Who will encounter accounting for climate resilience?
Accounting for climate resilience is an exercise in challenging organisational complacency and building long-term resilience.
Finance professionals
Scenario planning is a device for telling engaging stories with internal and external stakeholders. For finance professionals, it means moving beyond a pure numbers focus. In talking about how scientists communicate their information about climate science, Professor Dame Jane Francis, Director of the British Antarctic Survey, said:
Scientists have got a job to do to understand what's going on with the earth. We talk about numbers and carbon dioxide, which some people can take in the numbers, but other people can't. I know that you can't just keep adding more numbers, which isn't going to help to somebody who's not receptive in that way. We need to communicate about climate change in every possible way we can, to every possible audience.77
Being literate in the art of scenario analysis allows finance professionals to encourage long-term strategic thinking and debate with multiple audiences on climate impacts and organisational resilience.
Finance functions
Finance functions have an important and broad role to play in understanding how climate impacts will transform future organisational value creation and preservation. The potential future climate implications highlighted in scenarios must become embedded into an organisation so that they lead to business-model innovation, informed investment decision-making, and the management of future risks and opportunities.
Although there is increasing mandatory regulation on climate-related financial disclosures and use of scenarios around the world, the process should not be viewed purely as an exercise in reporting. A narrow focus of this kind has the propensity to become corporate greenwashing. It is time to think differently about how the success of accounting for climate resilience is measured within an organisation. Yvon Chouinard, the founder of the outdoor clothing company Patagonia, said of its organisational success measures:
We measure our success on the number of threats averted: old-growth forests that were not clear-cut, mines that were never dug in pristine areas, toxic pesticides that were not sprayed. We look to the tangible results of our support: the damaging dams dismantled, the rivers restored and listed as wild and scenic, the parks and wilderness areas created.78
Organisations should embrace reframing finance functions in this way when turning the insights from climate-impact scenarios into resilient adaptation plans.
Organisations
Accounting for climate resilience needs to be integrated into the DNA of an organisation’s future decision-making. It cannot be a back-office activity left to a few individuals, with the finance function producing some numbers in support. To make a difference, accounting for climate resilience and adaptation planning must be embedded in an organisation’s governance, strategy and risk management. There should also be accounting for climate resilience feedback loops over time to review and update assumptions, scenarios, key performance indicators and to inform management of operational processes.
Furthermore, in setting performance criteria, organisations need to ensure that employee compensation and incentives are consistent with and linked to the long-term achievement of climate resilience adaptation plans. The remuneration focus needs to be on the long-term success and sustainability of an organisation, rather than purely on short-term objectives.
The reality for individual finance professionals, finance functions and organisational leaders is that climate change impacts are not new phenomena. Frankopan notes:
It is hard to escape the fact that the fundamentals of ecological equilibrium and environmental sustainability underpinned the cultural, political, socio-economic, diplomatic and military histories of individual kingdoms, states or regions. Reliable food and water supplies were always central, but especially during periods of demographic expansion. Societies had to contend with finite natural resources; disaster soon followed when those became exhausted or came under stress over-exploitation, because of shifts in rainfall patterns or because of conflict, disease or the failure of infrastructure such as river defences. That provides some food for thought for the present and future — as well as the past.79
It is time to learn from history.
