Cop27 outcomes suggest that there are still many unanswered questions to address.
The real danger is that climate change is a slow-burning issue, something that doesn't affect us - until it does, by which time it's too late. As human beings we tend to concentrate on the here and now, and this currently means dealing with cost-of-living issues, rising interest rates and post-COVID recovery. It's as if we think the long term will look after itself, which of course it won't. We are ignoring a problem and hoping it will go away.
If you want to get an idea of how serious climate change can be, imagine that every city, town and village along any sea or river in your home country disappears under water. What would you do in such a situation? Where would people be displaced to?
ISSB Sustainability Standards
One fanfare moment for accountants at Cop26 was the announcement that IFRS Sustainability Standards would go ahead. Recent feedback on two Exposure Drafts, one on general sustainability issues and the other more specifically on climate change reporting, has been presented in encouraging terms. It included a new requirement for entities to provide details of greenhouse gas emissions (GHGs).
This is a welcome move. GHGs have long been recognised as one of the main drivers of climate change, in the opinion of many experts. GHG emissions are normally reported as the volume in metric tonnes per annum that the reporting entity is responsible for. If estimation is used in calculating the figures, which will probably be the case, then the methodology adopted should be explained in disclosure notes.
The focus of the new Standards is still primarily on the financial consequences of the impacts of climate change, and the risk or opportunities arising from those, for investors. The application of the Standards is unlikely to be mandatory, so we will have to wait and see how effective these new measures are in terms of widening reporting, and also importantly, in putting pressure on polluting entities to change their practices.
Why should we broaden our vision?
Many accountants in the past would have seen reporting as primarily a finance-based consideration. However, external reporting has evolved in a way which provides more holistic information. Climate change impact is now another dimension which needs to be taken into account.
To be successful entities have to perform on a number of different levels - financial and non-financial performance can overlap. For example poor customer satisfaction is likely to have an almost direct impact on revenues earned by an entity.
As stakeholders become more sophisticated, on the back of better-quality information on climate impacts, this will also have an effect on the bottom line, whether negatively or positively. Not every consumer is, or can afford to be an ethical buyer, but it is certainly a risk for polluting entities that an increasing number of people are.
Climate change reporting should not be seen as an optional added extra, but a core part of the future of reporting.
Wayne Bartlett is an author for accountingcpd. To see his courses, click here.
You need to sign in or register before you can add a contribution.