- CFOs have a vital role to play to ensure transparency on climate related risks and opportunities
- Sustainability should be a C-Suite agenda item for business
- Organisations are engaging in sustainability initiatives because they add commercial value
The Accounting for Sustainability Annual Summit
On behalf of Chartered Accountants Australia and New Zealand, I attended the Accounting for Sustainability (A4S) Summit 2017 last month. If you’re unfamiliar with A4S, it was established by HRH The Prince of Wales in 2004. The annual summit brings together senior leaders from the business world, the capital markets, governments, regulators and the education sector. All delegates share their activities and inspire wider action to help embed sustainable practices into business operations.
CA ANZ is a member of A4S’s Accounting Bodies Network (ABN). Established in 2008, ABN is a group of global accounting bodies who collaborate to help achieve a common approach to accounting for sustainability.
The 2017 Summit opened with a panel discussion hosted by Willis Towers Watson, a global advisory, broking and solutions firm. Moderated by Jessica Fries, Executive Chairman of A4S, the panel consisted of six CFOs from large organisations and pension and investment funds. These organisations, in addition to others such as Chartered Accountants ANZ, signed statements of support for the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).
What is the role for CFOs?
The CFO statement notes that the signatories believe that climate change will have a significant impact on many sectors and that chief financial officers have an essential role to play in ensuring transparency on climate-related risks and opportunities
.From the organisational perspective, there was agreement from the panel that sustainability is no longer a side issue and must be treated as a C-Suite agenda item. Organisations are already experiencing the impact of climate change, such as an increase in the frequency and magnitude of storms. This represents an acute and chronic risk for organisations.
The CFOs note that managing the impacts of climate-related risks and being more transparent in their disclosure are important steps forward in enabling market forces to drive the efficient allocation of capital and support a smooth transition to a low carbon economy. The TCFD recommendations will accelerate more consistent, comparable, and reliable disclosure of climate-related information that will facilitate more informed business and investment decision making.
The case for action
One panel member noted that the forces of the regulatory push, and the pull forward by leaders, influencers and millennials are not enough for business and society to address climate change. There is also a need for asset owners, asset managers and corporates to act.
There was agreement that there is now a financial and economic case for action. Organisations are not engaging in sustainability initiatives because it’s ‘the right thing to do’. They are doing it because it has value for their organisation. For example, research was cited showing that the top 20% of ESG (environmental, social, governance) ranked companies have the lowest earnings per share (EPS) volatility. This outcome could be due to higher ranked ESG companies being more efficient at linking their sustainability and financial performance.
From the pension fund perspective, CFOs noted that responsible investment was important for organisations that consistently take a long-term view. Likewise, the lengthier perspective challenges better disclosure from the companies that pension funds invest in on behalf of their members. The flow of capital is dependent on information, and as pension funds shift to organisations with better disclosure, this will likely trigger action in others.
However, there are challenges with integrating ESG initiatives into investment analysis and decision making as the process can be ambiguous. Adopting the TCFD disclosures means there is a need to put transparency ahead of accuracy and completeness, at least initially.
Accountants are skilled at measurement and bring rigor to the disclosure process. However, we will have to find ways to handle the ambiguity.
TCFD statement of support
Read more about our TCFD statement of supportRead article