SASB_Accounting carbon brief_F

Business relationships in difficult times

Sustainability and business — Environmental issues brief: Accounting for carbon

April 2022

Introduction

As highlighted in the Sustainability and business — the call to action; build back better report, AICPA^® and CIMA^® started a programme of thought leadership to explore accountancy and sustainability. This is part of a series of briefs exploring the topic of sustainability, business, and the finance professional’s key role. These briefs will help organisations consider the sustainability issues, how to integrate them into their long-term decision-making, and how to incorporate these issues into internal and external reporting.

Although this report focuses on accounting for carbon, we recognise that a three-fold crisis of, a climate emergency, dramatic nature loss and rising social inequality affects our planet. Addressing this requires systems thinking across the three crises as companies reallocate resources, reorientate production and reimagine their business models. Climate change disproportionally affects and impacts the poorest in the world. Our goal must be to make it possible for low-income people to climb a ladder without making climate change worse.

This report is designed to help finance professionals build their climate emergency literacy so we can lead and support the journeys of our organisations, firms and clients to adapt business models and reduce their carbon footprints in the global race to net zero.

This is a health warning and it’s going to be messy. Accounting for carbon is not a quick tick-box exercise in a world goal to reduce global warming. The American political economist and Nobel Prize winner in Economics, Elinor Ostrom reminds us the complexity (quote above).

Given the complexity and changing nature of the problems involved in coping with climate change, there are no 'optimal' solutions that can be used to make substantial reduction in the level of greenhouse gases emitted into the atmosphere. A major reduction in emissions is, however, needed. The advantage of a polycentric approach is that it encourages experimental efforts at multiple levels, as well as the development of methods for assessing the benefits and costs of particular strategies adopted in one type of ecosystem and comparing these with results obtained in other ecosystems.¹

Elinor Ostrom

Given the complexity of the task ahead for society, governments, organisations, and individuals, quick-fix solutions that fail to acknowledge the interconnectedness across the three crises could make things worse. Climate change exhibits the characteristics of what the authors Rittel and Webber called ‘wicked problems’.²

The characteristics of ‘wicked problems’ include:

Difficult to formulate.
It is never clear when a solution has been reached.
They don’t have true or false solutions, only good or bad according to the perspective taken.
A solution will have long drawn out consequences that need to be taken into account in evaluating it.
An attempted solution will change a wicked problem so it is difficult to learn from trial and error.
There will always be untried solutions that might have been better.

All wicked problems are essentially unique; there are no classes of wicked problems to which similar solutions can be applied.
They have multiple, interdependent causes.
There are lots of explanations for any wicked problems depending on point of view.
Solutions have consequences for which the decision-makers have responsibility.³

What is clear, thanks to the Paris agreement on climate change, is that the world has a goal to keep global warming to less than 1.5 degrees. It is a goal that must be at the heart of, and, driving an organisation’s carbon accounting.

What is carbon accounting?

What matters is that fixing the climate crisis goes far beyond making more green electrons. It requires reflecting on what new institutions will act as eco structures generating new emergent consumer norms and behaviors. And it also requires reflecting on what options we may have to change consumer behavior more directly.

Roland Kupers.⁴

Carbon accounting is a general, shorthand term that encompasses our activity to bring down the levels of gases we emit into the atmosphere that are recognised to cause global warming. Carbon dioxide (CO2) is the most dominant of seven greenhouse gases (GHG). The seven GHGs the United Nations Framework on Climate Change (UNFCCC) defined that are increasing global warming are:

Together, they are converted into a ‘carbon dioxide equivalent’ (CO2e) that is used to understand the total contribution of GHGs to global warming of a given activity or process. For an organisation the metaphor ‘carbon footprint’ is then overlayed to represent the best estimate of the full climate change impact their business has.

In simple terms, carbon accounting is the process used to measure how much carbon dioxide equivalents an organisation emits.

The complexity of carbon accounting and its scope

However, as greenhouse gas emissions are released in so many business activities, if carbon accounting is to make a difference, it must also wrestle with complexity. Bill Gates in, How to avoid a climate disaster, demonstrates that GHG emissions cut across an organisation’s entire business model.

Therefore, the activities of carbon accounting need to focus upon two elements: mitigation and adaptation.

Mitigation focuses upon an organisation’s action to avoid and reduce its emissions of greenhouse gases into the atmosphere. It addresses the root cause of the problem rather than dealing with the effects. Net-zero carbon targets are an example of mitigation activity in an organisation’s transition to a lower-carbon economy.

Adaptation focuses upon altering an organisation’s behaviour, systems, and business model. It is the process of adjusting to actual or expected climate change, and its effects to protect an organisation’s future economy and ecosystem. Impacts could include rising temperatures, flooding due to rising sea levels, or seasonal droughts. A drive to reduce the waste generated by an organisation is an example of an adaptation activity.

Through the dual focus of mitigation and adaptation, carbon accounting provides an organisation with an approach to quantify and measure GHG emission, and, also helps it make informed decisions about its low carbon future. An organisation’s journey to reduce its GHG emissions or achieve net-zero targets are increasingly documented in a ‘climate transition plan’. Climate transition plans are explored in the ‘How to integrate carbon accounting into an organisation?’ section.

The carbon accounting lexicon

Adding to the complexity of carbon accounting is the different use of terminology for things that are defining the same or similar activity. However, this is not the case. Taking climate target labels as an example,

Carbon neutrality — Reaching a point where an entity no longer generates carbon emissions or where any carbon emissions released into the atmosphere is counterbalanced by removing an equivalent amount of carbon from the atmosphere.

Carbon negative — An entity removes more carbon from the atmosphere than the carbon that they release into the atmosphere.

Net-zero carbon — It’s the same as being carbon neutral.

Net zero — Reaching a point where an entity no longer generates greenhouse gas (GHG) emissions or where any GHG missions released into the atmosphere is counterbalanced by removing an equivalent amount from the atmosphere.⁶

Climate positive — Essentially the same as carbon negative, but unfortunately, is mostly used as a marketing ploy.

Confusingly, ‘global warming’ and ‘climate change’ are also often used interchangeably, but we must recognise that the global warming caused by GHGs in the earth’s atmosphere is just one aspect of climate change, which encompasses shifting weather patterns and other related impacts as well.

When authors Robert Charnock, Matthew Brander, and Thomas Schneider were reviewing the carbon accounting landscape they concluded that, ‘any attempt at a comprehensive definition may be doomed to failure as the diversity of practices that can be considered as "carbon accounting" is just too great and continues to grow.’ ⁷ No wonder it is a complex space when the language and terms used appear nuanced and change depending on who is using the labels.

The scope of an organisation’s GHG emissions

In 2017, the Taskforce on Climate-related Financial Disclosures (TCFD) published recommendations designed to help organisations provide better climate-related financial information to support informed capital allocation. A core element of the thematic area of ‘Metrics and Targets’ is how organisations disclose their GHG emissions and any related risks.⁸ These are split into three types:

Scope 1 covers an organisation’s direct GHG emissions from owned or controlled sources. This includes any emissions connected to fuel combustion within an organisation’s boilers, furnaces, and vehicles.

Scope 2 covers indirect GHG emissions from the generation of purchased electricity, steam, heating, and cooling consumed by the reporting organisation. These tend to be located in an organisation’s upstream activities.

