Russell Picot, former group chief accounting officer of HSBC, talks to Nigel Sleigh-Johnson and Sally Baker about the importance of an organisation’s resilience to climate risk.

On the same day that Our Planet, Netflix’s nature documentary narrated by Sir David Attenborough, premiered in London and HRH The Prince of Wales spoke of the importance of implementing solutions to combat the dangers of climate change, we had the opportunity to sit down with Russell Picot, a keen advocate of sustainability and climate-related reporting. Having been part of the group that helped establish Accounting for Sustainability and more recently as a special adviser to the Task Force for Climate-related Financial Disclosures (TCFD), Russell is at the forefront of efforts to promote understanding of the importance of this emerging area of reporting.

“Climate change is an existential crisis, a threat to our way of life and to humanity,” says Russell. “It has the potential to break down the social fabric of society. The only path forward is a complete decarbonisation of the economy, and that will affect every single business. Climate change is a mainstream business risk and businesses need to expect fundamental change to the world they operate in. That in turn impacts corporate reporting, with non-financial information becoming increasingly important. Numbers are important, but they’re not the whole story.”

Leading by example

Numbers were more of a focus for Russell in the past though. With a degree in mathematics, he originally envisaged becoming an actuary. But a summer internship revealed it would mean being in the same office all the time, doing little other than number-crunching. Chartered accountancy was suggested as an alternative.

Russell went on to spend 14 years with KPMG before joining HSBC in 1993, where he stayed until his departure in 2016. But the connection remains, as he currently chairs the board of trustees of the bank’s UK pension fund. He clearly holds the bank in high esteem: “I was very privileged to work there for nearly 23 years; HSBC is an exceptional organisation capable of displaying great leadership and truly thinking for the long term. Sir Douglas Flint [group chairman of HSBC Holdings from 2010 to 2017] was an extraordinary leader to work for.”

In 1995, Russell was appointed group chief accountant, reporting directly to Sir Douglas, the then group finance director. “The role later transitioned into group chief accounting officer and then in 2003, I became the first group general manager appointed from the finance team – a proud moment for me personally, but also for the function too. It was an expression of the importance of the work we did.”

What were the qualities needed to be successful in such a role, we asked. “It’s important to be seen to do the right thing as a leader. It helps instill confidence,” says Russell. “Leaders need to set a personal example and not shy away from making tough decisions, because this responsibility goes with the territory. Make sure you know where your lines are. When you’re in a position of authority, you’re going to be tested. If you don’t stop those lines being crossed the first time, it’s going to be much harder the second time. Having the ability to listen and being accessible are also important attributes.”

Alongside his role at HSBC, Russell has always been involved in other projects and initiatives. He chaired a committee which played an active role in the development of IFRS 7 Financial Instruments: Disclosures, worked with the Basel Committee on Banking Supervision and in the wake of the financial crisis, and co-chaired the Financial Stability Board’s (FSB) Enhanced Disclosure Task Force. 

“I’ve found it enriched my role to have an active external focus and have always been interested in broader aspects of reporting. I worked at HSBC during a time of significant transformation and growth; there was always a lot of change. I believe that you should always move forward, and continually re-equip your skills to remain relevant. After all, what you do today may not be valued tomorrow.”

The courage of conviction

Russell is a man for whom having strong principles is extremely important. “I’ve always been a quite idealistic person. I have long held the conviction that business is about more than simply profit, that there’s a strong social purpose to it too. Some might argue that that’s at odds with working for one of the world’s largest banks, but society needs banks where people’s money is safe and which are prepared to be moral and principled in how they conduct their business affairs.”

The opportunity to combine his personal convictions with the environmental and social aspects of reporting came in 2004 when the Prince of Wales invited HSBC’s chairman, along with some other corporates, to help set up Accounting for Sustainability (A4S).

A4S aims to drive a shift towards resilient business models and a sustainable economy. The project was established, in the words of Prince Charles, “to help ensure that we are not battling to meet 21st century challenges with, at best, 20th century decision-making and reporting systems”.

