Climate risk is an “inescapable” part of chartered accountants’ remit

Today, it’s fair to say that climate risk is front and centre of finance’s remit, but it wasn’t always that way. When HRH The Prince of Wales and Sir Michael Peat established Accounting for Sustainability (A4S) as a working group by back in 2004, sustainability was at best on the periphery of the accountancy lexicon. Even in 2013, when A4S set up its CFO Leadership Network, ESG was far from mainstream. “For most individuals and organisations, it’s now inescapable,” says A4S Executive Chairman Jessica Fries.

Just as the business challenges posed by environmental and societal issues cannot be underestimated, the opportunities for accountants to make their mark on this area are enormous – and their core skills lend themselves well to the task at hand, Fries believes. “You have at your fingertips a really powerful ability to put climate on the table, to make sure your organisation not only understands the risks but also the opportunities as the world shifts,” Fries says. 

In many respects, the measurement, capture and validation of carbon reporting data is a straightforward extension of the management accounting and corporate reporting function, says Richard Barker, Professor of Accounting and Deputy Dean of Oxford University’s Saïd Business School. “There’s also a need to think through the economic consequences for the business, from the costs and benefits of the transition to net zero but also anticipating risks associated with climate change or factoring in lost revenue or increased costs associated with remaining a high carbon business.”

Not surprisingly, analytical skills and being able to embed scenarios around climate into business planning and strategic decision making will form an increasingly important part of the accountant’s remit, Fries adds. “That whole integrating function is key. Accountants bring a voice of credibility to the table because we have that reputation to ask the tough questions and not to be someone who’s necessarily easily convinced.” 

However, Fries also admits there are challenges to turning the theory into tangible action on the ground. “A4S has spent a lot of time focusing on the development of practical materials and case studies ‘by finance, for finance’ to help accountants think through what they need to do to incorporate climate and other ESG (Environmental, Social, and Governance) factors into day-to-day decision making.”

The importance of climate risk is also driving a fundamental shift in focus driven by a new investment agenda, says Mark Freebairn, Partner and Head of the Board & CFO Practices at headhunter Odgers Berndtson. “The climate change agenda now has significant implications for where people and businesses put their money. So much so, that ‘is it sustainable’ is one of the first questions raised by investors.” 

Similarly, while presenting the board with the cost of becoming a net zero business may not be a particularly welcome message, finance should be able to reframe the move to net zero in terms of the opportunities it presents to the business. 

In particular, accountant could recast the idea of cost as investment in creating a more resilient business with greater opportunities. “It’s a much more subjective but important message and that’s slightly beyond the accountants’ way of thinking,” Barker warns. “Climate change tends to focus on risk mitigation and the cost from carbon rather than the upside of being in a better place.”

For ambitious accountants looking to future-proof their career, it’s clear that sustainability or ESG is fast becoming an essential component. “Without embracing sustainability, it will be increasingly difficult to do your job as an accountant,” says Chris Tregenna, Group Treasurer at water company Pennon Group. “Historically we’ve tended to look at investment decisions from a cost, revenue and return perspective. Now to the same end it’s about understanding the wider benefits of your decisions, including environmental and social impacts to ensure holistic decisions bring everything together to provide support the long-term sustainability of the business.”

Russell Picot, former Group Chief Accounting Officer at HSBC, is confident that accountants will successfully rise to the challenge: “This is naturally what accountants should be doing – building the financials that help support those forward-looking financial forecasts and helping business leaders understand the risks and opportunities.” 

More than just add up numbers, Picot says accountants can add real value by getting to the heart of how business models function successfully against a backdrop of moving goalposts and changing climate risks and scenarios. “If that doesn’t get the juices flowing for accountants, I don’t know what would,” Picot says. “There’s no doubt in my mind that good finance professionals can make a very significant impact in this space.”

While Barker doesn’t believe ESG represents too much of an adaptation for accountants, it is an adaptation nonetheless and one for which they are not trained. “So if you want to know your carbon footprint, you have to get further into your supply chain than just invoices from your suppliers, which involves opening up the channels of communication with your suppliers and their suppliers to get the data which you then need to be able to verify. Then there’s also a degree of educating about what are greenhouse gas emissions, where do they arise in the business and how do you deal with carbon in capital projects.” 

It’s a new skillset and a new way of thinking but it’s also a huge opportunity for the profession, Barker says, “because it’s the biggest challenge that humanity faces and it’s got to happen quickly or we’re in huge trouble.” At the same time, the sustainability of business is a growing driver of recruitment and retention of talent, as job seekers refuse to be fobbed off with platitudes about a company’s environmental credentials. 

Adam Birt, ICAEW’s Head of Qualifications, Strategy and Development, says that to truly thrive in this new world, finance and accounting professionals need to move beyond simply measuring and reporting the impact of climate change, environmental regulation, supply chain pressure and rising energy costs. “They must focus on understanding those implications and integrating them into financial management and business planning,” Birt says. 

ICAEW has been at the forefront of this movement over the past decade and has adapted the ACA qualification accordingly, Birt says. “We see its role as not simply integrating knowledge and understanding the broader implications of environmental, social and governance issues into organisations, but also seeding this thinking into the mindset of our members.

“Our syllabus and ethical and professional development framework contribute toward creating ICAEW Chartered Accountants who recognise that sustainability is at the core of what they do and are capable of actively using their business skills to analyse how to make the new sustainable economy work for their business,” Birt adds.

Freebairn doesn’t believe that the environmental focus will spawn new roles or completely new skills, “but what it does mean is that there is yet another area of insight and analysis that the board and external stakeholders are interested in, and which falls into the remit of the finance function.”

ESG reporting will now become an integral aspect of every CFOs job, and they will need to be able to communicate this to the board and stakeholders. “We’re not going to see a new environmental CFO role, but we might see more board directors whose sole responsibility is the ESG agenda,” Freebairn adds. “For finance, climate change will simply become part of the job.”