AB Insight: Climate Action and the Accountancy Profession: Building a Sustainable Future

Question 1

Why organisations need to take climate action right now?

Answer 1

1. Government commitments
2. Policy, legislation and regulation
3. Pan-global initiatives
4. Investor pressure
5. The power of the people
6. The Covid-19 pandemic
7. A new sense of business purpose

Question 2

What are major government commitments?

Answer 2

1. Paris Agreement - 2015
2. Mandatory climate-related financial risk reporting - G7 2021
3. Net zero targets
4. Commitments designed to halt and reverse biodiversity loss by 2030 - G7
5. Commitments to phasing out all coal production, curtailing deforestation around the world, accelerating the transition to electric vehicles, and encouraging far more investment in renewable energy - COP 26

Question 3

What are major policy, legislation and regulation?

Answer 3

1. Banning the sale of new fossil fuel powered automobiles.
2. Stopping future coal projects
3. Stopping international financing of coal projects that emit carbon by the end of the year. G7 - May 2021
4. Expanding green taxation
5. Banning any new oil and gas exploration
6. Disclosing climate-related risks

Question 4

What are pan-global initiatives?

Answer 4

1. The Taskforce for Climate-Related Financial Disclosures (TCFD) was created in 2015 by the Financial Stability Board (FSB).
2. The Taskforce for Nature-Related Financial Disclosures (TFND), will address the global biodiversity crisis.
3. The UN Sustainable Development Goals (SDGs) - now formally adopted by 197 countries to shape and drive sustainable development at governmental and business level up until 2030.
4. The SME Climate Hub - co-hosted by the International Chamber of Commerce (ICC), the Exponential Roadmap Initiative, the We Mean Business coalition, and the UN Race to Zero - was launched in 2020.

Question 5

What are major investors’ pressure?

Answer 5

1. UN Principles for Responsible Investment (PRI)

2. Accounting for Sustainability (A4S) Pension Fund Net Zero Statement

Question 6

Who are currently key people talking about climate risk?

Answer 6

1. Greta Thunberg

2. Sir David Attenborough

Question 7

What is the IPCC?

Answer 7

Intergovernmental Panel on Climate Change

Question 8

What is the Paris Agreement?

Answer 8

It is a legally binding international treaty on climate change. It was adopted by 196 Parties at COP 21 in Paris, on 12 December 2015 and entered into force on 4 November 2016. Its goal is to limit global warming to well below 2, preferably to 1.5 degrees Celsius, compared to pre-industrial levels.

Question 9

When will Chinese economy will become carbon neutral?

Answer 9

2060

Question 10

When will biodiversity loss reversed?

Answer 10

2030

Question 11

What is SME Climate Hub?

Answer 11

It is co-hosted by the International Chamber of Commerce (ICC), the Exponential Roadmap Initiative, the We Mean Business coalition, and the UN Race to Zero - was launched in 2020. Its remit is to encourage SMEs to commit to halving their GHG emissions before 2030, achieving net zero emissions before 2050, and disclosing their progress in these areas on a yearly basis.

Question 12

When was the Taskforce for Climate-Related Financial Disclosures (TCFD) was created?

Answer 12

It was created in 2015 by the Financial Stability Board (FSB).

Question 13

What is TNFD?

Answer 13

Taskforce on Nature-Related Financial Disclosures

Question 14

What are the UN Sustainable Development Goals (SDGs)?

Answer 14

These have been formally adopted by 197 countries to shape and drive sustainable development at governmental and business level up until 2030.

Question 15

How should organisations build their net zero transition plans?

Answer 15

1. Business strategy
2. Governance
3. The roadmap to decarbonisation
4. Science based targets (SBTs) to guide decision making
5. Accounting standards and frameworks
6. A new approach to integrity and assurance on sustainability information
7. Education and skills

Question 16

How should organizations formulate business strategy to achieve net zero transition?

Answer 16

1. Incorporation of sustainability risks and opportunities into business strategy.
2. A comprehensive assessment of entire value chain.
3. Realization that over half of global GDP generated by business is moderately or highly dependent on nature. That’s why a transformation of business strategy is central to achieving the required care for climate, nature and society’s prosperity.

Question 17

Which four Rs are central to this new business strategy?

Answer 17

Central to this new strategy is the four Rs - remove and reduce impact and restore what has been damaged. And most importantly, reimagine success.

Question 18

What factors should be considered while framing governance measure to achieve net zero transition?

