How accountants can create sustainable value
To lead the charge, disclosure should be seen as a means to an end rather than an end itself. Disclosure must go hand in hand with action
The potential financial impacts from climate change are far reaching and multifaceted. Extreme weather – such as floods, hurricanes, wildfires and droughts – can disrupt business operations, damage properties and render entire regions practically uninsurable.
The endless pursuit of growth, short-term profit maximization and consumption has led to the unsustainable exploitation of human and natural resources. As we see these complex and interrelated climate, nature and social challenges proliferate, it is clear that the time for urgent and effective action is running out.
Attitudes and practices are shifting: organizations are increasingly required to disclose how they are managing climate- and nature-related risks and opportunities, not only to navigate impacts on financial viability and performance, but also to reduce GHG emissions and curtail the depletion and destruction of ecosystems.
Well-received alliances, statements of intent and guidance have emerged in the move towards unified global standards. The IFRS Sustainability Disclosure Standards, including IFRS S2, are intended to provide a global baseline for sustainability disclosures and are being mandated in several jurisdictions. This shift from voluntary to mandatory disclosure is a pivotal turning point to ensure transparency and comparability.
However, disclosure should be seen as a means to an end rather than an end itself. Fixating on disclosure alone can confine responses to the climate emergency to a reporting and compliance exercise. Disclosure must go hand in hand with action if we are to achieve a net zero, nature positive and just society.
The full potential of accountants
Accountants, the gatekeepers of financial disclosure, play a critical role in ensuring investors, and other stakeholders, have access to reliable, accurate and comprehensive financial information.
Increasingly, they are applying their skills in producing climate- and nature-related disclosures – a key step to ensure that the information included is high-quality and robust. But siloing an accountant’s contribution to disclosure alone is like having a high-performance sports car and only driving it in first gear.
Many are already utilizing the expertise of accountants in supporting sustainability-related disclosures, but given their skill set, the role of accountants can – and should – be taken a step further. Accountants can embed sustainability considerations into existing activities such as:
Risk and opportunity management – assessing and mitigating sustainability-related risks, identifying and capitalizing on sustainability-related opportunities.
Budgeting and forecasting – integrating sustainability considerations into financial planning.
Capital expenditure appraisals – embedding sustainability factors into capital expenditure options appraisals.
Decision-useful information – gathering and analysing sustainability data to inform decisions, enhance resilience, support value creation and drive action.
Raising capital – raising funding using green, transition of sustainability-linked financial instruments.
Controls and governance structures – applying the same rigour, controls and governance structures to sustainability information as is currently applied to financial information.
Pricing externalities – introducing a cost on carbon, either a paid fee or a shadow price.
Awareness versus capacity
Although the role of accountants is key to embedding sustainability considerations into a range of different activities across organizations, often there are insufficient capabilities.
According to the A4S Finance Leaders’ Sustainability Barometer, only 10% of CFOs and finance leaders surveyed are confident in their finance teams’ abilities to incorporate environmental and social considerations into their work, and only 9% reported that their organizations are fully equipped to integrate sustainability factors into their decisions. This is despite the fact that 88% considered the need to transform financial decision making to address environmental and social opportunities and risks as crucial or essential.
We need faster progress to upskill accountants to enable them to apply their skills to address both the climate emergency and wider sustainability challenges.
Unlocking potential and the role of the CFO
The education of current and future accountants is vital in ensuring they have the knowledge and skills they need to effectively navigate the challenges and opportunities ahead. Building capacity within finance teams is essential if companies are to address this skills gap and use the opportunity to create sustainable value.
Alongside investing in capacity building, finance leaders, such as CFOs, need to act as a matter of urgency to translate ambitions for change into action. Examples of how they can do this include:
Set the tone from the top that responding to the environmental emergency is a priority
Integrate sustainability considerations into core strategy
Empower others to embed sustainability considerations across the entity
Instruct the creation of cross-functional teams
Invest to close the sustainability skills gap in operational teams and the board
Allocate capital to sustainability initiatives, e.g., R&D for new low emissions products and services, nature preservation and regeneration
Integrate long-term sustainability goals into incentive structures
Ensure that sustainability Key Performance Indicators (KPIs) are evaluated alongside financial KPIs
Embed sustainability considerations into risk management
Promote sustainability-related disclosure as a tool for action rather than a compliance exercise
The future of accountants
Accountants have much to contribute to addressing the environmental emergency and this goes far beyond producing sustainability-related disclosures. However, to fulfil these new responsibilities, they will need to develop their skills and embrace an expanded understanding of value creation.
Educators and CFOs have a key role to play in increasing the capabilities of accountants and empowering them to embed sustainability considerations into their activities. These steps are a good starting point for any accountant or CFO to consider how they can play their part in enabling and accelerating a transition towards net zero.
[CPA Canada]
