INTHEBLACK December 2021 - Magazine - Page 24
F E AT U R E
// C L I M AT E C H A N G E
OPEN VIDEO IN A NEW WINDOW
Among the options available to governments
are incentives for investment in new sources
of energy and facilitating the adaptation of
electricity grids to accommodate volatile and
diverse sources of power.
In all these scenarios, though, companies are
responding to external pressure.
HOW ACCOUNTANTS CAN GET INVOLVED
There is a strong case for forward-thinking
accountants and finance professionals who have
the ear of the decision-makers – to
take the initiative, says Cherine Fok, director
of sustainability services at KPMG Singapore.
“We should be ready to exercise our
professional judgement in challenging the
assumptions that we are used to – even
fundamental tenets such as ‘going concern’ –
when assessing the financial statements.”
In practice, the kind of open corporate culture
that would accept such questioning depends on
the attitudes at the highest levels of leadership,
says Laura Hillis, director of corporate
engagement with Investor Group on Climate
Change, which represents institutional investors
throughout Australia and New Zealand.
“It has taken boards a long time to realise
how material the financial risks are from climate
change,” she says. “Those risks are not purely
about reputation or regulation. They are also
24 ITB December 2021
“IT HAS TAKEN
BOARDS A LONG
TIME TO REALISE
HOW MATERIAL
THE FINANCIAL
RISKS ARE FROM
CLIMATE CHANGE.
THOSE RISKS ARE
NOT PURELY
ABOUT
REPUTATION
OR REGULATION.
THEY ARE ALSO
ABOUT THE
THREAT THAT
RAPID CLIMATE
CHANGE POSES
TO BUSINESS AS
USUAL.”
LAURA HILLIS, INVESTOR
GROUP ON CLIMATE CHANGE
about the threat that rapid climate change poses
to business as usual.”
THE SHIFT TO ENTERPRISE VALUE
Traditionally, financial materiality – and therefore
reporting – had applied to environmental, social
and governance (ESG) issues only when they had
direct and quantifiable impacts within a defined
timeframe, says Fok.
Environmental and social risks have introduced
additional, and often incalculable, volatility
to economic performance. “These need to
be addressed in the financial statements if
accounting is to remain relevant,” Fok says.
Together, the International Accounting
Standards Board (IASB) guidance and Parisaligned accounting are having the desired effect
of promoting clear disclosure of climate change
in financial statements.
“We accountants can choose to take the lens
of enterprise value materiality for a longer and
wider view,” Fok says.
“However, we should be keenly aware that this
approach calls for us to accept more uncertainty,
while rigorously challenging the quality of data
and underlying accounting assumptions.”
IFRS AND SUSTAINABILITY REPORTING
Enterprise value is the centrepiece of the
International Financial Reporting Standards