Scope 3 covers all other indirect GHG emissions that occur in an organisation’s value chain. These emissions typically represent the greatest share of an organisation’s carbon footprint. They are located in both an organisation’s upstream and downstream activities.

Scope guidance from the TCFD in 2021 suggest (above),

All organizations should disclose absolute Scope 1 and Scope 2 GHG emissions independent of a materiality assessment given the foundational aspect of these emissions in assessing exposure to climate-related issues. In addition, the Task Force strongly encourages all organizations to disclose Scope 3 GHG emissions.⁹

Credit someone here…

It is important here to be aware that as the science evolves around GHG emissions, so the measurement methodologies that defines a scope’s focus will evolve. This has been the case with the challenges of disclosing Scope 3 emissions. Problems have included, double-counting of emissions, agreement on a common calculations’ methodology, and the types of activities excluded.

However, as governments and regulatory bodies move to mandatory disclosure of climate-related financial materiality many of their prototype legislative drafts are based on the TCFD recommendations. These will improve the universality of carbon accounting language and comparable disclosure.

When trying to understand the ‘what of carbon accounting’, the TCFD recommendations are a great starting position on which to build your organisation’s journey.

Why is carbon accounting needed?

Business and government need each other. Countries can sign climate agreements, but without business to implement them, they won’t meet their goals. Companies that set aggressive carbon reduction targets also won’t get there without policies that move the electric grid toward renewables.

Paul Polman & Andrew Winston¹⁰

The science behind global warming and climate change

Created in 1988, the International Panel on Climate Change (IPPC) is the United Nations’ body for assessing the science related to climate change. It provides regular assessment of the scientific basis of climate change. This focus includes current and future impacts, associated risks and sets out options for future mitigation and adaptation.¹¹

In 2021, the IPCC released a Sixth Assessment Report, The Physical Science Basis, that address the most up-to-date understanding of the world’s climate system and the impact of climate change.¹² The report’s message, ‘It is unequivocal that human influence has warmed the atmosphere, ocean and land. Widespread and rapid changes in the atmosphere, ocean, cryosphere and biosphere have occurred.’ ¹³ Further, the 2021 report finds that ‘unless there are immediate, rapid and large-scale reductions in greenhouse gas emissions, limiting warming to close to 1.5°C or even 2°C will be beyond reach.’ ¹⁴

The consequences of the IPCC observations are already manifesting themselves in the forms of floods, wildfires, droughts, species loss, and resource scarcity.¹⁵ Estimates from the IPCC indicate that, ’Approximately 3.3 to 3.6 billion people live in contexts that are highly vulnerable to climate change.’ ¹⁶With the earth’s population projected to reach 7.9 billion people in 2022, that equates to 45% of people across the world.

United Nations Sustainable Development Goal (SDG) 13 — Climate action

In September 2015, the United Nations established its 17 Sustainable Development Goals. The goals recognise (quote above),

that ending poverty must go hand-in-hand with strategies that build economic growth and address a range of social needs including education, health, equality and job opportunities, while tackling climate change and working to preserve our ocean and forests.¹⁷

Credit someone here…

Goal 13, Climate action, asks us to, ‘Take urgent action to combat climate change and its impacts.’

This goal is then split into three target areas

13.1 Strengthen resilience and adaptive capacity to climate-related hazards and natural disasters in all countries.
13.2 Integrate climate change measures into national policies, strategies and planning.
13.3 Improve education, awareness-raising and human and institutional capacity on climate change mitigation, adaptation, impact reduction and early warning.¹⁸

The SDGs are a reminder that a simple carbon accounting approach is not enough and transition plans to combat climate change must be integrated and considered along with the other goals. As the world continues to rapidly change, the choices and opportunities of an organisation to affect climate change will evolve. It is also important to remember that carbon accounting must be more than a reporting activity. To impact future organisational decision-making, it must be embedded into an organisation’s governance, strategy, risk management, and, metrics and targets.

Not only should carbon accounting be a recurring inside-out exercise of the organisation’s capabilities to transition to a low carbon business model, it also requires a backwards step for an outside-in view. As Polman and Winston point out in, ‘Net Positive’, carbon accounting isn’t just an internal activity, it is part of a wider, shared goal to help solve global problems.

In a volatile world, looking inwards and serving yourself is a recipe for quickly becoming irrelevant. The beauty of an ‘outside-in perspective is that it puts people and solving shared challenges at the core.¹⁹

Paul Polman & Andrew Winston

World Economic Forum (WEF) — Global Risks

The impacts of climate change are top of mind when thinking about global risks. In the World Economic Forum’s (WEF) Global Risk Report 2022, five of the top long-term global risks over the next 5 to 10 years are environmental, directly linked to climate change. These are,

1st Climate action failure (42.1%)
2nd Extreme weather (32.4%)
3rd Biodiversity loss (27.0%)
4th Natural resource crises (23.0%)
5th Human environment damage (21.7%).²⁰

With these global risks having the highest potential to severely damage societies, economies, and planet, they must certainly be integrated into an organisation’s Enterprise Risk Management (ERM) systems and processes as part of their carbon accounting activities.

The Paris agreement of 2015 (Cop21)

The Paris Agreement is a legally binding international treaty on climate change. Its goal is to limit global warming to well below 2, preferably to 1.5 degrees Celsius, from pre-industrial levels, by the end of this century. More than 190 countries have adopted the Paris Agreement.

At the U.N. Climate Change Conference in November 2021 (Cop26) the combined country pledges and decarbonisation plans will, if met, only limit global warming to about 2.4 degrees Celsius.²¹

Carbon accounting at its heart is the desire of global institutions, national governments, local communities, corporates, organisations, and, small and mid-size enterprises (SMEs) to work towards limiting global warming to below 2 degrees Celsius.

The stakeholder perspective

Stakeholders increasingly want to understand the carbon adaptation journeys of the organisations they interact with. Stakeholders include, investors, shareholders, customers and consumers, employees, and local communities.

Currently, the lack of comparable data, metrics, reporting standards and terms has created a challenge for organizations, and lively stakeholder discussions. Fortunately, the evolution toward coherent global reporting is underway. Let’s hope that healthy conflict in the ever-evolving carbon accounting space between the different stakeholder groups inspires better collaboration, new understanding, and innovative future solutions. As Ian Leslie demonstrates, in his book, Conflicted, conflict brings us closer, makes us smarter, and inspires us.²² As the science and thinking evolve, we all need to build up our carbon accounting literacy. The best way to learn is on the job through trial and error, transparency and then applying the learning.

With respect to reporting, the reality is, even if you are not measuring and reporting on your organisation’s carbon accounting impact, somebody else is. Bodies and stakeholders use your exhaust data to benchmark your organisation’s sustainability performance and test the robustness of your strategy. Exhaust data is simply the digital trail of ‘breadcrumbs’ organisations leave that stakeholders can then hoover up to increase their understanding of an entity’s GHG emissions performance landscape and long-term viability.

Regulatory requirements for net-zero targets and the rise of mandatory climate-related disclosure

By the end of 2021, 11 countries have passed legislation on net-zero targets. These include:

2045 — Sweden
2050 — Canada, Denmark, France, Hungary, Japan, Luxembourg, New Zealand, South Korea and United Kingdom
2060 — China²³

The European Union, in a June 2021 regulation, has set 2050 as a target for climate neutrality across its 27 member states. Many other countries around the world have also made policy commitments.

