Green Accounting: Tackling Climate Change Directly

January 3, 2023

Governments and industries worldwide will need to make significant investments to get to net zero to tackle climate change. 

The accounting industry can use its century's worth of experience to help meet these ambitious carbon reduction goals by 2050. 

In this article, we'll explore how accounting firms can help mitigate the risks of climate change and ensure a sustainable workplace environment for all.

Climate change reporting will soon be standardized worldwide

The requirement to report on a company's impact on the environment is soon to become mandatory worldwide over the next few years. To demonstrate:

  • At the t2021 G7 Summit, Finance Ministers and Central Bank Governors created a Task Force on Climate-related Financial Disclosures (TCFD) framework – a set of mandatory climate-related financial disclosures for businesses to submit regularly. The reports will consist of a standardised set of metrics detailing sustainability KPIs and efficiencies in reducing a company's carbon footprint over a designated period.
  • The European Commission also proposes setting up a Corporate Sustainability Reporting Directive (CSRD) requiring EU businesses to explicitly state their business' impact on the environment at regular intervals.
  • In 2020, the IFRS Foundation provided educational documents on how current IFRS standards can consider climate change matters within company financial statements. The IFRS also recently proposed the creation of a sustainability standards board, to help them assess the business risk of rising CO2 emissions.
  • In addition, over 90% of S&P 500 corporations currently submit environmental, social, and governance (ESG) reports detailing things like greenhouse gas emission estimates.

Interest in ESG commitments is rising throughout the world of business, as well as amongst consumers. Therefore, organisations must devise efficient processes for gathering, submitting, and analysing energy consumption data accurately and at scale.

How green accounting can help businesses tackle climate change

Balancing the needs of climate change reporting and the drive to generate profits is no easy feat. However, accounting teams will likely be the most adept at meeting both sets of requirements in a way that keeps normal day-to-day operations intact.

For example, finance teams are the closest to the data points that matter in real-time. They have a clear view of all business transactions that contribute directly to a company's overall carbon footprint—for instance, vehicle fuel consumption, air travel expenses, the weight of inventory, etc.

From studying the granular details of energy consumption, to looking at the big picture business goals, accountants are perfectly poised to balance business needs with sustainability. They can approach department leaders with credible figures and provide operational heads with the confidence to change processes to improve their environmental protections.

Accountants can prevent Greenwashing

Many companies advertising their so-called eco credentials could merely be 'greenwashing,' as proper reporting standards have yet to be implemented worldwide. Greenwashing is the act of covering up a company's negative impact on the environment and instead cherry-picking data points that, in some cases, cannot ever be replicated or proven. 

Accounting and finance teams will be instrumental in ensuring that all corporate ESG data can be gathered and audited by relevant parties, helping consumers and stakeholders truly test the sustainability claims of businesses. 

Their input in this process effectively ends the corporate world's ability to hide bad practices behind shaky data sets, as all information will be automatically collected and shared with internal and regulatory parties.

Finance teams can help direct better green investments

In this previous article, we discussed green investments and how they can benefit businesses. Accounting and finance leaders can help advise on green investments worth pursuing using their advanced analytical skills and knowledge. 

Not all green investments are made equal, but finance leaders are trained to crunch potential candidates' numbers and supply senior leaders with an accurate assessment of their investment portfolio.

Join INAA to network with accounting experts worldwide

The International Association of Independent Accounting firms (INAA) launched 25 years ago to promote international trade.

To make global business personal and to take personal business global, we connect accounting firms that strive to provide quality professional services. Our cooperative association of foreign companies is dedicated to participating in global accounting and sustainability discussions.

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