How chartered accountants can play a key role in the fight against climate change

The unprecedented trials posed by Covid-19 have reminded us that we must face challenges as an interconnected global society. However, while the pandemic has dominated our attention over the past year, we must not lose sight of another challenge which affects the whole world; the fight against climate change.

Climate change is an issue that is defining our time. It could impact the economy on a profound scale, affecting production, financial stability, living standards and employment. Globally, impacts on products and services, supply chains and loss of asset values are already occurring as a result of more frequent and severe climate-related events.

In 2016, the World Bank warned that the MENA region is among the most vulnerable places on Earth to rising sea levels. It declared that most capital cities in the Middle East could face four months of exceedingly hot days every year – highlighting “low-lying coastal areas” such as the UAE, Kuwait, Qatar, Tunisia, Egypt and Libya in particular. It also reported that rising temperatures would put intense pressure on crops and already scarce water resources, potentially increasing migration and the risk of conflict. Appropriate action is needed now to prevent these outcomes.

It has been encouraging to see action being taken by regional governments. The UAE is addressing the fight against climate change via its recently formed UAE Council for Climate Change and Environment, citing the issue amongst its priority targets to drive sustainable development and economic growth.

The “green economy” is also a priority for the UAE’s post Covid-19 economic recovery plan, which will see support increased for industries such as renewable energy and electric cars, and the circular economy.

Corporations are also essential to sustainable development. Most large companies have started to recognise their responsibility and voluntarily report progress, using the Global Reporting Initiative (GRI) Standards. However, it is crucial that all businesses not only recognise their impact on society but enhance transparency and accountability to report more accurately on environmental impact too.

There is a need for boards to better understand how the far-reaching impact and implications of climate change are likely to affect their organisations and sectors, so they can make better informed and more strategic decisions.

The Role of Chartered Accountants

In addition to providing climate-related disclosures, all companies need to ensure that the impacts of climate change are reflected appropriately in their financial statements. For example, the impacts of climate change are already affecting the valuation of assets, assumptions used in impairment testing and depreciation rates.

As influential advisors to businesses in every sector of the economy, chartered accountants, with their long-established credibility in reporting, have a crucial role to play in the fight against climate change because:

• The transition to a net-zero carbon economy will rely on adapting economic policy and associated market mechanisms. Accounting practices will be central to achieving this.
• Chartered accountants work to advise on economic, social and business risks, and climate change is one of the biggest we face.
• Chartered accountants have a responsibility to act in the public interest, which must now include helping organisations to address climate change.

Chartered accountants must heed the call to action and lead the businesses they work with to integrate climate change risk into organisational strategy, finance, operations, and communications, support sustainable decision-making, and provide sound advice and services.

Whilst the Covid-19 pandemic has caused widespread disruption, climate change could cause even bigger changes to businesses in our lifetimes.

This year should be a significant moment for action. Over the next decade, global emissions must halve to retain the possibility of limiting global warming to 1.5°C above pre-industrial levels. We must act by making this a decade of transition for business; failure to make this move now will make the inevitable adjustments required later much more difficult.

Michael Armstrong is FCA and ICAEW regional director for the Middle East, Africa and South Asia (MEASA)