At COP26’s climate talks we have seen government officials, finance leaders, green activists and corporate icons on show. The world’s auditors and accountants have been underrepresented - And this is a great mistake.
The corporate and government promises coming from the discussions have sometimes sparked just as many questions as answers, but one thing is clear: climate change action is about to put corporate auditors under the uncomfortable — and unaccustomed — glare of the spotlight.
This is because companies are facing rising pressure and requirements to be clear about their emissions and other associated environmental and social impacts. However the sustainability consulting guide for measuring this is still fluid, at the best of times. Ownership now lays with auditors to make judgment calls about ESG issues, these are judgement calls that they didn’t sign up for in their job roles.
In understanding why this matters we can take a look at two announcements in Glasgow this week: ISSB (International Sustainability Standards Board) and Gfanz (or Glasgow Financial Alliance for Net Zero).
Mark Carney, the former Bank of England governor, announced that 450 global financial institutions managing $130 Trillion USD of assets had joined Gfanz, and pledged to use their financial influence to drive decarbonisation and meet net-zero emission targets by 2050.
Now, to be fair many Green activists (correctly) have made light of the fact that this tremendous $130 Trillion figure likely includes double-counting. As always it is still unclear how much truly meaningful change will be driven in the short term by these long term goals.
Fears of greenwashing are certainly valid, however the announcement shows the speed that corporate finance is changing. As lenders come under pressure to prove their green credentials.
Remember, just seven months ago, when the Gfanz was started, it only had a measly $5tn assets.
Investors need to understand that this change is flowing onto the lenders and companies.
However, the pressure to take on net zero pledges will surely spread through all sectors. While investor and social pressure has been more highly placed on listed companies it is on the horizon that targets be imposed on private capital and businesses too.
It is still not clear what will happen in the meantime from a reporting, accounting and auditing perspective or whether the US or China will adopt the proposed eventual global framework.
There is considerable uncertainty/expectation on the future projections of carbon emissions and carbon prices, with some experts expecting 3x increases over the next couple of years..
What we can say is that reducing carbon emissions is the best solution to the growing pressures of climate change in both the environment and economic lenses. Carbon offsetting is not a viable long term strategy for businesses as carbon emissions become carbon liabilities.
Meanwhile you can take a look at the important updates from the COP26 summit here.
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