The momentum around the shift to a decarbonised economy is gathering pace, as the UK prepares to host the Cop26 climate talks in Glasgow in four months’ time.
In May, Prime Minister Boris Johnson launched a campaign inviting British SMEs to join the ‘Race to Zero’ – a global campaign that sees governments and businesses pledge to reach net-zero emissions by 2050.
Obviously, this will affect accountants and finance professionals, especially those tasked with communicating these changes to their clients/C-suite, allocating funds to help companies transition to greener business models, or possibly measuring greenhouse gases as part of ESG reporting.
Race to Zero: your chance to hear Prince Charles
AAT members are invited to a special event on 30th June 2021 at 10am in which Prince Charles will share his opinions of how and why accountants have a key role to play in tackling climate change.
HRH Prince Charles also believes accountants have a role to play in driving climate action within their firms: next week (Wednesday 30 June) he’ll be addressing accountants over zoom as part of an online ‘Race to Zero: How Finance Can Tackle the Climate Crisis’ event hosted by his Accounting for Sustainability (A4S) initiative.
Here we explain how Race to Zero is likely to change the profession and what accountants can be doing about it right now…
What is Race to Zero?
The Race to Zero is an international United Nations campaign that encourages 120 governments – and businesses working within these countries – to halve emissions by 2030 and achieve net-zero emissions no later than 2050.
It’s a target that enshrined in UK law by Theresa May’s government in 2019, along with a pledge to phase out diesel and petrol cars by 2040.
So far, most of the focus has been on large organisations. Only 100 companies are responsible for 71% of global emissions. Businesses are seen as key to achieving Race to Zero’s aims. In recent months, net-zero has fostered healthy competition among some of the world’s biggest firms. Nearly a third of the UK’s FTSE100 companies have signed up to Race to Zero, while even oil giants BP and Shell have made ambitious targets to be net-zero by 2050 too.
Medium and small firms
In May, Boris Johnson issued a rallying cry for the UK’s small-and-medium-sized (SME) businesses to take part too. By making small steps such as switching to energy-saving light bulbs or adopting an electric vehicle fleet, it’s believed SMEs can contribute to the UK’s overall 2050 target. Other suggested measures include starting cycling schemes to work, insulating office premises and installing a smart meter.
By signing up for the SME Climate Commitment, companies will also need to disclose their progress every year too. However, they will also be supported in their goals by larger businesses such as NatWest, Google and Scottish Power, who will give expert advice on curbing emissions and growing a low-carbon company, as well as offering training.
However, climate experts argue there’s still a long way to go. To reach net-zero, it is said that gas will need to be phased out, while tens of millions of cars will need to be replaced to meet the Government’s commitment to ban petrol and diesel vehicles by 2040.
Why is Prince Charles addressing accountants on the subject?
In 2004 HRH Prince Charles established Accounting for Sustainability (A4S) to inspire finance leaders to adopt more sustainable business models and drive climate action within their companies. Since then, A4S has helped identify practical actions to change corporate behaviour, founded an international Accounting Bodies Network (which represents 2.4 million accountants in 181 countries) and championed integrated reporting; all part of its overriding conviction that ‘accountants can save the world’.
On Wednesday next week (30 June), A4S will host an online ‘Race to Zero: How Finance Can Tackle the Climate Crisis’ webinar, which will include a video message by Prince Charles, who will be addressing accountants and “sharing his thoughts on why the finance and accounting community has such an important role in tackling climate change”.
The webinar will also feature a live Q&A session, as well as contributions from speakers such as Andy Agg (Chief Financial Officer, National Grid), Katie Murray (Chief Financial Officer, NatWest) and Gregor Alexander (Finance Director, SSE).
What role can accountants play in the race to zero?
According to A4S, accountants have a critical role to play in adopting net-zero aims, such as:
- analysing the market to look for opportunities to provide climate-friendly solutions,
- accurately tracking and reporting performance against reduction targets,
- embedding greenhouse gas reductions within decision-making,
- raising and allocating funds so that businesses/clients can transition and adapt their companies towards meeting net-zero targets.
