Political and business leaders, along with scientists and many others, are gathering in Dubai for the COP28 UN climate summit to focus on the urgent need for a rapid transition to a lower-emission world. To ensure that we don’t exacerbate existing social inequalities, we also need to ensure this transition is “just”. In other words, the benefits of transitioning to a net zero economy should be shared in a fair and inclusive way, so that no one is left behind.
It’s encouraging to see that many businesses and other organisations have already made public commitments to reduce their emissions. Unfortunately, however, this doesn’t necessarily mean that they have a plan for delivering on their promises, or a roadmap that will show how they intend to chart their progress against their plans, or a strategy for ensuring their transition is just.
Emissions planning falls short
New ACCA research published today, The role of the CFO and finance function in the climate transition, highlights the scale of the challenge that exists. The report, produced in partnership with the International Federation of Accountants (IFAC) and professional services firm PwC, is underpinned by a survey of around 1,000 finance professionals from around the world.
A successful transition to becoming a low-carbon business or organisation starts with a robust emissions plan, and our report reveals that a sizeable minority of organisations (46 per cent) are yet to produce one. Smaller organisations are much less likely than their larger peers to have an emissions plan in place. Alarmingly, nearly 70 per cent of respondents without an emissions plan currently have no intention of developing one.
We’ll be talking about this report at COP28, which I will attend, along with ACCA colleagues and our partners, to advocate for global sustainability reporting standards and a just transition to a more sustainable world.
And it is my great hope that the conference accelerates the momentum behind transition planning. Organisations of all sizes need to design transition plans which are practical and will remove emissions from their activities and value chain.
Emissions planning is falling short for a couple of reasons. The first is a lack of awareness. Some respondents to our research were unsure of the business benefits of developing plans or even what emissions planning entails. The second reason is that organisations may lack the skills and capabilities to address the issue effectively.
The overall transition to a net zero economy, with emissions reduction as part of the process, is a complex challenge for businesses and other organisations. It requires the involvement of every function – from finance and procurement through to human resources, sales and technology.
Our research showed that while professionals across departments have sustainability in their objectives, often there is no one department which shows responsibility, accountability or leadership in this area. This is where the CFO and the finance function can lean in as they have the skills and experience to transition a business or other organisation to a low-carbon operation. This can include a range of activities, including building internal control frameworks, supporting the non-financial data requirements needed, reporting to stakeholders, as well as a central role in strategy and planning.
To be effective, transition plans must be embedded within the strategy of the organisation, managed as an integral part of the enterprise performance management framework, and externally aligned with relevant standards and disclosures.
Good governance is also vital to a successful transition. Notably, our research found that organisations with board sustainability committees were much more proactive in implementing their emissions plans than boards without these committees.
From commitments to action
I believe that the accountancy and finance profession can enable organisations to achieve their net zero ambitions in a just way. They can also support the transition to a low-carbon economy by helping their organisations seize the associated benefits. Our research suggests that many respondents see the potential organisational benefits of transition in terms of new business models, an enhanced business reputation and improved relationships with customers. Two in five respondents to our research (41 per cent) believed that transformation could create long-term value for their organisation, while 36 per cent thought it could bring competitive advantage.
To be successful in this, accountants need to continue to upskill, focus on driving value, leverage data to drive insight and develop new performance frameworks. They should also leverage their core skills, including acting as an enabler across the organisation, helping to identify opportunities and drive strategic decision-making.
As well as supporting the emissions and transition planning processes, accountants can ensure that their organisations comply with sustainability reporting standards. These standards include the IFRS Sustainability Disclosure Standards issued by the International Sustainability Standards Board (ISSB). ACCA recently published Sustainability Reporting – the guide to preparation specifically to provide support in taking the practical implementation steps that are needed. In turn, this reporting will ensure better assessment and communication of business transition.
With the clock ticking down to 2025, it’s more important than ever that we all take action.
You can read the research highlighted in this article at accaglobal.com/professional-insights