Where countries have set nation net-zero carbon targets, the next step for governments is the activity of translating their promises into actions for organisations. Also driven by investors, the demand for mandatory reporting of climate change organisational risks is likely to increase in the medium term.

Mandatory climate-related disclosure is likely to become a reporting requirement around the world. The Canadian, New Zealand and U.K. national governments are already introducing mandated reporting requirements.²⁴ However, the landscape is currently messy as we move slowly towards universal accepted and defined standards for carbon accounting.

In the U.K., the Government introduced a new mandatory carbon reporting regulation in April 2019. The Streamlined Energy and Carbon Reporting (SECR) scheme requires large U.K. companies to report publicly on their energy use, carbon emissions and other related information within their annual reports.²⁵ Similar emission reporting regulations have been introduced in:

South Africa with the National Greenhouse Gas Emissions Reporting Regulations, 2017
Canada with the Greenhouse Gas Reporting Program (GHGRP), 2004
Australia with the National Greenhouse and Energy Reporting Act (NGER), 2017²⁶

In November 2021, at COP 26, the U.K. Government announced its ambition to enshrine mandatory climate disclosures for the largest companies in law. The resulting Climate-related Financial Disclosure (CFD) regulations were enshrined in U.K. law on 17 January 2022. These changes require organisations to disclose climate-related financial information, and, ensure they consider the risks and opportunities they face as a result of climate change.²⁷

Similarly, in March 2022 the US Securities and Exchange Commission (SEC) proposed extensive requirements for public companies to disclose their risks and mitigation strategies related to climate change.²⁸

Also, at COP26, the International Financial Reporting Standards (IFRS) foundation announced the creation of a global sustainability standards board.²⁹The International Sustainability Standards Board (ISSB) has the ambition to have a global climate standard based on the TCFD recommendations release by the end of 2022. This baseline standard will focus on meeting the information needs of investors and providing comparable, consistent and sustainability data across companies for global capital markets.

The ISSB will then look to follow a building block approach to facilitate the addition of sustainability requirements to the standard that are jurisdiction-specific or aimed at a broader group of stakeholders. In March 2022, the IFRS Foundation released and published two exposure drafts.

Draft IFRS S2 Climate-related Disclosures — Sets out the requirements for the identification, measurement, and disclosure of climate-related financial information.
Draft IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information — Sets out the overall requirements for disclosing sustainability-related financial information relevant to the sustainability-related risks and opportunities faced by the entity.³⁰

Within the EU, the Corporate Sustainability Reporting Directive (CSRD) is planned to replace the Non-Financial Reporting Directive (NFRD) in 2023. The double materiality principle that the directive is based means that organisations must disclose climate factors where they materially impact the entity’s value. But also disclose where an organisation impacts climate factors.³¹ This will require organisations to disclose information on their climate change mitigation and adaptation plans. The European Financial Reporting Advisory Group (EFRAG) is currently developing draft standards.³²

Building business resilience

Organisations that have built their carbon literacy and are further on their ESG journeys are proving to be more resilient businesses. During the first wave of the Covid pandemic in 2020, Linda Eling-Lee, the global head of ESG research at MSCI, notes that, ‘companies with high ESG rankings have outperformed rivals during the crisis’.³³ A possible reason for this is the greater corporate adaptability that ESG reporting, and scrutiny provides organisations to rethink their business models in time of stress. A focus on carbon accounting and climate transition planning for organisations can only help to strengthen their long-term resilience.

How to integrate carbon accounting into an organisation?

While everybody is talking about ‘carbon footprints’, ‘net-zero’ and ‘zero emissions targets’, it is difficult to pin down what these terms mean, and how to go about measuring them in precise or agreed ways. There is no single agreed carbon accounting process and there are many methodologies. Numbers behind any carbon accounting system or net-zero targets are always just an approximation or a metaphor. This can be difficult for finance professionals as we see numbers as precise solutions, very much in a black-and-white context.

There is a fine line between making a positive emissions difference and activities leading to unintended consequences of increased emissions in a supply chain. Authors Thomson and Bates cite the use of carbon intensity ratio as a metric as an example, ‘recent research has shown that inappropriate carbon accounting methods like this result in investments that are actually adding to the climate crisis.’³⁴

Accounting for GHG emissions and setting net-zero targets are wrapped in many shades of grey, but they will become clearer as the science evolves.

Climate transition planning steps

The following high-level steps are designed to get you thinking about the relationships and activities an organisation will need to build and integrate into carbon accounting and their transition to a lower carbon or net-zero entity.

Step 1 — Start with a vision for your organisation to lead the way
It is important upfront that all buy into the direction of travel. An organisation’s compelling vision needs to engage internally with employees, but also externally with investors, customers and consumers, supply chain partners, and local community stakeholder groups.

Governance and executive management will need to communicate a coherent case for change and own the agenda. They must allow all stakeholders to suspend their judgements and enable them to get curious. This means upskilling employees and bringing in resources where knowledge gaps exist to build a culture to support an organisation’s transition. Transition is a shared challenge that requires people at its core. It is worth seeking out examples of other organisations in your industry or supply chain that are already on their low carbon transition. A collaboration approach leads to greater knowledge sharing and will help in building a compelling vision.

Finally, as already highlighted the language an organisation uses to describe its carbon accounting journey needs to be consistent. The right language is important as it builds trust through transparency.

Step 2 — Understand your organisation’s current carbon footprint and set a baseline.
A key step in an organisation’s transition journey is to understand its historic and current carbon footprints. The goal here is to measure how much carbon dioxide equivalents an organisation emits in a given baseline year. Defining the baseline then provides your organisation with the emissions gap to bridge in its transition journey to net zero.

This sounds simple, however the activity required to understand your organisation’s carbon footprint is complex and needs input from across the whole business and supply chains. The scale of the task is neatly summed up by Thomson and Bates (above).

… businesses need to recognize how every decision they make throughout their value chain drives carbon emissions up or down — what you buy, who you buy from, how you ship it, what you invest in, how you heat your buildings, how energy efficient you are, how much you waste, how you design, make, sell and ship your product, how your employees get to work, how you store your product, how you move things round, how you finance your operations, how and where you sell your product and what people do with your product. Carbon emissions are the consequences of these decisions, and carbon reduction is much easier done at a granular level.³⁵

Credit someone here…

It makes sense for the gathering of trend data to build a baseline to be led by the finance function. However, without the support and buy-in from cross-functional teams it could end in misleading metrics and conclusions that negatively impact an organisation’s transition journey.

To inform your organisation’s transition planning the carbon dioxide equivalent baseline should be broken down by emissions generating activities, and scopes.

Think about the GHG emissions your organisation emits from:

Making things
Plugging in
Growing things
Getting around
Keeping warm and cool³⁶

Think about scopes

Scope 1 — direct GHG emissions
Scope 2 — indirect GHG emissions from generated power consumption
Scope 3 — indirect GHG emissions in the supply chain

The key here is to experiment with the data you have and use it to facilitate debate and change within your organisation. It will always be a journey of discovery, continual learning and upskilling. But the process should make you understand your business better.

