The horizon is much closer than you think

“I studied economics for my degree and master’s at Cambridge and the London School of Economics. I’ve always been interested in a broad range of subjects and felt passionate about society and making a positive impact on the world. I chose papers focused on environmental and development economics, so I guess you can trace what I wanted to focus on back to those early academic decisions.

After finishing my studies and travelling around Asia, I remember reading an article by an accountant explaining the difference she was making through her day-to-day role. It had a profound impact on me. I decided to go into accounting and drive meaningful change through my work.

“There’s a lot we can do as individuals at home but, for many of us, the biggest impact we can have is through our professional careers.”

Fast forward to today and I’ve now been leading A4S for more than 10 years. In the early days, especially when we set up our CFO Leadership Network, we were always being asked ‘why finance and sustainability?’ To some, it seemed like a novel idea, and it’s taken a long time for the majority to realise that the finance community could play a critical role in the transition that’s needed to address climate change.

Accountants are often the engine of the organisation – from providing information and insights to making investment decisions. They have so many important levers and influences at their fingertips. CFOs and finance teams can bring credibility, as what you say will be heard and acted upon. That might be in conversations with peers, suppliers, customers, regulators, investors or the board.”

“The worst impacts of climate change evolve over the long term, but we need decisions to be taken in the short term. So how do we bridge that gap?

A key moment in this shift happened during an A4S roundtable with Mark Carney, where we discussed the link between climate risk, financial stability and long-term thinking. Mark went on to make his famous ‘Breaking the tragedy of the horizon’ speech – I’d recommend listening if you haven’t – around the challenges of achieving a longer-term perspective. Following the roundtable he also set up the Task Force on Climate Related Financial Disclosures (TCFD), which has been an important development on the reporting front.

“All eyes are on the future. Thinking about how businesses will perform in different scenarios is key.”

We’ve seen a huge number of organisations commit to net zero and this year, in the build up to COP26, we’ll see many more. But as well as long-term targets, you need a near-term roadmap and that’s where much of the focus is at the moment. This is something we are working hard to drive – through our net zero statement of support and guidance we are helping finance teams to understand what they can be doing now.

Scenario analysis is one of the most important components. For companies, investors and regulators, thinking about how businesses will perform in different future scenarios is helping to shorten those time horizons. Science based targets are another example of how organisations can set a clear pathway to net zero emissions, with the Science Based Targets initiative helping to provide a robust approach. Both analysis and targets can combine to help businesses understand what they need to do now right now to contribute to the solution.

2030 may still seem a long way away. But in a nine year period you really can start to develop more tangible plans and strategies, and finance and accounting can start to model the different scenarios that might get you there. And, of course, this is not just about risk, it’s also about opportunity.”

“One of the first things we focused on at A4S was integrated reporting. Back then, when you looked at the landscape, you saw silos with separate teams producing separate sustainability and financial reports. Companies weren’t telling a clear, consistent story, often saying different things in each report – you could be quickly found out and be open to scrutiny.

That has started to shift and the response to climate change is now becoming part of a company’s overall strategy, flowing through into the governance, risk, metrics, targets and remuneration. What’s best for the climate is no longer a separate consideration to what’s best for doing business.

“Integrated reporting would also help to provide a foundation for the future – of business and the planet.”

And transparency is so important. People keep coming back to transparency and disclosure being one of the main barriers to action. But there really is no excuse not to act – there is a huge amount of progress being made to close information gaps and provide the data needed to inform decisions. With investors increasingly being required to disclose themselves, it’s something that’s being resolved pretty quickly, in particular as both companies and investors are needing information on environmental and social risks and opportunities for investment decisions.

I hope that this year we will have greater consistency in global climate-related reporting standards and frameworks, as well as other environmental and social issues, and the incorporation of these standards at the heart of the capital markets and corporate reporting worlds. It would be the realisation of work that we’ve been looking at for more than a decade – a huge milestone.”

“Mervyn King, former governor of the Bank of England, talks about the CFO being the chief value officer and I couldn’t agree more. It’s no longer about just financial capital – we’re starting to see the role broadening out to cover social, natural and human capital too. CFOs are becoming the stewards of value creation in these areas.

Companies and investors are seeing how a purpose-driven approach can drive a commercially and financially strong business that provides value for society and operates within the boundaries of the planet. We’ve done quite a lot of research over the past year to understand the impact of the pandemic and there are clear links between operating and acting sustainably and having financial resilience at your core.

“Being a changemaker is key. This is about touching people’s beliefs as humans as well as professionals.”

For example, creating a purposeful business really does help to attract and retain talent. Also, more and more, companies are finding that they need to demonstrate their sustainability credentials to customers. And, of course, financial and environmental drivers often go hand in hand, so lower energy or fewer resources can equal less cost.”

“A4S is in a unique position – our founder, HRH The Prince of Wales, inspires people to listen to what he has to say, so getting people in a room has never been difficult. You still need to be able to convince them, but half of the challenge a decade ago might have been getting them in the room in the first place.

“You need to talk to the head and the heart to drive this kind of change.”

Most people now understand the challenges and risks associated with climate change, so we’ve shifted from ‘why’ to ‘what’ and ‘how’. Our essential guides offer practical tools, approaches and techniques developed ‘by finance for finance’ through our CFO Leadership Network. A number of partners, including Deloitte, have also helped create and test the guidance. We set up the A4S Academy last year to equip senior finance professionals, with the knowledge and skills needed as well as empowering them to drive change. The programme has been incredibly successful in enabling finance teams to support their organisations to take action.