Carbon Accounting, too little too late?
26-MAY-09
Most of the observed increase in global average temperatures since the mid-20th century is very likely (>90% likelihood) due to the observed increase in anthropogenic greenhouse gas concentrations.
The potential treat cannot be overstated, according to the IPCC’s fourth report (climate change, 2007).
Although some influential political leaders appear to have woken up to the enormity of the issue of climate change, they are taking their time to consider how to mitigate the impacts of climate change while continuing to rely on fossil fuels and without losing the popular vote.
In contrast, some major global organisations are pressing ahead and actively responding to the challenge.
The Business Response
British Telecom plc (BT), for example, is the UK's biggest customer of green electricity. It has recently announced it will build its own wind farms, which will be operational by 2012, and provide 25% of their UK
electricity needs by 2016. BT has a comprehensive, detailed climate change strategy covering its operations, customers, employees and suppliers.
There are many more corporations leading the way, including BMW AG, Rio Tinto plc and Energias de Portugal SA - who were winners in the best “Caron disclosure” category of CorporateRegister.com’s reporting awards, judged by readers of such reports.
EIRIS have found that 84% of high and very high risk companies within the latest 300 FTSE All World Index have a corporate-wide climate change commitment. It is therefore clear that the business response in the first world is leading the way.
However, the business impact of their activities in developing economies needs to be considered. Then again, governments in developing nations have to demonstrate commitment.
“South Africa finds itself in a unique position: while many organisations still need to be persuaded to produce sustainability reports, the rest of the world is challenged to move beyond reporting into direct action on matters such as water and carbon accounting” says Dr Q Simpson (Head ACCA SA).
Organisations: Drive for Change
As well as direct activity, pressure is mounting for corporate change via the lobbying and targeted work of influential organisations. Corporate coalitions, such as the World Business Council for Sustainable development (WBCSD), which was founded on the eve of the world’s first Earth Summit in 1992 to give businesses a voice in sustainable development matters, dedicates one of its four work streams to “energy and climate”.
Once again, clear commitment and initiative is a required drive change. Is SD a regulatory requirement, is it a social investment responsibility? The answer is both; it needs urgent stakeholder engagement. The mutually identified urgency will drive change. It is far too dangerous for mankind to wait for actual environment changes to drive change and response.
Carbon Disclosure Project
In an ideal world, investors, businesses and other stakeholders in capital markets would collaborate to adapt investment practices to account for changed climate by integrating climate change models into such processes. Realistically, this is a long way off although there is a groundswell of pressure via the Carbon Disclosure Project (CDP).
The mission of the CDP is to facilitate dialogue between investors and corporations supported by quality information from which a rational change to climate change will emerge. The CDP has grown from having an original set of 35 investors (US 5 trillion assets) in 2003, with 500 companies taking part in the survey (US $ trillion) in 2008.
Corporate Climate Change Disclosures
The corporate response to climate change has stimulated a range of organisations, from NGOs and accountancy firms to consultancies and think tanks, to research and initiate projects on climate change. The main messages from such work are that:
• Climate change reporting is still very much in the early stages
• No specific carbon reporting or international carbon accounting standard exists
• Significantly more needs to be done on carbon reporting by the mass of unlisted unquoted corporations and public sector organisations
• Specific areas of carbon reporting are clearly lagging
• Climate change is not just an environmental issue but influences many other social and economical factors such as poverty,
health and economic development and should be considered in a wider context
As these become more critical, it is expected that climate change disclosures are expected to become more frequent in the annual report and accounts, as companies develop strategic responses to climate change and carbon constraints.
And given the increasing political importance of climate change and the opportunity this brings for corporate influence, disclosing company public policy positions and lobbying policies will become a critical aspect of transparency.
Climate Change and the Accountance Profession
In acknowledgement of the fact that climate change is so fundamental to the future, ACCA has prioritised the consideration of it - after all; the typical accounting profession has a pivotal position within an organisation, and is well qualified to make a vital contribution toward climate change policy and implementation, in areas such as:
• Evaluating the returns on low-carbon investment proposals
• Developing organisation-relevant carbon and GHG KPIs and related measurement protocols
• Advising employers and clients about how emissions trading regimes operate and developing related response strategies
• Providing improved disclosure of information through the annual reports and accounts
• Auditing and assuring carbon and GHG disclosures
• Advising employers and clients as to the best courses to take in adapting to climate change
• Generally quantifying and profiling the financial consequence of climate change.
To achieve these results on an international scale requires collaborative and concentrated effort. ACCA is doing its part but cannot effect such fundamental change alone. As a start, within the profession, all accountancy bodies should implement post-qualification training programmes for members in public practice, and the public and private sectors, focussing especially upon issues relating emissions trading schemes, carbon intensity and risk, and emissions disclosure and verification.
Accountancy professional bodies then need to look at the syllabus to influence and prepare today’s students for tomorrow’s worlds, which ACCA has done already.
Standards and Legislation
Increasingly governments are treating carbon reduction standards at the level of the national economy without providing the measurement tools for companies and other organisations to meet those targets. ACCA believes that a standard designed to account for carbon emissions represent a new chapter in accounting standard setting.
ACCA acknowledges that the design of such a standard would, of necessity, be a multi-disciplinary exercise. At the very least, the project team would need to contain economists and engineers as well as accounting professionals.
The Way Forward
We face an
interesting future. An internationally accepted carbon reporting standard an carbon accounting standard have yet to materialise, but developments an collaborators will be fascinating to watch. ACCA remains certain that the accounting profession's most significant contribution - and one of the most influential for the business world – would before it own accounting standard-setter body to publish a carbon accounting standard.
The human race is at an important crossroad and will require all its famed ingenuity to continue to develop. The accounting profession must play its part in correcting the greatest and widest-ranging market failure ever seen, says Dr Q. Simpson.
For more information on ACCA South Africa’s Sustainability awards program contact Melanie Williams on 011-4591900.
