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A transition to a green and low-carbon economy is not a niche nor is it a “nice to have” for the happy few. It is crucial for our own survival.’ These are not the words of an NGO – they come from a report issued by a group of over 30 central banks, including the Bank of England. The report says that climate-related risks fall ‘squarely within the mandates of central banks and supervisors.1
Climate change is not only a systemic risk to financial stability. It impacts all businesses in all sectors, whatever their size. We don’t need to look far to find compelling facts to support these claims. For example, a United Nations (UN) study has concluded that some 5 billion people could have poor access to fresh water by 2050. And a further UN report has modelled the financial risk of a transition to a low-carbon economy to be over 13% of overall portfolio value – in the order of just under $11 trillion.
Business is responding. This is a clear conclusion of the Task Force on Climate-related Financial Disclosures (TCFD) in their 2019 Status Report. TCFD is achieving stronger endorsement – and increasing disclosure quality. It also offers a promise of more to come. Over 90% of the preparers who responded to the report’s survey said that they will implement TCFD recommendations, and of those, two-thirds say they will do so within the next three years.
It is pleasing to see recognition in the TCFD progress report of the areas where businesses are already improving their thinking and reporting. Better understanding of the impact of climate change on the company. A clearer picture of the risks and opportunities. Selecting and disclosing metrics. These are helping investors to incorporate climate-related financial disclosures into their decision-making processes.
But it also clear from the progress report that companies still find it hard to assess the resilience of their business, to embrace scenario planning, and to integrate their climate-related risks into their enterprise risk management process.
It is therefore not surprising that investors say they want more clarity still on the financial impacts. The TCFD survey reveals that less than one quarter of the respondents have involved the finance team in implementing the recommendations – more input from them could drive this change.
We are helping to push this agenda forward. We have launched a new learning programme, developed in collaboration with the ICAEW, which seeks to help directors and finance professionals to implement change, manage risk and take advantage of the opportunities created by climate change. It also considers impact on financial statements and how to translate climate change effects into tangible measurements. Finance professionals can use the materials to evaluate the financial impacts and question assumptions across the financial planning, management and reporting cycle. And this equips finance teams to enhance climate-related financial disclosures, and therefore provide better information to investors.
Climate change is an existential threat that demands urgent attention. There can be no more ‘business as usual’ if companies are to protect their value, manage risks and future-proof their organisations. Our new website sets out the business case for action and practical steps for change, to help companies place their climate change response as a key element of their business models.
Veronica Poole is a partner at Deloitte, DTTL Global IFRS Leader and Head of Accounting and Corporate Reporting for Deloitte North and South Europe. As the Global IFRS leader and the Senior Technical Partner she is responsible for IFRS accounting quality and is the leading voice of the global Deloitte network, both internally and externally, on IFRS and corporate reporting matters. She chairs Deloitte’s Global IFRS Leadership team and is a member of the Deloitte Global Audit Quality Board. Her external appointments include: member of the UK FRC’s Corporate Reporting Council, member of the International Integrated Reporting Council, Chair of the Advisory Group to the ICAEW Financial Reporting Faculty, advisory member to the Hundred Group Financial Reporting Committee and a former member of the Financial Reporting Advisory Board to HM Treasury. She leads Deloitte’s relationship with The Prince's Accounting for Sustainability Project (A4S) and the UK Chapter Zero, The Directors’ Climate Forum. Her current priorities include influencing and driving change in the accounting and corporate reporting and in the accounting profession, including reporting of ESG and climate-related financial and business risks. She works with standard-setters, policy makers, regulators and professional bodies to advance the goal of better corporate reporting.