Accountants can be counted upon to face challenge of climate change

Andrew Leck

LATER this month, thousands of climate change experts, government negotiators, campaigners, and business people will be gathering in Durban, South Africa for the seventeenth annual meeting of the signatories to the UN Framework Convention for Climate Change. Or, more simply, COP17.

The ultimate objective of each COP (Conference of the Parties) is to reach an international agreement on limiting the human impact on the earth’s climate.

Some previous meetings have succeeded in making quite a splash: COP3 in 1997 gave us the Kyoto Protocol, the existing internationally binding agreement on emissions reductions, while COP15 in Copenhagen received wall-to-wall media coverage as world leaders had their “last chance” to agree a replacement for Kyoto. As you may well remember, no such replacement was agreed.

Despite the disappointments though, each COP is still an important event and they certainly deserve attention here in the business pages.

A new international agreement on emissions reductions is unlikely for the foreseeable future, which is leaving a large hole in policy development and delivery. This hole is being filled by businesses and individual countries and regions, and it is creating a role for the accounting profession who will be needed to provide the monitoring, reporting, and verification of a range of separate efforts.

At this point, some background is necessary: the Kyoto Protocol may have been a breakthrough – the only binding international agreement on emissions reductions – but it is far from perfect and has left something of a sticky political legacy.

Kyoto only covered (some) developed economies, and the resulting argument about whether or not developing economies should sign a Kyoto-replacement has stymied discussions, with developing and developed economies failing to see eye-to-eye.

The COP process has also been overly-focused on state-based approaches and has failed to provide room for the private sector in its policy and funding frameworks, such as the Green Climate Fund (GCF).

For David Hone, a senior climate change adviser for the CO2 Group at Shell, this is a problem: “The amount of money in the GCF [pledged by governments] – even if it reached the $100bn a year it aspires to by 2020 – isn’t remotely enough, given the scale of the big energy projects that are needed over the next 40 years.”

Countries and businesses are getting on with the job themselves in the mean time. China, India, and others outside the Kyoto process still conduct their own emissions reductions activities, and some have quite impressive targets in place too.

Similarly, many developed economies, including the UK, have ambitious targets for emissions reduction beyond the scope of Kyoto.

Businesses meanwhile may have a spotty record – 63 per cent of businesses do not monitor their energy consumption and 81 per cent do not monitor their carbon footprint – but it’s here that the innovation lies, and the situation is improving. Businesses are beginning to recognise that using sustainable supply chains or increasing their energy efficiency will, in the long run, save money and give an edge over companies that carry on with “business as usual”.

But, voluntary commitments are problematic. As South Korea’s Carbon Disclosure Project vice-chair Karl Yang points out: “If a country exaggerates its emissions reductions, they can meet their commitment without any effort; but who will guarantee that these reductions are real?” On top of this, some states are notoriously sensitive about sharing emissions data with external agencies.

This “bottom-up” approach may be the best that can be done at present, and it may even build the confidence necessary for a comprehensive agreement in future. Even so, any approach to reducing emissions won’t work without a capacity for objective mechanisms for the measurement, reporting, and verification of different parties’ actions. Enter the accountant.

Without the comparability provided by measurement, reporting, and verification, climate change mitigation efforts lack credibility. Luckily, these are three disciplines that fall squarely within the remit of accountants.

Nick Robins, head of the climate change centre of excellence at HSBC, says: “Accountants will play a much bigger role in the future, but already they are now auditing and assuring broad climate performance of companies and evaluating the ways in which companies are addressing the various risks and opportunities that fall out of climate change.”

That accountants have the potential to play a huge role isn’t overly contentious, but questions remain about the current contribution of the profession. Alan McGill, a partner at PwC’s sustainability and climate change practice, argues: “The accountancy profession must raise its game… accountants need to understand that climate change information is going to become critical to an organisation going forward, and accountants need to be at the forefront of understanding the implications of climate change and its role vis-à-vis business success.” He adds: “Accountants will have to turn into chief information officers: collecting both financial and non-financial information and assessing not only if the organisation can deliver financial returns, but whether those financial returns are sustainable and can be repeated year after year.”

It’s an evolution rather than revolution that’s needed though; the accountancy profession has shown itself to be relatively flexible in adapting to emerging issues over the past decades. New skills and tools will of course need to be developed, but much progress has already been made. There is evidence that accountants are already being called upon by their businesses or clients to prepare business cases for climate change investments or to monitor climate change compliance requirements.

No chance of a binding agreement, no room for private finance, squabbling nations, and slow going: do COPs still matter? Yes.

No COP is a waste of time. It takes time to build the trust, develop the compromises, and create the confidence needed for a global agreement, and each COP makes its own contribution to this process.

One of the aims of Durban is to extend oversight mechanisms explicitly to national-level mitigation activities; headline-grabbing? No, but it’s another important step at providing credibility for the climate change mitigation efforts that we have in the absence of an international agreement.

This is a process that private enterprise and the accountancy profession must play a role in, providing innovation and experience. With measurement, reporting, validity, trust, and private sector funding and innovation there is a chance of one day achieving the global, binding emissions reduction agreement that the fight against climate change so badly needs.

Find more expert opinion in ACCA’s upcoming guide: COP17 and Accountants: Where Next?