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when chartered accountants save the world

Targeting decision-makers in the fight against climate change

Author: ICAEW Insights

Published: 26 Oct 2021

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The climate crisis poses an existential risk to our homes, our businesses, and ultimately our whole way of life. Empowering decision-makers to put the climate at the heart of all they do will help significantly

“To stand up and say that 100% of global warming is because of human activity, I think on its face, is just indefensible.”

So said America’s Energy Secretary Rick Perry a scant four years ago. While he may have been part of the climate-sceptic Trump administration, it would be incredible to hear any politician of a major developed nation make the same pronouncement now.

Much has changed in that time and not just among politicians. Dr Swenja Surminksi, Head of Adaptation Research at the Grantham Research Institute, part of the London School of Economics, says that in recent years “there has been a significant shift” in thinking in business as well as in politics.

At a recent board meeting she attended, someone said, “Look, if my 12 year-old asks me about climate change and what I’m doing day-to-day on it, I need a good response.” She says there has been a big change in general perceptions in the past few years – ”we shouldn’t underestimate that that’s actually made a huge difference.”

While attitudes may be changing, time is also running out. Surminski says that more change is clearly needed. We can’t “keep up business as usual and play around with a few adjustments here and there.

“There’s still an underestimation of the challenge we’re facing,” she says. The climate crisis poses an existential risk to how we live, and experts are clear that we need to work with equal rigour in reducing the emissions that cause the crisis and on ‘adaptation’; that is, preparing for the extreme weather and natural disasters the coming decades will bring.

One important way to do this is to ensure those who make the millions of resource allocation decisions taken each year, do so constantly with the climate crisis in mind. These are people that range from senior politicians, board members of the world’s biggest firms and heads of large government departments, right the way through to middle managers making million-pound purchase orders, local council executives making planning decisions, or charity managers deciding where to spend their funds. 

The Intergovernmental Panel on Climate Change’s fifth mammoth report published in 2014 looked in detail at climate-related decision making (pdf). It concluded that, while there is no “universal criterion” for a “good climate-related decision,” it requires information on climate and the risks involved and “to be integrated into an existing … decision-making context.” 

Many chartered accountants will be in roles – now and in the future – that will either require them to make decisions that affect the climate crisis or adaptation efforts, or support others in making those decisions.

Three things will help place the climate crisis in the balance of any major decision: understanding some fundamental aspects of the crisis itself; creating the right ‘infrastructure’ for decision making; and understanding how to communicate the risk of either inaction or the wrong action.

The climate crisis: what to keep in mind

Most important to understand, says Roop Singh, Climate Risk Advisor at Red Cross Red Crescent Climate Centre, “is that these things are already happening” all over the world. Singh works with the World Weather Attribution Initiative, a group of climate scientists that analyse extreme weather to ascertain if global warming is the cause. She says recent events, such as the major flooding in Germany, the wildfires in California and the extreme heat in the northwest of the US and western Canada were all “made more likely by climate change.

“Time and again, we’re seeing examples of this. And these particular events, people are dying during them, we see damage to infrastructure, businesses are no longer able to operate, so we're seeing financial losses as well. So these extreme events that are linked to climate change are already having an impact. And with even more warming, we expect this to get worse.”

The crisis also brings knock-on effects that are even harder to predict or prepare for. Singh cites Hurricane Ida in Louisiana. Even though it didn’t cause much initial damage, it did disrupt power lines, which meant older people went without air conditioning, and ended up dying of extreme heat. 

Finally, it’s important to understand two more features of the crisis. First, rather than just the number and severity of disasters increasing, the rate at which they increase will also itself increase. This means, says Surminski, that while “we might feel [preparing for the crisis] is difficult and costly now, if we don’t deal with it, it will be even worse in the future.”

Second, “year-on-year we’re seeing irreversible changes and irreversible means we can’t go back,” says Surminski. “That’s scary.”

Enabling good decisions

The most useful word to keep in mind, says Singh, is “resilience.” Decision makers have always had to ensure their organisation’s operations and systems are healthy across time but now, says Singh, they should also understand “what risks climate will exacerbate within those systems and ensure that they're resilient, they're able to bounce back, even if there is an extreme event.”

Surminski says that preparing for extreme events and reducing emissions must be seen as an “integral business issue, and not just something you can leave to your CSR team … They do a great job but that is a misunderstanding of what climate change is, and where it features.”

The Global Association of Risk Professionals suggests that managers take three steps now to make their organisation resilient. First, they look a decade or so ahead at the different types of risk facing them: the ‘transition’ risk of how law, policy and public sentiment will change due to the crisis; the ‘carbon’ risk of whether anything they own today will be worthless/unusable in 10 years’ time; the technology, legal and reputational risks of what the crisis brings; and finally the physical risk posed by extreme weather events.

Second, they work out what they need to mitigate those risks, such as the right insurance, the right investments etc. And third, they need to understand who they should start working with to do this (customers, suppliers, local communities etc). 

In short, managers must have a structure in place that puts the climate crisis at the heart of their decisions and a structured way of ensuring they’re investing now in making their organisation as resilient as possible.

Communicating the risk

An important part of making the right decisions is being able to communicate to others why you are making the decisions you’re making, or why others need to make a certain decision. Singh suggests that, first, you must understand whether your audience will respond best primarily to a moral argument or a evidential one.

For example, when speaking to the general public, says Singh, you can talk about how unfair we are being to children and grandchildren by not addressing this problem now. But, in other cases the explanation might be far more rational and specific, such as how much this might cost a business unit in the future if an investment isn’t made now.

It’s also crucial to understand how much science or evidence to provide. There is now so much work on human-made climate change that it’s important not to overwhelm people. Too much information will make people feel powerless, says Singh. Instead “understand how they fit into the global climate issue .. what their incentives are,” and use that to help them understand.

Finally, both Singh and Surminski are keen to point out that although risks posed by extreme weather are both existential and with us now, we can still prevent the worst case scenario. “There is still confidence,” says Surminksi, “that’s the uplifting message. We still have time to turn it around.”