Business relationships in difficult times
As we highlighted in our 2020 report Sustainability and business — The call to action: build back better, AICPA® and CIMA® started a thought leadership programme to explore accountancy and sustainability.1 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 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 climate resilience, we recognise that the threefold crises of a climate emergency, dramatic nature loss and rising social inequality are affecting the planet. Addressing these will require systems thinking across the three crises as companies reallocate resources, reorientate production and reimagine their business models. The poorest in the world are disproportionately affected by climate change and nature loss. Our goal must be to make it possible for lower-income people to climb a ladder without making climate change and nature loss worse.
This report is designed to help finance professionals build their sustainability scenario literacy so they can lead and support the journeys of their organisations, firms and clients as they adapt business models and operations in response to increasing climate change, biodiversity loss and inequality.
The inclusion of climate scenario analysis to inform an organisation’s adaptation planning came from the Task Force on Climate-Related Financial Disclosures (TCFD) recommendations published in 2017.2 Recommended disclosure ‘C’ under ‘Strategy’ states, ‘Describe the resilience of the organization’s strategy, taking into consideration different climate-related scenarios, including a 2°C or lower scenario’.3 The benefits of a climate-related scenarios approach, laid out in the TCFD recommendations, facilitates the following:
An organization’s disclosure of how its strategies might change to address potential climate-related risks and opportunities is a key step to better understanding the potential implications of climate change on the organization.4
Finance professionals are ideally placed to make a difference in climate scenario development and building organisational adaptation plans. With their skills and knowledge, finance professionals can provide insights into organisational governance, strategy, risk management and performance (through metrics and targets). These insights support sustainable decision-making built on sound business analysis and assurance of both financial and nonfinancial data.
Upfront, a health warning: This is going to be messy. Accounting for climate resilience is not a quick tick box exercise. Given the complexity of the task ahead for society, governments, organisations, and individuals, quick-fix solutions that fail to acknowledge all three interconnected crises could make things worse. However, armed with several climate scenarios, organisations can at least start having internal and external dialogues around building future business resilience.