Urgent climate update: Accountants gear for actionby
Accounting may not spring to mind when alarming climate change reports call for action, but experts believe accountants have a key role in helping businesses evolve in a manner that can save the planet from the deadliest effects of over-heating.
The planet is going to get hotter, humans are to blame and everyone must do better, a sobering new report from the UN’s climate change arm has warned.
Efforts by businesses to limit or neutralise carbon emissions along with other sustainability drives have done little to stem rising sea levels, droughts, melting ice caps and extreme temperatures, all of which are now irreversible, researchers found.
The brutal report, laid out by the Intergovernmental Panel on Climate Change (IPCC), an organisation of 195 governments, was the result of a three-year analysis of 14,000 peer-reviewed scientific studies, signed off by 234 scientists from more than 60 countries.
“It is unequivocal that human influence has warmed the atmosphere, ocean and land,” the IPCC said in its top line. “Human-induced climate change is already affecting many weather and climate extremes in every region across the globe.”
The ‘Code Red’ findings made headlines around the world as wildfires rage in Greece, California and Siberia, and preceded a week of record-high European and Middle Eastern temperatures, underlining concerns that a tipping point in many aspects has long passed.
According to the report, immediate, large-scale action can help humanity avoid the worst-case scenario but time is running out.
“The IPCC report isn’t scaremongering, it’s a brutally honest look at what humanity will be facing in just a few short years if we carry on as we are,” said sustainability advisor Neil Gaught, of organisational management experts Single Organising Idea. “Currently, we’re messing about on the sidelines, we’re moving around deckchairs on the Titanic. It’s no good having companies lobbying for one thing to achieve a status quo whilst at the same time the world is looking down the barrel of disaster.”
Putting sustainability at the heart of business is crucial, and the necessary tools are there if businesses pay more attention, Gaught said.
“It is undeniable that things are changing for the worse,” he said. “But it’s not just about the climate, it’s about society and its reaction to the climate. It’s also about what’s going on in the economy. None of it is sustainable.”
International climate negotiations are scheduled for November, and it is likely the outcomes of that will filter down from world leaders to businesses via regulators, as they did in 2014 when the previous IPCC report fed into the Paris Accord. The release is the first of four IPCC reports over the next 15 months, all of which are likely to ring major changes in business and geopolitics.
Evolving disclosure requirements
Robust disclosures of climate risks associated with businesses, including emissions, and how to ensure firms comply, will be top of regulatory thinking.
Climate matters will have a major impact on a company’s financial reports, and it is vital that disclosures are laid in front of auditors so they can review whether the statements are missing key information about the harm a firm does to the environment, experts believe.
“Given that we live in a market economy, in which most believe the most effective communication mechanism for societal preferences that we have, I persist in the view that putting climate change on the balance sheet of companies is the best thing that we can do,” said Richard Murphy, accounting professor and tax expert. “I describe this as sustainable cost accounting.”
When a decision with an unavoidable cost such as shutting a production line is made, a company through its accounts has to provide for that cost when the decision is taken, Murphy said. “Companies have to decide to close their emission production activities now. If they don’t this planet cannot continue to function as we want. It is as simple as that, so the provision for the cost of stopping emissions has to be made, now.”
Last year, the Financial Reporting Council reviewed climate-related issues and found auditors “need to improve their consideration of climate-related risks when planning and
executing their audits”. It said consideration and disclosure of climate change in the financial statements lags behind narrative reporting, hinting that further regulation in this area is almost certain.
Hope for the future
While many commentators on the PICC report extracted doom-and-gloom, dystopian conclusions that humans are living in a disaster movie, there is cause for hope amongst the accounting profession that it holds the keys to building a more sustainable future for our economies.
Certified B Corporations are firms that meet the highest standards of verified social and environmental performance, public transparency, and legal accountability to balance profit and purpose. Verification is via B Lab, a global non-profit organisation.
Several UK accountancies are becoming accredited with the private certification that is obtained via a rigorous assessment of a company’s impact on its workers, customers, community, and environment. Certified B Corps amend their legal governing documents to require their board of directors to balance profit and purpose.
“We made the decision to become a Certified B Corp at the beginning of 2021,” said Matt Portt of Portt & Co. “It felt like the natural progression to support our aim of creating a better future, not just for businesses, but for our employees and their families. “
The framework allows the firm to select best practices in a way that fits its size and business model, Portt said. “Aside from our personal values, we also think it makes business sense to achieve a recognised environmental and social certification like B Corp.”
His firm specialises in the food and drink sector, where sustainable brands are making inroads. Many brands initially focused on internal operations are turning to their supplier base to ensure they are sustainable. “We, therefore, believe that there will be a trickle-down effect to all areas of business including the accountancy profession,” Portt told AccountingWEB.
Portt & Co. moved to a paperless office and introduced remote working to offset carbon emissions.
Small steps, big difference
Yogesh Patel founder of tax-focussed accountancy Telic told AccountingWEB his firm is also in the process of becoming a B Corp, which means structural changes to how it conducts its business.
While Covid-19 is still top of the agenda for many clients, climate change is down the priority list, Patel said, but he is hopeful that the message is getting through and expects to see a change in time.
“UN Sustainable goals should be more widely known and talked about and business/entrepreneurship should be focussed on these areas,” he said. “Which I can see is clearly happening with the increased volume of impact investment by High Net Worth individuals.”
Ultimately, taking small steps within the firm can make a big difference and can impact client thinking, Patel and Portt agreed.
“In our experience, once you start the passion grows stronger; it’s been encouraging to see how much our team have embraced this and made changes in their personal lives as a result,” Portt added. “More and more businesses are adopting this approach and we feel it will soon be part of the decision-making process when it comes to choosing a firm.