The Role of Finance in Operationalizing Net Zero Targets

In 2023, Accounting for Sustainability (A4S) and the Institute of Chartered Accountants in England and Wales (ICAEW) convened a workshop for senior finance professionals, in Singapore and beyond, about the role finance can play in planning and implementing net zero targets.

The first part of the workshop focused on net zero, and the second part discussed reporting climate-related financial risks under the Task Force for Climate-related Financial Disclosures (TCFD) framework. The discussion focused on how finance and sustainability teams must support each other and the practical actions finance professionals can take to enable change.

Mitigating climate-related risks: net zero targets

Organizations and financial actors are increasingly implementing net zero emissions targets to mitigate their impact on climate change. ‘Net zero’ refers to a state when emissions and removals of greenhouse gases (GHGs) to the atmosphere are balanced.

The aim of implementing net zero targets is to reduce global GHG emissions so that the increase in average global temperatures is limited to a maximum of 1.5°C. At the current rate of carbon emissions, the world is on track to warm by 3–5°C above preindustrial levels by 2100, which will cause irreversible damage to the global environment, economy and financial system. The Science-Based Targets initiative provides guidance to different sectors for implementing strategies to achieve net zero targets.

In Singapore, the Singapore Green Plan 2030 was introduced in 2021 to map the country’s progress towards reaching net zero emissions by 2050. To this end, Singapore introduced a carbon tax – initially set at S$5/tCO2 – through its Carbon Pricing Act. The Singapore Stock Exchange (SGX) has also introduced a phased approach to mandatory climate reporting based on the TCFD recommendations. Currently, SGX has mandated climate reporting “for all issuers on a ‘comply or explain’ basis”, with mandatory reporting being introduced for specific sectors in 2024 and 2025.

Disclosing climate-related risks: TCFD and reporting

Investors and other stakeholder groups are increasingly requiring organizations to disclose information on climate-related risks to aid their decision making. The TCFD and ISSB frameworks exist to guide organizations on how best to disclose climate-related financial information.
 

According to the 2022 TCFD Status Report, there are now 3,960 organizations that support and adopt the TCFD recommendations – more than a third of which are financial institutions. During the workshop, participants were called upon to reflect on what they were already disclosing in their annual reports, the extent to which finance affects the four elements of the TCFD framework and how they could overcome organizational challenges.

ISSB: International Sustainability Standards Board

The IFRS Foundation established the ISSB in 2021 as a global standard-setter for sustainability disclosures. The ISSB’s key objectives are to:

1. Develop standards for a global baseline of sustainability disclosures
2. Meet the information needs of investors
3. Enable organizations to provide sustainability information to global capital markets
4. Facilitate interoperability with disclosures that are jurisdiction-specific and/or aimed at broader stakeholder groups

The ISSB standards incorporate the TCFD recommendations. The ISSB recently published its inaugural standards and agreed to take over monitoring TCFD disclosures starting in 2024, effectively creating a global framework for organizations to disclose their climate-related risks and opportunities.

What can finance professionals do?

Finance professionals can guide their organizations towards net zero targets by accurately setting and implementing emissions reduction targets, embedding net zero targets within organizational decision-making processes, and raising and allocating the funds needed to implement these targets. Workshop participants shared that their finance teams are only starting to understand what their role is, though, as contributors to their company’s net zero ambitions and plans.

Created to support finance teams as they navigate their role in sustainability, the A4S Essential Guide series outlines the practical actions they can take across four key areas of finance activity.

Source: A4S, Net Zero A Practical Guide for Finance Teams

Implementing these actions will help organizations enhance their resilience to and mitigate the risks of climate change. As a result, organizations can ensure both short- and long-term financial returns while positively impacting the environment and society.

Finance professionals can also access a number of resources and learning programmes from the ICAEW website. The ICAEW Sustainability Certificate provides finance professionals with the skills they need to incorporate sustainability into their work, including risk management, financial planning and reporting. Meanwhile, the freely available ICAEW Fundamentals of Sustainability Programme offers an overview of sustainability and accountancy, which can be used as a resource by students looking to understand more about these areas.

Learnings from the workshop

Participants’ main feedback was that this workshop helped them understand that net zero – and sustainability in general – cannot be achieved by sustainability teams in isolation. Through their central role within an organization, finance teams can influence decision making in key areas. Participants said they had learned from the workshop that by embedding climate change risks and opportunities into financial decision making, they can contribute to the long-term success of their company.

They all requested a copy of the presentations and committed to reading more about the topic on the A4S and ICAEW websites.

This blog, and the event mentioned, are part of a series supported by ICAEW

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