Climate change risk must be integrated into corporate planning, finance, processes, and communications by chartered accountants and the companies they deal with.
The unparalleled trials raised by Covid-19 have reminded us that as a global society, we must face challenges. Although the pandemic has taken center stage of our attention over the last year, we must not overlook another global challenge: the resistance against climate change.
Climate change is a topic that has come to represent our era. It has the potential to have a substantial effect on the economy, impacting development, financial stability, living standards, and jobs. More common and extreme climate-related phenomena also affect goods and services, supply chains, and asset prices around the world.
Example: As climate change’s consequences appear more serious, addressing it as a structural risk requires climate policy that affects systematic change. Carbon pricing systems are thus crucial because price influences actions and choices. Carbon pricing stimulates direct investment in advanced low-carbon solutions that reduce emissions more efficiently.
The World Bank cautioned in 2016 that the Middle East and North Africa (MENA) area is one of the world’s most vulnerable areas to rising sea levels. It predicted that most Middle Eastern capital cities would experience four months of extreme heat each year, citing the UAE, Kuwait, Qatar, Tunisia, Egypt, and Libya as examples of “low-lying coastal areas.” Growing temperatures are also expected to strain crops and already scarce water sources, potentially increasing migration and conflict risk. To prevent these adverse effects, a quick solution is needed.
The fact that regional councils are taking steps is encouraging. The United Arab Emirates’ newly created ‘UAE Council on Climate Change and Environment is taking on the battle against climate change, listing it as one of its top priorities for achieving sustainable development and economic growth.
The “green economy” is also a focus for the UAE’s post-Covid-19 economic recovery strategy, which will see funding for solar energies and electric vehicles, as well as the circular economy, increased.
Corporations are often essential for long-term sustainability. Using the Global Reporting Initiative (GRI) Guidelines, several big corporations have begun to accept their responsibility and voluntarily disclose improvement. To report environmental effects more effectively, all companies must consider their impact on society and increase sustainability and accountability.
There is a need for boards to understand better how the far-reaching impact and implications of climate change affect their organizations and sectors to make better informed and more strategic decisions.
The Role of Chartered Accountants
All businesses must ensure that climate change implications are adequately expressed in their financial statements, in addition to including climate-related disclosures. Climate change effects, for example, are now impacting asset valuation, impairment testing assumptions, and depreciation rates.
As influential consultants to companies in every area of the economy, CAs have a critical role to play in the battle against climate change, thanks to their long-established credibility in reporting like:
- Adapting economic policy and related business structures would be needed to reach a net-zero carbon economy. Accounting strategies can play a vital role in achieving this goal.
- Chartered accountants consult on global, societal, and industry challenges, and one of the most significant risks we face is climate change.
- Chartered accountants have a duty to work in the public interest, which now includes assisting organizations in their efforts to combat climate change.
Finance and accounting experts can support their company’s plan for the future by assisting them in making decisions that take into account possible emissions taxes and the oncoming wave of climate-related regulations. Internal pricing can be used to guide capital spending choices, find better risks and prospects, and see if policies and plans may need to be changed.
Accountants are in a solid position to contribute to conversations that lead to low-carbon business models that promote sustainability and profitability by understanding climate risk and evaluating the strategic, technical, and financial consequences.
Chartered accountants must respond to the call to action by leading their businesses in incorporating climate change risk into their strategy, financing, processes, and communications, encouraging sustainable decision-making, and offering sound advice and services.
Climate change could bring much more dramatic changes in our lifetimes if the Covid-19 pandemic wreaked havoc on industries.
We must move now to make this a decade of market transformation; failing to do so now would make the inevitable corrections required later much more difficult.
Sources:
- Michael Armstrong, 2021, Gulf Business
- Stathis Gould, 2020, IFAC