There are also risks and opportunities in transitioning to a lower carbon business model. These need to be explored up front as part of an organisation’s ERM processes.

In setting a baseline year, the U.N.-backed Science Based Targets Initiative (SBTi) propose organisations consider the following,

Scope 1, 2 and 3 emissions data should be accurate and verifiable.
Base year emissions should be representative of a company’s typical GHG profile.
The base year should be chosen such that targets have sufficient forward-looking ambition.

The base year must be no earlier than 2015.³⁷

Once the baseline metrics are collected and agreed, they can be used to calculate targets and build an organisation’s climate transition plan.

Step 3 — Establish a net-zero target.
The Carbon Trust’s working definition of ‘net zero’ is, ‘Achieving a state in which the activities within the value-chain of a company result in no net impact on the climate from greenhouse gas emissions.’ ³⁸ This is when all greenhouse gases being emitted into the atmosphere are equivalent to the greenhouse gases being removed from the atmosphere on a global scale.

This will need to be expressed as a verifiable and quantifiable set of Key Performance Indicators (KPIs). Transparency and accountability are key here as an organisation will need to be able to justify how they arrived at a target with their multiple stakeholders.
Also important is the credibility of the targets set. In 2021, SBTi published a white paper launching a standard for corporate net-zero targets.³⁹ It lays out the foundations for setting credible net-zero targets that are based on science.

Throughout, decision-makers will need to be able to justify how they measure ‘net zero’, because powerful stakeholders will start to hold them to account for the consequences of their actions on GHG emissions, including the timeframe of these measurements, and to what extent they are paying off their historic GHG debts.

Step 4 — Set metrics, milestones, and timelines in a plan
An organisation’s climate transition plan must outline its ambitions and activity milestones that over time lead to the entity becoming a net-zero one. The transition plan must at least set out,

High-level targets to reduced greenhouse gas emissions and mitigate climate risk.
Interim targets and milestones.
Details of the steps and organisational actions to achieve the high-level targets.⁴⁰

Evolving best practices in transition planning advocates setting relevant time horizons in disclosing progress. This includes setting both ‘near-term’ and ‘long-term’ targets for boundaries for scope 1, 2 and 3 emissions.⁴¹ For many organisations already on their carbon accounting journeys 2030 and 2050 have become useful key target dates.

Other elements a transition plan should look to include,

Relevant governance board oversight.
Scenario analysis to inform an organisation’s future strategic direction and financial planning.
An assessment of the climate-related risks and opportunities impacting an organisation’s plan.

The CDP, in 2021, published six principles that must be embodied within a climate transition plan. Use these to guide the construction of your plan (see table 3).

The TCFD recommendations demonstrate that an organisation’s transition plans cannot be considered in isolation. Both transition plans and adaptation plans, which address the risks and opportunities associated with the physical risks of climate change, must be fully integrated into an organisation’s strategy and business model to make a difference (see figure 2).

Any offsets or sequestration needs to be clearly articulated as part of a climate transition plan.

Carbon offsets and carbon sequestration
In simple terms, this is where a polluting organisation pays somebody else to compensate for the emission of carbon dioxide into the atmosphere. However, it is a complicated, grey, and disputed area. What is not disputed is that carbon emissions will continue even if net-zero targets are achieved, and there will need to be some offsetting measures to compensate. Dieter Helm in his book, Net Zero, defines offsetting into two activities, natural sequestration, and industrial sequestration.⁴⁴

Natural sequestration: the storing of carbon dioxide through trees, vegetation, soils, peat, marshes, and oceans
Industrial sequestration: the use of technology for carbon capture and storage (CCS)

Offsetting represents a mitigating activity. Advice from the SBTI in this area suggest,
Companies prioritize near-term science-based targets, followed by securing and enhancing carbon sinks (terrestrial, coastal, and marine, etc.) to avoid the emissions that arise from their degradation. Examples include purchasing high-quality, jurisdictional REDD+ carbon credits that support countries in raising the ambition on, and in the long-term, achieving their nationally determined contributions.⁴⁵

Finally, at Cop26 in 2021, the U.K. Government announced its intension to make the publication of transition plans mandatory.⁴⁶ Its ambition is to encourage consistency for published plans, and it has set up a high-level transition plan task force to help. The task force has been given a mission to develop a gold standard for transition plans. It is due to report its findings by the end of 2022.

Step 5 — Reporting and disclosing progress against a climate mitigation plan
Consensus on the frequency of reporting progress against an organisation’s climate mitigation plan is annually. The focus of the reporting should be on the climate-related targets and include any new targets as well as progress against existing targets. TCFD guidance recommends that, ‘a comparison of completed actions to planned actions in the prior reporting period’ be included within an annual report to stakeholders.⁴⁷

Progress updates are usually published as part of an organisation’s annual reports or sustainability reports, with copies available on their website.

An annual update must include the disclosure of climate-related material issues. The Integrated Reporting (IR) framework defines materiality as, ‘A matter is material if it could substantively affect the organization’s ability to create value in the short, medium or long term.’⁴⁸ Organisations should not only disclose how climate-related issues affect them, but also how their climate transition affects the environment and society. This process helps an organisation articulate its view of ‘outside-in climate risks’ and ‘inside-out climate risks’.⁴⁹

Step 6 — Feedback loops back into business management processes
There must be time to reflect on an organisation’s progress, update steps or even construct a new climate transition plan. It is about being adaptable to changing circumstances and the evolving science underpinning climate change.

Thomson and Bates recognise that, ‘the current standard for carbon reporting covers just a small part of the spectrum of carbon accounting.’ ⁵⁰ Widening the organisational scope from a purely carbon reporting focus to a carbon accountability emphasis will promote integrated thinking and meaningful feedback into governance, strategy, and risk management internal processes. It also breaks down barriers allowing greater knowledge sharing and collaboration, leading to carbon accounting innovation and ultimately long-term business resilience. More importantly, it makes an organisation contemplate their contribution to the future sustainability of the planet.

The reality of carbon accounting is that although we set a final target, it will be a continuous evolutionary process.

Systems thinking and carbon accounting
Climate change does not stand in isolation. The IPCC’s 2022 report on impacts, adaptation and vulnerability highlights that climate change causes risks and impacts to both human society inequality and to ecosystem biodiversity.⁵¹ The three are defined by the IPCC as ‘coupled systems’ and represent grand challenges that require the engagement of a diverse range of organisations and stakeholders across the world. Therefore, organisations, finance functions and finance professionals need to think about carbon accounting in a wider systemic light.

A ‘systems thinking’ approach will help organisations when implementing carbon accounting processes. It is an approach to problem-solving that views issues as part of a wider, dynamic system. In terms of climate change, it is the process of understanding how things influence climate change individually and, also, one another as part of a whole that includes biodiversity and inequality. It is also important to see patterns of change and the feedback loops between the three factors.

The systems thinking approach helps in the breaking down of information silos within an organisation, and embedding interdisciplinary conversations externally with supply chains, scientists, policymakers and local communities.

Climate policy priorities

Polman and Winston in Net Positive set out what they see as the most productive climate policies organisations should fight for. These include

Reducing the economy's carbon and material intensity

Set a rapidly rising price on carbon, coupled with massive shifts in subsidies from fossil fuels to clean-tech and low-carbon production methods.
Research into and funding for increased material capture (recycling, reuse, repair) to encourage a circular economy.