Accountants can also use their skills to add value through the rise of environmental, social and governance (ESG) reporting. This could see accountants measuring the amount of greenhouse gases or tonnes of plastic their client/company uses and recording ‘impact return’ rather than monetary returns. The Financial Reporting Council (FRC) recently highlighted ESG reporting, declaring in a 2020 review that corporate reporting should reflect the climate crisis and support the introduction of global standards on non-financial reporting.
Sue Bonney, KPMG’s vice-chair and UK head of ESG, believes that “there is more pressure [for accountants] to include non-financial data as a mainstream part of reporting… It’s your [accountants] chance to hold companies to account for their net-zero pledges. If an oil company has made a commitment to be carbon-zero and provide alternative energy by 2050, investors may want to know the steps to them achieving that. Accountants can play a part in that.”
A4S sees opportunities for accountants in carbon reporting. “There can be a close link to financial information accountants might already be helping clients to collate, in relation to energy bills or travel,” says Jessica Fries, executive chairman of A4S. “Accountants are well-placed to help clients prepare carbon accounts efficiently, as well as providing advice on reducing cost and emissions.”
Accountants can also drive change within their own companies: Bonney cites a recent graduate working at KPMG who devised a carbon-tracking tool after she noted that staff were regularly making unnecessary flights to Dublin. The tool was piloted before the pandemic, with KPMG finding it halved their footprint.
Webinar: finance teams and sustainable business
In this AAT Future Finance session, Adam Williamson, AAT Head of Responsible Business, explains the role of finance in improving business sustainability, especially in light of increased regulation over business reporting.
How can accountants communicate the financial benefits of Race to Zero to their clients/C-suite?
“CFOs and their finance teams are essential to achieving net zero emissions,” says Fries. “Through the A4S Net Zero Statement of Support, CFOs from around the world are committing to playing their role in the transition, and A4S are supporting them through our practical guidance.”
“As trusted voices within organisations, accountants and finance professionals can make the business case for change, and then provide the skills and insight required to make sustainable business ‘business as usual’”, she adds. “As more governments, businesses, investors and banks commit to net zero, it’ll be essential for accountants to engage with clients and others within their organisation around their response.”
If CFO needs to explain the Race to Zero or the SME Climate Agreement to a client/board who may view sustainability as a ‘nice-to-have’, they might want to focus on:
- Reduced running costs. By switching to LED light bulbs, companies could deliver cost savings up to 80% for their business. Meanwhile, firms with large fleets (900 cars or more) could save £1.9mevery year by switching to electric, according to one report by Deloitte.
- As a way of future-proofing the business. For example, there’s little point companies buying petrol and diesel cars, when they won’t be able to buy these in the UK from 2030.
- The costs of climate-related disruption. “With climate change presenting a risk to businesses through extreme weather events, supply chain disruption or changing product demand, it can present huge opportunities for those finding the solutions,” says Fries.
- The rising environmental consciousness of investors, shareholders and consumers means they might shun any company that doesn’t make plans to shrink its carbon footprint. In 2019, then Bank of England governor Mark Carney warned that firms that ignored climate change would face bankruptcy due to investors/consumers punishing them. Companies may also face stigma on social media too.
- As a way of wooing talent. Younger generations increasingly want to work for companies with a strong environmental agenda.
Is the race to zero likely to create new job roles within accountancy?
As part of its 2050 net-zero target, the British government aims to create 2m ‘green collar’ jobs in the UK over the next decade (however, it has been criticised for its poor progress on this).
Nevertheless, Fries believes there could be opportunities for those working in finance.
“The role of accountants is changing, increasingly becoming more strategic,” she says. “Finance professionals have gone from being bookkeepers to some of the most influential business advisors within an organisation. Organisations now face new and uncertain challenges and are in great need of those with skills to make sense of it all… Environmental and social issues are becoming increasingly relevant to strategy, so leaders require insight and information to develop an effective response. The finance function of the future will need finance teams which are committed to integrating sustainability into financial decision making and who understand the benefits this will bring.”
Accounting for Sustainability’s Race to Zero: How Finance Can Tackle the Climate Crisis takes place on Wednesday 30 June at 10am.
- Register for the Zoom webinar here
Small businesses can find support for climate action at the SME Climate Hub – an initiative of the International Chamber of Commerce, the Exponential Roadmap Initiative, the We Mean Business coalition and the United Nations Race to Zero campaign.