“The Prince is an extraordinary man, who works tirelessly and demonstrates very considerable leadership. He has championed environmental and climate issues for many decades and has shown immense personal courage in publicly expressing his views on matters that he believes to be important to society.”

Prince Charles has also been the catalyst behind two other more recent initiatives that Russell is involved with – integrated reporting and climate-related disclosures. It was at an A4S forum in late 2009 that what is now known as the International Integrated Reporting Council (IIRC) was established. Its aim is for integrated thinking and reporting to be a mainstream practice in business. Through integrated thinking and reporting, the IIRC seeks to align corporate behaviour with the wider goals of financial stability and sustainable development.

“Integrated reporting breaks down silos,” says Russell. “It brings together all the different disciplines and the result is integrated thinking. As the anecdote goes: ‘I went to a meeting on integrated reporting and met people in the organisation I had never met before’.”

Becoming mainstream

Awareness around climate change and the risks it poses is increasing and stirring many people’s consciences. There are some though who are reluctant to build it into their business thinking. What would Russell say to them?

“Climate risk is now a matter of economics. To date, 197 countries have committed to the United Nation’s (UN) 2015 Paris agreement to transition the world to a low carbon economy. Climate action is also one of the UN’s 17 sustainable development goals, with a target date of 2030. Reducing your carbon footprint is probably going to save your business money. If a meaningful carbon tax is imposed, input costs will increase, so it’s sensible to consider sourcing on, or near-shore. Supply chains are also likely to be disrupted by physical events caused by climate change, so there’s a need to mitigate that risk. And there are strong expectations from society now. Most young people would find it an anathema to work for an organisation that doesn’t consider climate risk to be important. It simply makes good business sense to consider climate as a mainstream business risk.”

The TCFD’s recommendations aim  to connect and communicate the financial impact of climate change  on an organisation. Inspired by A4S  and the Prince of Wales, the Task Force was established by Mark Carney, governor of the Bank of England and chair of the FSB. A key disclosure recommended by TCFD focuses on the resilience of an organisation’s strategy, taking into account different climate-related scenarios.

“Business leaders should be having a conversation around the board table about the resilience of their business model and strategy with respect to climate risk and sustainability,” says Russell. “This scenario analysis is one of the most challenging aspects of the TCFD recommendations to implement, but critically, investors are looking at it. My advice is to not get lost in a welter of data but to think of it as stress-testing and assessing the viability of your strategy and business model. In some cases, it will show that businesses need to change what they do. It’s difficult to think of any businesses that won’t be impacted by the transition to a decarbonisation of the entire economy and our way of life.”

There is growing momentum behind putting the TCFD recommendations in place, but what’s preventing them being applied more widely?“A worrying number of businesses and directors are simply not aware of TCFD, but even when they are, there are many competing priorities which can take precedence. For asset owners such as pension funds, it can be seen as being less risky to defer addressing climate change risk than to seek to manage it.

“The TCFD recommendations need to be mandatory: this area of disclosure is growing in importance and is simply too important to be left to a purely voluntary regime. At a recent gathering, a group of NEDs was asked, ‘What is the quickest way to get boards of companies to take climate risk seriously?’ Their answer was public disclosure. It may be a blunt weapon, but it’s effective.”

Finance for the future

Later this year, Russell will again be chairing the judging panel for the Finance for the Future awards. Founded by ICAEW and A4S in 2012, and now in partnership with Deloitte, the awards celebrate examples of good practice within finance functions that could be transformational in building sustainable organisations.

“Being involved with the awards is quite humbling,” says Russell. “Many interesting and inspirational stories are told and people are visibly moved by what they hear during the evening.”

As well as awards for communicating integrated thinking, and building sustainable financial products, this year will also see an additional award to recognise climate leadership.

As we return to ICAEW, we reflect on Russell’s parting comment: “It’s time for everyone to consider how to start to take the lead in tackling climate change and ask themselves, ‘what can I do to be part of the solution?’”

About the authors

Nigel Sleigh-Johnson is head of the faculty
Sally Baker is a technical manager in the faculty