Calling all finance teams

By Kerry Perkins, Senior Manager – Engagement and Implementation, A4S

It is becoming widely understood that in order to deliver on the commitments of the 2015 Paris Agreement to limit the rise in average global temperatures to below two degrees above pre-industrial levels, the financial community plays an integral role.  Climate change poses serious risks to the global economy - companies from pretty much all industries could be affected by both physical effects of climate change as well as the transition to a low carbon economy. 

Information is the foundation of efficient markets, but what is currently required by international accounting standards does not reflect the range of social and environmental factors fundamental to the assessment of the current or future performance of a company.  This lack of information impairs the ability of investors and others to take properly informed decisions, as they cannot evaluate a company's resilience to climate-related risks and the uptake of climate-related opportunities.

Enter the FSB Task Force on Climate related Financial Disclosures. 

As our TCFD blog from CPA Canada details, the recommendations provide a coherent and standardized framework to enable the identification and disclosure of a company's climate related risks and opportunities into the mainstream.  The current, commonly used climate change reporting mechanisms, for example, CDP and CDSB, are also aligning their recommendations with  the TCFD's.  Providing a  framework for CFOs and their finance teams to follow – with what to disclose and how to disclose it in mainstream financial filings – it enables investors, lenders and insurers to make better informed capital allocation and financial decisions.  And thereby help to smooth the transition to a more sustainable, low carbon economy.

What does this mean for CFOs and their finance teams?

There has been growing global support amongst businesses, the investor and regulatory communities and accountancy bodies for the wide adoption of the TCFD's recommendations.  Large groups of CEOs, investors, or even companies by country have signed statements and letters encouraging or committing to adoption.  However, put simply, without CFO support the recommendations will have little traction, as it will be them and their teams upon whom we rely to implement this framework.  We look to CFOs and their teams to lead the accounting community in adopting this framework in order to change the current status quo of inconsistent, incomparable or non-existent disclosure, and help address significant risks to the economy and society posed by climate change.    

The time is now. 

With the recommendations published this Summer, we enter into an important period of time for the accounting world to test and help shape their implementation, before it turns to regulators and governments to intervene.  No matter what stage your company is at in terms of disclosing climate related risks, experimenting with the TCFD recommendations, sharing knowledge and learning from early movers in this area will help drive adoption of this framework and ultimately support more appropriate pricing of risks and allocation of capital in the global economy.

How we can help.

We understand that implementing these recommendations will not be an easy exercise and will present challenges to traditional accounting. We have and continue to stimulate conversation and action around these recommendations, and the below shows a taster of our activities to date.  The A4S CFO Leadership Network – a group of leading CFOs from large organizations that embed the management of ESG into strategy and business processes – invites other CFOs across the globe to join them in supporting the implementation of these recommendations.  

To find out more about implementing these recommendations and next steps, please email accountingforsustainability@royal.gsx.gov.uk