Green Accounting & Climate Action

Changing Climate posing its footprints globally. Accountants are not only accepting big challenging relating to global warming accounting indicators and their environmental impacts but also developing Green accounting and Green auditing techniques to manage these footprints for sustainability of organisations.

Climate Action is the hot and vibrant topic among the other Sustainable Development Goals (SDGs) of the United Nations for the stakeholders to be fulfilled by 2030.

The accountancy profession has a critical role to play in climate action and ESG, both to lead long-term value creation within sustainable economies, and to champion responsible practices in the public interest. Belatedly, but with increasing urgency, organisations are finally starting to grasp the scale of the climate emergency that our world is facing. The time to act is now. Organisations need to put accountancy and finance professionals at the heart of climate action strategy and implementation.

Climate-related risks bear on several areas of accounting and related financial disclosure. Accounting standards do not make exceptions for climate risks.immediately begin promoting more robust disclosure to prepare for the transition to a low-carbon economy simply by enforcing existing accounting and disclosure requirements and addressing current pervasive material omissions in corporate financial reports.

Carbon accounting is?a way of measuring how much greenhouse gas an organization emits. Like financial accounting, carbon accounting quantifies the impact of an organization's business activities – though instead of financial impact, it measures climate impact.

The role of accountants in promoting and reporting sustainability is very broad. They can use their skills of?aggregating data into useful information, help with cost analysis of environmental decisions and be involved with the audit and assurance of corporate social reports.

Existing financial reporting rules already require disclosure of material climate-related impacts

Both the physical risks from climate-related disasters and other effects and risks related to the transition away from greenhouse gas-producing products and activities can affect companies’ asset values and trigger asset impairments. Climate risks can also affect a company’s assumptions about the duration of an asset’s viability or usefulness, for purposes of calculating depreciation expenses. In addition, climate risks can affect the need for and size of provisions for liabilities, such as asset retirement obligations associated with the?retirement?of tangible, long-lived?assets, where a company will be responsible for removing equipment or cleaning up hazardous materials sooner than originally planned.

Climate-related commitments that companies make, such as commitments to achieve net-zero emissions by 2030, science-based emissions targets, and other climate-related corporate commitments and strategies, should be clearly and explicitly reflected in these areas of accounting. This means that if a company’s announced commitment would require decommissioning an asset by a target year, then the company’s depreciation expense should accord with that commitment. If the company believes it will be able to execute a strategy that would allow it to meet the commitment and continue to operate the asset past the target date, it should clearly disclose the sensitivity of its estimate of the asset’s useful life to the success of that strategy. There may be extreme uncertainty about the path of the transition, but there should be no uncertainty about the basis of management’s estimates that form a company’s accounting today. Investors should at least be able to understand how much hinges on the long-term viability of an envisioned strategy and what the financial impact would be if the strategy were to turn out not to be viable.

Green Auditors play an important role in assessing and enforcing rigorous sensitivity analyses. Audit standards require that auditors obtain an understanding of how management analyzed the sensitivity of its significant assumptions to change, based on other reasonably likely outcomes that would have a material effect on the company’s financial condition or operating performance, and, among other things, evaluate the potential for management bias.eps for accountancy and finance professionals.

1. By incorporating value into environmentally friendly practices and highlighting the cost-saving benefits of green measures, accountants can?influence business leaders to adopt carbon-smart policies.
2. Get executive level buy-in and for climate risks to be on board agenda
3. Play a lead role in supporting boards and executive leadership in net zero transition plans, including 2030 targets
4. Place climate risk, environmental, social and governance (ESG) and net zero at the heart of organisational strategy; expand strategic considerations beyond financial returns and competitive advantage
5. Take a holistic approach to decision making by integrating ESG, climate KPIs and risk considerations, and play a lead role in identifying and sourcing what constitutes ‘decision relevant’ data
6. Ensure that financial and non-financial reporting are connected and integrated within a clear narrative
7. Foster integrity and trust in sustainability-related information by leveraging robust, transparent, and trustworthy methods of assurance; and to minimise greenwashing
8. Expand understanding of ‘in-scope’ issues to get involved with, and increase awareness and education.

Call to action to governments

1. Set intermittent targets for the end of each decade leading up to 2050
2. Help with practical guidance and support, particularly for SMEs, including via local and regional authorities
3. Create knowledge hubs for sharing best practice
4. Work together across borders to tackle a global issue

For Sustainability, professional Accountants should take steps to remain vigilant for developing accounting strategies in relation to the guideline of IFRS, IAS, ISAs, Corporate Governance Principles and Reporting to counter environmental footprints and impacts for green decision making and financing.

Note: The above-provided information is just for knowledge purposes, please consult a professional practitioner for the services.

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