Climate change is serious. The threat is immediate. There is no long-term planning horizon. It is one of those big, scary, multi-faceted societal problems that will require serious, coordinated vision and leadership to solve. This is not a problem we can wish away or hope that technology will somehow come to the rescue and save us. It won’t.
Solving this issue will require a healthy dose of honest, realistic dialogue. Everyone has a role to play, and professional accountants are no exception. We need to understand the extent of this climate emergency and look ahead to what we can and must do, and how to do it. Economic growth and the stability of financial markets depend on it. But despite the inevitable economic stress and strain we will face, adapting to climate change will also usher in an era of great opportunity.
Last month, at the end of her two-week transatlantic voyage, Greta Thunberg, the teenage Swedish climate activist, was met in New York Harbor by a flotilla of 17 sailboats. Each represented one of the 17 UN Sustainable Development Goals (SDGs). Next week, leading accountancy professionals will meet at a forum—“Creating Value in a Climate Emergency”—hosted by the International Federation of Accountants (IFAC) and the Association of Chartered Certified Accountants (ACCA). Many of the SDGs that greeted Greta are on our agenda—including SDG 13, on Climate Action—and the same crisis inspiring the youth movement has brought us all together.
We have posed several urgent questions for ourselves.
What role does the accountancy profession play in accelerating a just and prosperous low-carbon transition?
Professional accountants are becoming a more powerful force for sustainability. This is thanks in part to the shift to responsibly managing and reporting on all of an organization’s resources, including its environmental resources—not just its finances.
IFAC’s members can influence policy and regulatory action for a transition to a low-carbon society. They can support market-based policy initiatives and incentives, consistent and well-considered regulation, and more useful disclosure. CPA Australia’s white paper on “business and the environment” is an admirable example of a member taking action, as is CPA Canada’s series of briefs and case studies.
As market-based climate action, such as carbon pricing, gains traction with the support of IFAC and its members, the pressure on all organizations to adapt to the climate emergency will grow. The Institute of Chartered Accountants in England and Wales has responded well by creating an online “climate hub” for information on the climate emergency.
The world has to act together. International agreements are an important step. IFAC strongly supported the Paris Agreement. It gives a clear framework for international action. It also set the tone for investment and innovation in climate action which, to date, has been woefully inadequate.
The right national policies and targets, inspired by international agreements, can help achieve large reductions in greenhouse gas emissions. And they must: greenhouse gas emissions are increasing, and current national emissions reduction efforts will not keep global warming below the critical 2 degrees Celsius threshold.
How can the accountancy profession better assess and disclose the realities of climate risk?
Built into the Paris Agreement is “a robust transparency and accounting system to provide clarity on action.” There is little use in an agreement without assessment, and there can be no assessment without measurement and disclosure. That’s where professional accountants come in, at the highest level: developing high-quality information and insights. We’re essential to this fight.
Climate risk reporting is also promoted by the recommendations of the Financial Stability Board Task Force on Climate-related Financial Disclosures. Integrated Reporting is also a foundation for better-informed decision-making by investors and lenders. The results of their adoption will be not only more sustainable environmental practices, but also greater long-term value creation.
Surveys frequently show that climate risk a top concern for investors, insurers, businesses, and CFOs alike. As this risk grows, accountants are in a good position to drive awareness, measurement, and planning for climate risk. Auditors give confidence to disclosures. Tax professionals can also give clients advice on expected changes in tax law dealing with emissions regulations and help them fulfill evolving tax requirements.
How can the accountancy profession lead and support the business model and strategy transformation required to radically re-purpose how companies create and protect value?
IFAC and its members encourage professional accountants to contribute to organizational efforts to integrate climate change risk into strategy, finance, operations, and communications. With their unique perspective on an organization’s strategy and business model, accountants must have a central role in addressing and communicating climate change-related risks. And the flip side of risk is opportunity. Climate change adaptation strategies will create opportunities for businesses. And professional accountants can identify and help businesses capitalize on these opportunities.
International and national policy and regulations are changing the political environment and concrete requirements for business and public sector responses to climate risk. Accountants need to help businesses and governments get ahead of targets, regulation and exposures. For example, emissions reduction targets on certain industries, such as those set by the European Union for car manufacturers, are getting tighter. As another example, directors will need to think about their own liability risk as directors should they choose to ignore their fiduciary responsibilities or fail to adequately disclose the risk of climate change to their businesses. Businesses will need to adapt quickly, and professional accountants can be part of the solution.
In what ways can the accountancy profession improve how it collaborates with others to influence the transition to low-carbon economies?
Governments, non-profits, and businesses large and small can’t run without professional accountants. This puts the profession in a powerful position to influence all organizations’ approach to climate action. And for all organizations seeking to act, effective action will require the trust and expertise that professional accountants bring to the table.
Many climate-focused public and private organizations should welcome input from and partnership with professional accountancy organizations (PAOs) as allies and valuable sources of information and influence. PAOs can cultivate working relationships with governments, businesses, business associations, and others to spur them to support climate action. They also have an important role in keeping accountants informed of how they can support efforts to manage emissions and adapt to climate change.
A unique position and a unique mandate
The climate emergency is a monumental challenge to social, economic, and financial market stability. As instrumental members of nearly every business, government, and non-governmental organization, professional accountants are in a unique position to make a difference. As the professionals charged with managing the flow of essential information and insight, we also have a mandate unlike any other: to act in the interest of the public and investors to ensure that all entities are equipped to pursue sustainable, long-term value creation.
IFAC, with its member organizations, will continue to advocate for the transition to low-carbon economies.
Soon after IFAC’s climate forum, the UN General Assembly will meet just a few blocks away. The climate emergency will be paramount on its agenda. Business as usual is not an option. We have much work to do as a society and professional accountants are part of the solution.
Let’s get to work preparing a better future.