Scaling up

Unleash public capital that pulls more private investment into cleantech.

Reimagining food and land use

Reverse perverse agricultural policies and provide incentives for farmers to move to regenerative agriculture.
Reduce food waste.

Finding nature-based solutions

Price natural capital and conserve lands (e.g., wetlands) to prevent emissions.

Zero carbon mobility

Phase out internal combustion engines by specific dates (e.g., Norway by 2025) and offer large incentives for electric vehicles of all sizes.

Resilient, zero-carbon built environment

Set high performance standards for building, heating, and cooling systems.
Offer incentives for public transportation and mixed-use buildings.
Provide funding for adaptation and city resilience planning.

Protecting people

Ensure reskilling and training for workers displaced by the green transition.
Advocate for climate justice and the rights of vulnerable people.

Transparency

Require climate risk assessments in keeping with the Task Force on Climate-Related Financial Disclosures.
Measure product-level carbon footprints and print data on packaging and labels.⁵²

If you only take away one lesson from this brief on accounting for carbon it should be the mindset shift required to make a difference. Thomson and Bates summarise the change perfectly,

Like all modern sciences, accounting idealistically assumes that if you quantify and mathematically model all of life on Earth accurately enough, it’s possible to formulate universal laws that provide certainty and produce outcomes that are both predictable and comparable. But the latest sustainability science is starting to reject those ideas. It acknowledges the inherent uncertainty, complexity, and non-linear dynamics of the Earth’s living systems, such as its ecology, atmospheric chemistry, and meteorology. No matter how comprehensive and advanced the quantifying and modelling by scientists, these systems are impossible to predict.⁵³

Thomson and Bates

Who will encounter carbon accounting?

Finance professionals

As demand from stakeholders increase for more climate-related organisational data, it follows that finance professionals must become more familiar with and understand climate change opportunities and risks. Our role is not to takes sides in any political debate, but to properly assess risk and provide reliable information on the commitment and measurable impact organisation make on climate change.

As accountants, we are the trusted advisers and not only bring credibility to carbon accounting information, but also insight, influence, and impact. This will help to support the efficient and informed capital allocations for organisations in the transition to a lower-carbon economy. It will also help organisations make more informed decisions in building resilient structures for the future.

Carbon accounting requires engaging with all stakeholders, both internal and externally, and broadening your network of climate policy experts is a must. The author, Roland Kupers advises that, ‘Psychologists, political scientists, sociologists, anthropologists and complexity scientists must take their rightful place beside climate scientists and economists.’ ⁵⁴

The accounting for GHG emissions and net-zero carbon targets are wrapped in many shades of grey, but they will become clearer as the science evolves. The key here is to experiment with the data you have and use it to facilitate debate and change within your organisation. It is also important to build your carbon knowledge, but be prepared to learn, unlearn, and relearn as the different methodologies coalesce into a global standard.

Finance functions

The first struggle for a finance function embarking on their carbon accounting journey is finding the knowledge and expertise in climate change and GHG emissions. This may not be available in-house and will require some internal upskilling and use of external consultants to fill the knowledge gaps.

Thomson and Bates emphasise the need to refocus ‘the best sustainability reports require company accountants to be more than just collators of numbers and engage in more storytelling around the non-financial impact of the business.’ ⁵⁵

The use of a third party to help initiate your carbon accounting journey can help build best practice and provide some independent transparent verification in your organisation GHG emission calculations and targets.

It is important for the finance function that any carbon accounting activity is not carried out in isolation. As Kupers points out, ‘Solutions to the climate crisis are not environmental, or even primarily environmental. It is in the interconnection with other systems that the solutions can be found. Inequality is a climate problem.’ ⁵⁶ Climate change does not stand in isolation, it is part of an underlying system, and part of grand challenges that require the engagement of a diverse range of stakeholders to participate in an organisation’s carbon accounting.

Here a systems thinking approach helps in the breaking down of information silos within an organisation, and embedding interdisciplinary conversations externally with supply chains, scientists, policymakers and local communities. This will be especially important when considering scope 3 emissions across your organisation’s supply chains.

One way of demonstrating to stakeholders how an organisation’s carbon accounting contributes to society is to identify and quantify impact pathways (e.g., inputs, activities, outputs, outcomes, and impacts) through the business and link them to the climate transition plan.

Once published, an organisation’s carbon accounting journey and climate transition plan may become part of a much wider narrative struggle. As already discussed, carbon accounting can lead to polarisation between different groups that are ultimately working towards the same shared goals. Finance functions must be aware of the possible narrative struggles and use transparency by showing methods and calculations that were the foundations of targets and transition plans. This will build stakeholder trust in a world of potential social media disinformation.

A remit of the finance function, once net-zero targets have been agreed and a climate transition plan has been published, will be ongoing and regular disclosure of progress to multiple stakeholders. The Task Force on Climate-related Disclosure created a set of Principles for Effective Disclosures to guide those preparing reporting (see table 4).

These principles will help drive finance functions to produce high-quality, insightful disclosures that influence decision-making when understanding the impact of climate change on their organisations. The resulting GHG emission insights must become a core component of business decisions and embedded into an organisation’s control systems, such as strategic planning, budgeting, performance measures and performance reviews.

Organisations

Carbon accounting needs to be integrated into the DNA of an organisation and decision-making. Greta Thunberg provides a vision of where organisations need to move towards (overleaf).

We should no longer only ask: ‘Have we got enough money to go through with this?’ But also: ’Have we got enough of the carbon budget to spare to go through with this?’ That should and must become the centre of our new currency.⁵⁸

Greta Thunberg

This requires organisations to update their thinking and needs real cultural change. Carbon accounting is not a back-office activity that can be just left to a few individuals within the finance function to produce some numbers regularly. To make a difference it must be taken seriously and not undertaken as an annual reporting process. Organisations must make sure that carbon accounting is embedded in their governance, strategy, and risk management.

Governance: Climate-related metrics enable an organization’s board and management to more effectively direct the business by measuring and describing the impacts of climate-related risks and opportunities on the organization.

Strategy: Climate-related metrics are critical to measuring and describing the impact of climate-related risks and opportunities on the organization’s businesses, strategy, and financial planning.

Risk management: Climate-related metrics support the measurement of risk exposures and levels as part of an organization’s broader risk management processes. In conjunction with risk tolerances, risk appetites, and risk thresholds, climate-related metrics inform the degree of risk that the organization is prepared to accept and its risk responses.⁵⁹

There should also be a carbon accounting feedback loop over time to impact key performance indicators and inform the management of business processes.

Furthermore, in setting performance criteria, organisations need to ensure that employee compensation and incentives are consistent with net-zero targets and linked to long-term achievement of the stated climate transition plan. The remuneration focus needs to be on the long-term success and sustainability of an organisation, rather than purely on short-term objectives.

The SME community impact

The TCFD recommendations ask organisations to understand their scope 3 emissions. Scope 3 emissions are all indirect emissions that occur in the supply chain of the reporting company, including upstream and downstream. As scope 3 emissions are built into mandatory reporting these are likely to impact the SME community. Many of these scope 3 requirements for large corporations to disclose more will be passed on to smaller businesses through the supply chain. There is also a trend in leading businesses around developing systems that gather information on GHG emissions of the goods and services they purchase from their supply chains and are incorporating GHG emissions into tendering or procurement processes.