Answer 18

1. focus on the level of investments their organisations are willing to commit in addressing climate change and building their pathway towards net zero. This could either be in terms of reducing carbon emissions throughout the organisation’s value chain or in generating clean energy.
2. a central tenet of good governance will need to involve understanding how to assess and act on climate-related risks - and how they communicate that action with external stakeholders such as regulators, investors, communities, customers and media.
3. to consider Scope 3 emissions - which cover emissions throughout the value chain and in the use of the product.

Question 19

What are the key features of integrated sustainability matters of City Development Limited (CDL)?

Answer 19

Leadership Commitment: Board Sustainability Committee (BSC) has direct advisory supervision of CDL’s Sustainability Strategy and Programs

Sustainability Office as an Independent but Integrated unit: reporting directly to BSC comprising 3 independent directors and Group CEO & Executive Director

Chief Sustainability officer (CSO) chairs the Sustainability Committee that comprises members across all departments and operational units

Line managers of each business unit are held accountable for their ESG performances, which are linked to their remuneration and appraisal

Question 20

What is the roadmap to decarbonization?

Answer 20

1. Carbon offsetting

2. Carbon trading

Question 21

Give examples of carbon offsetting in the form of mass tree plantation.

Answer 21

1. In 2019, Ethiopia planted one million trees across the country in a single day.
2. China, for its part, has undertaken a 40-year project to plant one billion trees - a so-called Great Green Wall that aims to protect from increasing desertification.
3. Major corporates such as Unilever, Mastercard and Microsoft, meanwhile, are also investing heavily in tree-planting schemes.
4. Such is the desire to offset emissions through tree-planting that in 2020 the World Economic Forum (WEF) launched 1t.org, a platform where organisations can work together reach the goal of planting one trillion new trees.

Question 22

What is carbon trading?

Answer 22

1. Carbon Trading is another initiative originating from the Kyoto Protocol in 2005.
2. Each year Governments authorise a set number of credits permitting an entity to emit a certain amount of carbon, thereby controlling the amount of carbon that can be emitted.
3. The number of tokens issued are gradually reduced each year, and with that emissions.
4. The trading of these tokens is likely to have the two-fold impact of fastening the pace of an organisation’s emissions and the trading becoming a business in its own right.
5. In July 2021, to support its efforts to reach carbon neutrality by 2060, China started its carbon trading programme, to which 2,225 companies are signed up.

Question 23

What is the best practice approach for evaluating an organisation’s GHD emissions?

Answer 23

Scope 1 The first and easiest to measure involves an organisation’s own direct emissions.

Scope 2 encompasses indirect emissions from the generation of electricity, steam, heating and cooling that is purchased and consumed by the organisation.

The final category, Scope 3, is by far the hardest to account for. It addresses all other indirect emissions that occur in a company’s value chain, including suppliers and consumers.

Question 24

What is Science Based Targets Initiative (SBTi)?

Answer 24

The Science Based Targets initiative (SBTi) drives ambitious climate action in the private sector by enabling organizations to set science-based emissions reduction targets.

It is a partnership between CDP, the UN Global Compact, World Resources Institute (WRI) and the World Wide Fund for Nature (WWF).

Question 25

When was the Value Reporting Foundation instituted?

Answer 25

In June 2021, the new Value Reporting Foundation was instituted as an amalgam of the International Integrated Reporting Council and the Sustainability Accounting Standards Boards. They have joined forces to create a comprehensive suite of resources designed to help organisations and investors develop a shared understanding of enterprise value - how it is created, preserved, or eroded.

Question 26

The steps organisations can take right now

Answer 26

1. Get executive level buy-in for climate action. The tone set by organisation leaders really matters when it comes to climate action. Play a lead role in supporting boards and executive leadership in net zero transition plans which cover the strategies the organisation will undertake to achieve net zero status by 2050 or preferably, earlier. These plans should include key targets that need to be achieved by 2030.
2. Ensure that climate-related risks are fully integrated into business strategy. The days of treating sustainability and business strategy as two different priorities are over. From now on, climate risk, ESG and net zero will be at the heart of business strategy.
3. Integrate ESG, climate KPIs and risk considerations into decision making, from strategic to operational levels. Leverage science based targets where relevant to cover the organisation’s entire value chain and the use of its products in its assessment and decision making.
4. Reporting: It’s time to consider financial and non-financial reporting in accord, so organisations can account for their real value to society.
5. Assurance: The accountancy and finance profession has developed robust and trustworthy assurance processes. These need to be adapted to integrate non-financial reporting.
6. Educate and raise the level of knowledge and expertise among all employees, and in particular the finance teams, on the importance of ESG and climate action.