- Accountants have an important role in solving the climate crisis
- It’s not just measuring and disclosure, but risk management and strategic insights
- We can help our businesses and clients adapt and transition
The theme for this year’s Davos meeting – the World Economic Forum’s annual gathering of global leaders – was “Stakeholders for a Cohesive and Sustainable World”.
The forum suggests “accountants could be the climate heroes we all need” in this world.
A forum article recommends the development of an accounting standard that would internalise the external environmental costs associated with climate change. It also suggests leveraging the International Financial Reporting Standards (IFRS) to expand the application of a carbon price.
However, attempts to internalise carbon emissions in financial reporting would be pointless without a global carbon market and agreed price on carbon emissions.
The article refers to the Climate Disclosure Standard Board’s 2018 paper ‘Unchartered Waters’, which looks at the application of current accounting standards to the recommendations of the Financial Stability Board’s (FSB) Taskforce on Climate-related Financial Disclosures (TCFD). These disclosures are focused on increasing transparency on the impact climate related risks will have on the stability of global financial markets.
The Australian Accounting Standards Board and the Auditing and Assurance Standards Board also released a bulletin Climate-related and other emerging risks disclosures: assessing financial statement materiality using AASB/IASB Practice Statement 2 which looks at the application of materiality with respect to climate-related and other emerging risks in the context of the Accounting and Assurance Standards.
It was over seven years ago that Peter Bakker, President of the World Business Council for Sustainable Development (WBCSD) famously said that “Accountants will save the world” at the United Nations Conference on Sustainable Development, Rio+20.
A distinguished business leader, Bakker made the comment because in the lead up to the conference, business executives were saying that they had the technology and science needed to address sustainability issues and risks. However, they were frustrated that there wasn’t more action.
Bakker felt the accounting mechanisms were the missing link in the chain. He stated in a subsequent Harvard Business Review article that: “To get all businesses involved in solving the world’s toughest problems, we must change the accounting rules.”
Many in the profession have leapt to action with accountants leading, or closely involved in, initiatives such as the Natural Capital Coalition, International Integrated Reporting Council and Climate Disclosure Standards Board (CDSB). However, the climate crisis has deepened and we are overshooting the earth’s natural resources earlier each year.
The role of accountants
Accountants are no doubt best placed to tackle the numbers that demonstrate the climate crisis, and have the skills to apply the metrics that will help solve it. Accountants can help organisations meet the demands from investors for robust, reliable and comparable information for decision making as well as building trust and transparency through rigorous reporting processes.
But accountants taking leadership on sustainability topics is not just about accounting for the earth’s natural resources or corporate responsibility at the expense of profit. It is also about risk management and good business sense.
Severe threats to our climate account for all of the 2020 WEF Global Risks Report’s top long-term risks. The report points to a need for policy-makers to match targets for protecting the Earth with ones for boosting economies – and for companies to avoid the risks of potentially disastrous future losses by adjusting to science-based targets.
Last year, the New Zealand Government undertook a consultation on mandatory climate-related financial disclosures and Australian financial regulators have been united in their calls for organisations to consider climate risk noting that all risk can have financial consequences.
But this is not just about risk management either, although it is certainly driving a lot of change. As HRH The Prince of Wales has said:
"It is not necessarily a choice between making money on the one hand and ‘doing the right thing’ on the other. On the contrary, once it is recognized that ‘business as usual’ is unsustainable it follows naturally that those organizations which start to develop resilient business models will be the ones that succeed."
We often talk about the need for resilience, but what does this actually mean? The climate has already changed and we are experiencing the consequences. New Zealand recorded its fourth hottest year and Australia the hottest year on record in 2019, with severe drought, extreme floods and catastrophic bush fires.
Accountants have an important role to play help their businesses and clients adapt to this ‘new normal’. As HRH indicates, those than don’t adapt, won’t succeed in the long term.
Accountants will also need to help organisations manage their transition to net zero emissions. Risk management is fundamentally about making decisions in the context of uncertainty. It’s about having a deep understanding of the business and the environment it operates in, identifying the relevant risks and opportunities and analysing information to provide strategic insights and advice.
There is no doubt that accountants can’t solve this crisis alone, but we have the skills and expertise to help the organisations we work with and for make a significant difference.
So let’s put on our capes and rise to the challenge.