Finally, for all organisations on their carbon journeys, transparency is paramount. Once an organisations’ net-zero target and climate transition plan are communicated more widely, it is important to understand that it will not be then taken at face value in the wider ecosystem. Stakeholders have access to other sources of data and information to compare against. To be viewed as authentic the low carbon journey must align with organisational stated purpose, be built into its strategy and at its business model core.

Practical tools and resources for carbon accounting

Accounting for Sustainability (A4S)

A4S have published a report ‘Net Zero: A practical guide for finance teams’

Climate Disclosure Standards Board (CDSB)

The Climate Disclosures Standards Board (CDSB), a consortium of business and environmental NGOs, developed a framework that companies can use to incorporate climate change and environmental information into their mainstream reports. In November 2021, the International Financial Reporting Standards (IFRS) Foundation Trustees announced the International Sustainability Standards Board (ISSB) consolidation with the Climate Disclosure Standards Board (CDSB) and the Value Reporting Foundation (SASB & IIRC).⁶⁰

Read the AICPA & CIMA summary of the CDSB standard

CDP

In November 2021, CDP released a discussion paper focused on the composition of climate transition plans.

N. Bartlett, E. Jenkins, S. Bamkole, T. Coleman & S. Twigg, Climate Transition Plan: Discussion Paper (CDP, 12 November 2021).

The Science Based Targets initiative (SBTi)

The SBTi is a global body enabling businesses to set ambitious emissions reductions targets in line with the latest climate science. It is focused on accelerating companies across the world to halve emissions before 2030 and achieve net-zero emissions before 2050.

In October 2021, SBTi published a white paper ‘Corporate Net-Zero Standard’ It provides guidance, criteria, and recommendations to support corporates in setting net-zero targets.

The Task force on Climate-related Financial Disclosure (TCFD) recommendations

When trying to understand the ‘what of carbon accounting’, the TCFD recommendations are a great starting position on which to build your organisation’s journey.

Read the AICPA & CIMA summary of the TCFD recommendations

The TCFD released climate-related financial disclosure recommendations to address the need for reliable corporate disclosure of climate-related information in 2017.

TCFD, Recommendations of the Task Force on Climate-related Financial Disclosures (TCFD: June 2017)

In 2021 the task force published two white papers

TCFD, Implementing the Recommendations of the Task Force on Climate-related Financial Disclosures (TCFD: October 2021). This document updates and supersedes the 2017 Annex "Implementing the Recommendations of the Task Force on Climate-related Financial Disclosures".

TCFD, Task Force on Climate-related Financial Disclosures: Guidance on Metrics, Targets, and Transition Plan (TCFD: October 2021). This document describes recent developments around climate-related metrics and information on organisational climate transition plans.

The United Nations

Climate action resources from the United Nations. This includes information on the UN’s ‘Race To Zero’ campaign.

Carbon accounting glossary

The Financial Times journalist, Gillian Tett suggests, ‘If you want to hide something in the twenty-first-century world, you don't need to create a James Bond-style plot. Just cover it in acronyms.’ ⁶¹ The world of accounting for carbon is no different, with numerous acronyms and confusing terms. Here are some terms you will encounter and their definitions.

Carbon/GHG accounting
A means of measuring the direct and indirect emissions to the Earth’s biosphere of CO2 and its equivalent gases from industrial activities.⁶²

Carbon budget
Refers to two concepts in the literature:

(1) an assessment of carbon cycle sources and sinks on a global level, through the synthesis of evidence for fossil-fuel and cement emissions, emissions and removals associated with land use and land use change, ocean and natural land sources and sinks of carbon dioxide (CO2), and the resulting change in atmospheric CO2 concentration. This is referred to as the Global Carbon Budget;

(2) the maximum amount of cumulative net global anthropogenic CO2 emissions that would result in limiting global warming to a given level with a given probability, taking into account the effect of other anthropogenic climate forcers. This is referred to as the Total Carbon Budget when expressed starting from the pre-industrial period, and as the Remaining Carbon Budget when expressed from a recent specified date.⁶³

Carbon footprint
Mike Berners-Lee defines the term as a way of ‘describing an object or action’s overall contribution to global warming, taking into account CO2 as well as other greenhouse gases such as methane and nitrous oxide.’ It is, ‘the best estimate that we can get of the full climate change impact of something.' ⁶⁴

A widely requoted story is that the term ‘carbon footprint’ was invented by a marketing agency working for an oil corporation. It was used as part of a campaign to redirect attention away from fossil fuel organisations to individuals for solving climate change and global warming.⁶⁵

Carbon neutral
The amount of carbon dioxide (CO2) being emitted is equal to the amount of carbon being absorbed from the atmosphere.

Carbon offsetting/ carbon sequestration
Where a polluting organisation pays somebody else to compensate for the emission of carbon dioxide into the atmosphere. In theory, the third party’s actions will remove carbon from the atmosphere or prevent carbon elsewhere in the ecosystem. Examples of purchasing carbon offset reduction schemes or removal projects include, land restoration, the planting of trees, carbon storage technology, and investing in renewal energy projects.

Natural carbon sequestration tends to be a more narrowly defined process capturing and storing carbon dioxide through trees, vegetation, soils, peat, marshes and oceans.⁶⁶ Industrial sequestration looks to technology for carbon capture and store (CCS).

However, there is debate as to the ethics of carbon offsetting. This is because of their indirect nature and that schemes can be difficult to verify and assure.

Greenpeace’s Executive Director, Jennifer Morgan, declared, ‘Offsetting schemes are pure greenwash so that fossil fuel companies can continue to do what they've been doing and make a profit. We are in a climate emergency, and we need phasing out of fossil fuels.⁶⁷

SBTi advises that, ‘Offsets are only considered to be an option for companies wanting to finance additional emission reductions beyond their science-based target (SBT) or net-zero target.’ ⁶⁸

Climate change
Refers to the increasing changes in the measures of climate over a long period – including precipitation, temperature and wind patterns.

Climate transition plan
Is a time-bound action plan that clearly outlines how an organisation will pivot its existing assets, operations, and entire business model towards a trajectory that aligns with the latest and most ambitious climate science recommendations. i.e., halving greenhouse gas (GHG) emissions by 2030 and reaching net-zero by 2050 at the latest, thereby limiting global warming to 1.5’C.⁶⁹

They are critical for keeping organisations accountable for their net-zero pledges. The UK Government view is that the climate transition plan should set out

High-level targets the organisation is using to mitigate climate risk, including greenhouse gas reduction targets (e.g., a net-zero commitment),
Interim milestones, and
Actionable steps the organisation plans to take to hit those targets.⁷⁰

Global warming
Refers to the rise in global temperatures due mainly to the increasing concentrations of greenhouse gases in the atmosphere. The IPCC highlights the reference, ‘to the increase in global surface temperature relative to a baseline reference period, averaging over a period sufficient to remove interannual variations (e.g., 20 or 30 years).’ ⁷¹

Net zero
As the Carbon Trust points out a global definition of net zero for business has yet to be agreed upon. A working definition is given as ‘Achieving a state in which the activities within the value-chain of a company result in no net impact on the climate from greenhouse gas emissions.’ ⁷²This is when all greenhouse gases being emitted into the atmosphere are equivalent to the greenhouse gases being removed from the atmosphere on a global scale.

