- Keeping global warming to 1.5°C is imperative to avoid catastrophic economic and environmental damage.
- Chartered accountants have an important role to play in the transformation to a net-zero economy.
- Accountants can help with their skills in analysis, verification, capital allocation and managing risks.
Throughout 2021, despite the COVID pandemic, action to head off the worst impacts of climate breakdown has accelerated. CAs and business leaders will have to move fast to keep up with these developments ‒ and move even faster to meet the needs of the planet itself.
In 2006, British economist Sir Nicholas Stern said climate change was “…the greatest market failure the world has ever seen”. He believed early
action paid the highest dividends and that the costs of inaction would be huge. A decade later he said the risks had increased.
Chartered accountants can understand these findings, and the need to act on them, better than most. We have the skills to help. Our reasons to act might be personal – a love for people and future generations, for nature, or an empathy for those who will suffer most.
The wake-up call for me came in 2018 on reading the Special Report on Global Warming of 1.5°C by the Intergovernmental Panel on Climate Change (IPCC). The report detailed the difference between the world heating by 1.5°C and 2°C, and showed the outcome would be huge.
With 2°C warming, millions more people would die or be displaced, along with species extinctions and whole ecosystems being lost.
The report showed there was an urgent need to do everything in our power to keep the temperature down. We had to think of young people, of future generations.
Our reasons for caring should be work-related, too. We need to understand the threats as well as the opportunities brought by the climate situation – especially if the businesses we’re involved with are major emitters. Delaying procedural change could be costly, disruptive and risky, so assisting with positive change becomes a necessity.
Just as the medical profession goes beyond the treatment of illness to play an important role in the promotion of public health, the accountancy profession also needs to serve the public interest. As the accounting code of ethics states:
“A distinguishing mark of the accountancy profession is its acceptance of the responsibility to act in the public interest.”
In the face of an existential climate threat, our skills in analysis, verification, capital allocation and managing risks – and in understanding and reporting complex issues – are vital.
The case for action
The pressure to act on climate change is coming from a range of sources ‒ international agencies, scientists, investors, young people and the courts. Now there is a rapid surge of countries and companies committing to ‘net zero’ carbon emissions by mid-century.
The 26th UN Climate Change Conference (COP26), being held in Glasgow in November, is widely seen as the last chance to fully commit to holding global temperatures to 1.5°C above pre-industrial levels.
Critically important will be the updated Nationally Determined Contributions from participating countries, with targets and plans for their greenhouse gas emission reductions. Australia and New Zealand will be pressed for much more ambitious plans.
Listening to the demands of Least Developed Countries, mainly small per-capita emitters that are highly vulnerable to climate impacts, is a priority. The implications of failure are unthinkable. The world is already seeing the effects of 1.1°C of heating. With even more warming, the incidence of fires, droughts, flooding and conflict will increase.
Climate scientist Kate Marvel has said the real risk is “not about what climate change will do to us, but what we’ll do to each other because of it.”
A business case for climate action
There has already been an impressive response from business in the lead-up to COP26. More than 200 financial institutions, with more than US$80 trillion in assets, have joined forces to form the Glasgow Financial Alliance for Net Zero (GFANZ), to help the global economy deliver the 2015 Paris Climate Agreement (COP21) goals. Members will set science-aligned targets to reach net zero carbon emissions by 2050, in line with the global UN Race to Zero Campaign criteria.
GFANZ brings together the Net Zero Asset Managers Initiative, the UN-convened Net-Zero Asset Owner Alliance, and the newly launched Net-Zero Banking Alliance.
“This is the breakthrough in mainstreaming limate finance the world needs,” says Mark Carney, GFANZ chair and UN Special Envoy on Climate Action and Finance.
“The Glasgow Financial Alliance for Net Zero is the breakthrough in mainstreaming climate finance the world needs.”
The energy sector – the source of about three-quarters of greenhouse gas emissions today – has begun to make inroads. The International Energy Agency stated in a recent report: “The energy sector … holds the key to averting the worst effects of climate change, perhaps the greatest challenge humankind has faced.” Success requires: “… nothing less than a complete transformation of how we produce, transport and consume energy.”
There has also been strong global support for businesses to make climate-related financial disclosures. New Zealand will soon adopt legislation to make such disclosures mandatory, the first nation in the world to do so. Following the success of the Task Force on Climate-Related Financial Disclosures (TCFD) in this campaign, a Taskforce on Nature related Financial Disclosures (TNFD) has been launched.
