCLI), the Good Ancestor Movement, Pensions for Purpose, the Global Alliance of Impact Lawyers (GAIL), Accounting for Sustainability, and review by Sophie Millot from Generation Foundation. This work is supported by Porticus. 

Organisations or individuals interested in contributing to, or learning more about, this work are invited to contact the SVI team.