Scope 1, 2 and 3 emissions
Scope 1 covers an organisation’s direct GHG emissions from owned or controlled sources. Scope 2 covers indirect GHG emissions from the generation of purchased electricity, steam, heating and cooling consumed by the reporting organisation. Scope 3 covers all other indirect GHG emissions that occur in an organisation’s value chain.⁷³

Wicked problem
A problem or policy issue that is difficult to solve because of multiple, incomplete, intractable, contradictory, contested and/or changing requirements that are difficult to recognise, often without a single solution.⁷⁴

What’s next from the AICPA & CIMA?

Our net-zero commitment

Committing to become a net-zero organisation is a major step for the Association. In the coming months, we will be working to develop our strategy and a viable pathway to achieve our net-zero objectives This will be a significant undertaking, but every organisation must do its part to help mitigate climate-related and environmental risks so everyone in society benefits.

Scott Spiegel, CPA/CITP, CGMA, CFO at the Association

In October 2021, AICPA and CIMA have joined forces with twelve other accounting bodies to fight climate change by committing to reaching a net-zero greenhouse gas emissions target.⁷⁵ We recognise that climate change is a threat to our lives and livelihoods and that accountants have a vital role in shaping a sustainable economy.

AICPA and CIMA is committed to

Reaching net-zero GHG emissions as soon as operationally possible, informed by science and in line with global efforts to limit warming to 1.5°C.
Within the next 12 months, publishing a net-zero emissions pathway (including targets) and report annually to show our GHG emissions reductions and trajectory towards net-zero emissions.

For our members, we are committed to

Encouraging and providing our members with the training, support, and resources they need to establish their net-zero pathways and reduce GHG emissions.
Providing sound advice to help governments create the policy and regulatory infrastructure necessary for a just transition to a net-zero carbon economy.

As we progress, AICPA and CIMA will share our own net-zero journey learning and experience, and that of others, as examples to support our members, their clients, and the wider business community.

Over the past decade, we have been witnessing the direct and indirect impact of environmental-related risks on our communities. It is now abundantly clear that to address these risks and achieve climate-goal ambitions, we must work together and lead the accounting profession by example. Public and management accountants have an important role to play improving an organisation’s integrated thinking and decision-making capabilities to promote responsible and sustainable business practices. They have the necessary skills and expertise to help effect meaningful change in this area. As an organisation, we are fully committed to doing our part and will continue to help our members, their organisations and their clients across the globe support with this mission.