Other initiatives include setting up the Value Reporting Foundation by combining the International Integrated Reporting Council and the Sustainability Accounting Standards Board, and the imminent creation of the International Sustainability Standards Board, overseen by the IFRS Foundation, to provide greater clarity and comparability in corporate sustainability reporting.
Investors push for net-zero emissions
What has been remarkable in recent months is the effect investors are having on this issue.
In May this year, an activist hedge fund in the US won three places on ExxonMobil’s board, overriding the company’s recommendations. The fund was a small one, founded less than six months before the vote.
At about the same time, the majority of Chevron shareholders rebelled against the board at its AGM, forcing the company to reduce emissions from use of its products. Next, 98% of General Electric shareholders supported a proposal seeking details as to how the company would achieve net-zero emissions targets for all its operations and products.
Climate Action 100+, an investor-led initiative, works with 167 companies considered critical to the net-zero transition, to improve governance, cut emissions and strengthen climate disclosures.
Investors are responding not only to climate risks, but also to the economic opportunities in a move to net zero. The Net-Zero Asset Owner Alliance, with 40 of the world’s largest investors, requires its companies to cut emissions by up to 29% within four years. Rather than divest, the group will push the companies to provide climate plans and reports.
Larry Fink, chair of BlackRock, the world’s largest asset manager, has referred to a “tectonic shift” towards sustainability-focused companies. He predicted that “…because capital markets pull future risk forward, we will see changes in capital allocation more quickly than we see changes to the climate itself.” A study led by the World Resources Institute found this shift to more sustainable businesses could be worth US$26 trillion.
The fight in the courts
The year has also seen a growing number of climate-related court actions. Many have been initiated by young people and focus on defending human rights.
In May, Royal Dutch Shell was ordered by a court in The Hague to reduce its global carbon emissions by 45% by 2030 to align with the Paris Agreement. The reduction applies not just to its own emissions, but to those from its products. Shell will appeal, but says it will accelerate its transition to net zero anyway.
In a case brought by young activists, Germany’s highest court ruled that the country’s climate change laws failed to provide adequate plans for reaching net zero and put the burden of cutting emissions on young people in the future. The government will revise the rules by the end of 2022.
In Australia, the Federal Court heard a class action against federal Minister for the Environment, Sussan Ley, aimed at blocking a coal mine expansion. The court ruling described the degraded environment that young people could inherit, which could cut short their lives and impair their capacity to grow and prosper. The court found the minister had a duty of care to Australia’s young people not to cause them physical harm from climate change.
Where do CAs fit in?
So, what else can we do to positively impact our planet? We have the privilege and responsibility of having much to contribute. We can start here:
Learn about climate issues. Some good sources include: The Economics of Climate Change by Nicholas Stern, Drawdown – The Most Comprehensive Plan Ever Proposed to Reverse Global Warming, edited by Paul Hawken, along with IPCC reports, and climate related books by economist Kate Raworth, scientist Tim Flannery, environmentalist Jonathon Porritt and essayist and writer Jane Gleeson-White.
Calculate your greenhouse gas emissions. Use a free online calculator (such as New Zealand’s Toitū Envirocare Household Calculator or Ekos’ carbon footprint calculator) to do your own first, then help the businesses you work with to calculate theirs.
Reduce emissions. Start with changes that have co-benefits. Plan to halve emissions by 2030 ‒ about 8% per year ‒ starting now.
Review investment and procurement policies. Prepare for rapid increases in carbon costs. Avoid assets that depend on fossil fuels.
Plan further, look wider. New Zealand company Wakatū Inc has a 500-year plan; its aim is to be “good ancestors”.
Upskill to stay relevant. For example, learn about climate-related disclosure and new developments in sustainability reporting.
Report more comprehensively to tell a fuller story for a wider audience. Disclose emissions and targets. Report successes and challenges.
Collaborate with suppliers, like-minded businesses, even competitors. Share aspirations and solutions. When facing climate breakdown, we are all in this together.
The world needs a fast transition to net zero emissions. This will require changes in businesses and society of an unprecedented scale and complexity. We’ll need bold new ideas and action. It’s late, but not too late to make a difference.
COP26 Climate Change Hub
In this section Chartered Accountants Worldwide and our Member Institutes share our insights about why accountants are instrumental in bringing about a greener future.Find out more
New Zealand Audit & Accounting Conference 2021
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