We are at a crunch decision point when it comes to climate change. As the world’s leaders and organisations map out a path to recovery, there is a real opportunity to build a new approach that is kinder to our environment.
According to the panel Green and fair: What does the recovery look like for the profession? at ICAEW’s Virtually Live conference, accountants will have an important role to play in making it happen.
At the session, chaired by social entrepreneur Charmian Love, the panellists – Extinction Rebellion's Roc Sandford, assistant auditor at the National Audit Office and passionate advocate of social change Jessica Bingham, and ICAEW past-President Andrew Ratcliffe – agreed that auditors needed to do more to hold organisations into account for their environmental activities.
“I don't think that we need to reinvent the wheel because we already have standards that embody natural capital and comparable sustainable reporting,” said Bingham. “It's our job as auditors and accountants to get organisations to use them.”
Directors, shareholders, accountants and auditors also need to expose the vested interests that weaken environmental standards, she said. “We also need to hold ourselves to account. We as individuals have significant influence and we should be challenging the organisations that were a part of.”
Climate risks and going concern
Sandford explained that materiality disclosure responsibilities around climate risks are not taken seriously enough by auditors. “Traditionally, enterprises are audited on a going concern basis,” they said. “But a lot of enterprises, [if you look at the Paris Agreement] aren't going concerns. Business models are severely impacted by the remaining carbon budget to achieve the Paris outcomes. So, we really have to question whether it's valid to audit many businesses on a going concern basis.”
Ratcliffe said that the traditional financial accounting model was part of the problem. “It's short-term. It is financially dominated. It's about stewardship of capital, rather than externalities, and so on and so forth. However, it's a very complex, heavily regulated model. People have tried to force things like valuation into it, and it's a bit of a mess.”
However, he said that auditors are still best placed to measure and monitor an organisation’s environmental activities. “The basic skills are the same as auditing financial information; the basic ideas of measurement, of control, of assurance. The fact that it's CO2 or its equivalent rather than pounds, [it doesn’t matter], it's data. It needs to be reliably measured and tested.”
In response, Bingham argued that carbon measurements should be included in an organisation’s annual report. “The last thing that I think shareholders and stakeholders want is another report to read.”
Bingham said that assessments of going concern should cover at least 12 months and could be significantly longer. “Directors who are making that decision should be taking into account all available information, including climate change.”
As the discussion came to a close, Bingham cited the five fundamental principles ICAEW members should adhere to. “Consider it an additional ethical thing that you should be thinking about sustainability and climate change in every aspect of the work that you do. It should just be there as a habit.”
Sandford argued financial bailouts should not go to non-Paris Agreement compliant industries. “You can have different reserve ratios in central bank lending to commercial banks, etcetera. But that stimulus mustn't artificially inflate the old economy.”
Ratcliffe concluded: “I would want to see increasingly governments saying to companies: ‘Okay, if we're going to support you, then we need to tie this into some decarbonisation commitments from you and your operations.’ That would be really radical government policy, but that's also what needs to happen.”
Watch the session
ICAEW members, ACA and CFAB students, as well as members of ICAEW communities and faculties can watch all the recorded sessions from ICAEW Virtually Live.
ICAEW Live: 17&18 June 2021
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