Barry Melancon, CPA, CGMA, CEO at the Association

Endnotes

E. Ostrom, A. Polycentric Approach for Coping with Climate Change Policy (Research Working Paper 5095. World Bank: 2009). Quoted in, R. Kupers, A Climate Policy Revolution: What the Science of Complexity Reveals about Saving our Planet (Harvard University Press, London: 2020). p.50.
H. Rittel & M. Webber, Dilemmas in a general theory of Planning. In: F Emery (ed) Systems Thinking, Vol.2 (Penguin, London: 1981).p.81-102.
M. Jackson, Critical Systems Thinking and the Management of Complexity: Responsible Leadership for a Complex World (Wiley, Oxford: 2019). p.xix.
R. Kupers, A Climate Policy Revolution: What the Science of Complexity Reveals about Saving our Planet (Harvard University Press, London: 2020). p.85.
B. Gates, How to Avoid a Climate Disaster: The Solution we Have and the Breakthroughs we Need (Allen Lane, London: 2021).p.55.
Heydon Prowse, Green Inc: The Green Tick (BBC Radio 4: 5 November 2021).
R. Charnock, M. Brander & T. Schneider, Carbon. In; J. Bebbington, C. Larringa, B. O’Dwyer & I. Thomson (ed), Routledge Handbook of Environmental Accounting (Routledge, Abingdon: 2021). p. 353.
TCFD, Final Report: Recommendations of the Task Force on Climate-related Financial Disclosures (TCFD: June 2017).p.14. (Accessed 1 March 2022).
TCFD, Task Force on Climate-related Financial Disclosures: Guidance on Metrics, Targets, and Transition Plan (TCFD: October 2021).p.19. (Accessed 1 March 2022).
P. Polman & A Winston, Net Positive: How Courageous Companies Thrive By Giving More Than They Take (Harvard Business Review Press, Boston: 2021). p.168.
About the IPCC. (Accessed 1 March 2022).
IPCC, 2021: Climate Change 2021: The Physical Science Basis. Contribution of Working Group I to the Sixth Assessment Report of the Intergovernmental Panel on Climate Change. (Cambridge University Press: August 2021). (Accessed 1 March 2022).
IPCC, 2021: Summary for Policymakers. In: Climate Change 2021: The Physical Science Basis. Contribution of Working Group I to the Sixth Assessment Report of the Intergovernmental Panel on Climate Change (Cambridge University Press: August 2021). p.4. (Accessed 1 March 2022).
IPCC, Climate Change Widespread, Rapid, and Intensifying – IPCC (9 August 2021). (Accessed 1 March 2022).
O. Milman, A. Witherspoon, R Liu, & A Chang, The Climate Disaster is Here. The Guardian (London) 14 October 2021. (Accessed 1 March 2022).
IPCC, Climate Change 2022, Impacts, Adaptation and Vulnerability: Summary for Policymakers (IPCC: February 2022).p.11. (Accessed 1 March 2022).
United Nations Department of Economic and Social Affairs, Sustainable Development. (Accessed 1 March 2022).
United Nations, Goal 13: Take Urgent Action to Combat Climate Change and its Impacts. (Accessed 1 March 2022).
P. Polman & A. Winston, Net Positive: How Courageous Companies Thrive By Giving More Than They Take (Harvard Business Review Press, Boston: 2021). p.99.
WEF, The Global Risks Report 2022; 17th Edition (January, 2022).p.25. (Accessed 1 March 2022).
G. Rannard, COP26: World Heading for 2.4C Warming Despite Climate Summit – Report (BBC, 9 November 2021). (Accessed 1 March 2022).
I. Leslie, Conflicted: Why Arguments Are Tearing Us Apart and How They Can Bring Us Together (Faber, London: 2021).
The Law Library of Congress, Net Zero Emissions Legislation Around the World. (September, 2021). (Accessed 1 March 2022). J. Murray, Which Countries Have Legally-Binding Net-Zero Emissions Targets? (NS Energy: 5 November 2020). (Accessed 1 March 2022).
M. Farrar, Sustainability and business - Environmental protection introduction: Putting the E in ESG (AICPA & CIMA, April 2021). Endnote 9. (Accessed 1 March 2022).
HM Government, Environmental reporting guidelines: including Streamlined Energy and Carbon Reporting requirements (March 2019) (Accessed 1 March 2022). The Carbon Trust, SECR explained: Streamlines Energy and Carbon Reporting framework for UK business (20 April 2019). (Accessed 1 March 2021).
Climate Change Laws of the World. (Accessed 1 March 2022).
The Nation Archives, The Companies (Strategic Report) (Climate-related Financial Disclosure) Regulation 2022 (17 January 2022) (Accessed 1 March 2022). M. Farrar, Climate disclosure requirements set to take effect in UK. FM Magazine, 25 January 2022. (Accessed 1 March 2022).
SEC, SEC Proposes Rules to Enhance and Standardize Climate-Related Disclosures for Investors press release (21 March 2022). (Accessed 21 March 2022). The Enhancement and Standardization of Climate-Related Disclosures for Investors proposed rules (Accessed 21 March 2022). Fact Sheet: Enhancement and Standardization of Climate-Related Disclosures (Accessed 21 March 2022).
IFRS, IFRS Foundation Announces International Sustainability Standards Board (3 November 2021). (Accessed 1 March 2022).
IFRS, ISSB Delivers Proposal That Create Comprehensive Global Baseline of Sustainability Disclosure (Accessed 31 March 2022).
M. Farrar, Governance Introduction: Putting the G in ESG (AICPA & CIMA: October 2021). p.25. (Accessed 1 March 2022).
EFRAG welcomes its role in the European Commission’s proposal for a new CSRD. (Accessed 1 March 2022).
G. Tett, Business Face Stern Test on ESG Amid Calls to ‘Build Back Better’. Financial Times (London) 18 May 2020. (Accessed 1 March 2022).
I. Thomson & D. Bates, Urgent Business: Five Myths Business Needs to Overcome to save Itself and the Planet (Bristol university Press, Bristol: London 2022). p.51.
Thomson & Bates, Urgent Business. p.80.
B. Gates, How to Avoid a Climate Disaster.p.55.
SBTi, Corporate Net-Zero Standard (October, 2021). p.20. (Accessed 1 March 2022).
A. Carrillo Pineda & P. Faria, Towards a Science-Based Approach to Climate Neutrality in the Corporate Sector (Science Based Targets and CDP, 2019). p.14. (Accessed 1 March 2022).
SBTi, Corporate Net-Zero Standard.
HM Treasury, Fact Sheet: Net Zero-aligned Financial Centre. (2 November 2021). (Accessed 1 March 2022).
SBTi, Corporate Net-Zero Standard (October, 2021). p.22.
N. Bartlett, E. Jenkins, S. Bamkole, T. Coleman & S. Twigg, Climate Transition Plan: Discussion Paper (CDP, 12 November 2021). p.3. (Accessed 1 March 2022).
TCFD, Task Force on Climate-related Financial Disclosures: Guidance on Metrics, Targets, and Transition Plan (TCFD: October 2021).p. 39. (Accessed 1 March 2022).
D. Helm, Net Zero: How we Stop Causing Climate Change (William Collins, London: 2020).p.151.
SBTi, Corporate Net-Zero Standard. p.10.
HM Treasury, Fact Sheet: Net Zero-aligned Financial Centre.
TCFD, Task Force on Climate-related Financial Disclosures: Guidance on Metrics, Targets, and Transition Plan.p.41.
IIRC, International (IR) Framework (January 2021). p.53 (Accessed 1 March 202).
M. Farrar, Governance Introduction: Putting the G in ESG (AICPA & CIMA: October 2021). p.27. (Accessed 1 March 2022).
European Parliamentary Research Service (EPRS) Implementation Appraisal: Non-financial Reporting Directive (January 2021). (Accessed 1 March 2022).
Thomson & Bates, Urgent Business. p.149.
IPCC, Climate Change 2022, Impacts, Adaptation and Vulnerability.p.4.
Polman & Winston, Net Positive. p.178-179.
Thomson & Bates, Urgent Business. p.54.
R. Kupers, A Climate Policy Revolution: What the Science of Complexity Reveals about Saving our Planet (Harvard University Press, London: 2020). p.85.
Thomson & Bates, Urgent Business. p.53.
Kupers, A Climate Policy Revolution. p.125.
TCFD, Task Force on Climate-related Financial Disclosures: Guidance on Metrics, Targets, and Transition Plan.p.8.
G. Thunberg, No One is too Small to Make a Difference (London, 2019). p.64.
TCFD, Task Force on Climate-related Financial Disclosures: Guidance on Metrics, Targets, and Transition Plan.p.11.
IFRS, IFRS Foundation announces International Sustainability Standards Board (3 November 2021) (Accessed 1 March 2022).
G. Tett, Anthro Vision: How Anthropology Can Explain Business and Life (Random House, London: 2021).p.93.
PCAF (2020). The Global GHG Accounting and Reporting Standard for the Financial Industry. First edition. (November 18, 2020). p.107. (Accessed 1 March 2022).
IPCC, 2021: Climate Change 2021.p.3893.
M. Berners-Lee, How Bad Are Bananas? The Carbon Footprint of Everything (Profile Books, London: 2020).p. 7.
R. Solnit, Big Oil Coined ‘Carbon Footprints’ to Blame us for Their Greed. Keep Them on the Hook. The Guardian (London) 23 August 2021. (Accessed 1 March 2022).
Helm, Net Zero.p.37.
Reuters, Greenpeace calls for end to carbon offsets (6 October, 2021). (Accessed 4 February 2022).
T. Dowdall, Science-Based Net-Zero Target: Less Net, More Zero (7 October 2021). (Accessed 1 March 2022). SBTi FAQs (Accessed 1 March 2022).
CDP, Climate Transition Plans. (Accessed 1 March 2022).
HM Treasury, Fact Sheet: Net Zero-aligned Financial Centre.
IPCC, 2021: Climate Change 2021.p. 3912.
A. Carrillo Pineda & P. Faria, Towards a Science-Based Approach to Climate Neutrality in the Corporate Sector (Science Based Targets and CDP, 2019). p.14. (Accessed 1 March 2022).
Carbon Trust, Briefing: What are Scope 3 emissions? (Accessed 1 March 2022).
Quality Assurance Agency for Higher Education & Advance HE, Education for Sustainable Development Guidance (March, 2021). p.4.
Accounting Bodies Network (ABN) Net Zero Commitment. (Accessed 1 March 2022).

Chartered Global Management Accountant^® (CGMA)

CGMA is the most widely held management accounting designation in the world. It distinguishes more than 137,000 accounting and finance professionals who have advanced proficiency in finance, operations, strategy and management. In the United States, the vast majority also are CPAs. The CGMA designation is underpinned by extensive global research to maintain the highest relevance with employers and develop competencies most in demand. CGMA designation holders qualify through rigorous education, exam and experience requirements. They must commit to lifelong education and adhere to a stringent code of ethical conduct. Businesses, governments and not-for-profits around the world trust CGMAs to guide critical decisions that drive strong performance.
cgma.org

Association of International Certified Professional Accountants

The Association of International Certified Professional Accountants (the Association) is the most influential body of professional accountants, combining the strengths of the American Institute of CPAs^® (AICPA) and the Chartered Institute of Management Accountants^® (CIMA) to power opportunity, trust and prosperity for people, businesses and economies worldwide. It represents 650,000 members and students in public and management accounting and advocates for the public interest and business sustainability on current and emerging issues. With broad reach, rigor and resources, the Association advances the reputation, employability and quality of CPAs, CGMA designation holders and accounting and finance professionals globally.
aicpa-cima.com

Report author:

Dr. Martin Farrar
Associate Technical Director
Research and Development — Management Accounting

Association of International Certified Professional Accountants

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