Carbon reduction in the accountancy sector

Traditional investing has always focused purely on the financial returns of companies, overlooking the negative environmental or social consequences. Impact investing, whilst still expecting compelling financial returns, went a step further to demand that investments must also actively do good, making a positive, measurable impact on the social and environmental challenges. However, despite definite progress made – it is nowhere near enough. There is a compelling need to go beyond impact investment to reduce carbon emissions significantly. The accountancy sector can take the lead in this drive for carbon reduction through their actions and investments and by supporting and educating their clients in all industry sectors, whether in the private or public sector. Carbon reduction covers a vast area, and to gain any grasp of understanding it is necessary to revisit some basic science first. Carbon occurs naturally as a solid (as in graphite) and as a gas (as in carbon dioxide). Nature has always regulated the cycle - carbon dioxide in the atmosphere is absorbed by forestry, soil, and oceans and so maintains an equilibrium. Since industrialisation began and quickly escalated, carbon emissions to the atmosphere have rapidly increased and broken the natural balance. Carbon dioxide and methane - ‘Greenhouse gases’ (GHG) absorb heat and their disproportionate presence has increasingly caused global warming. The primary sources of GHG are burning fossil fuels (for electricity, heat, and transportation) in the industrial and domestic sectors and from agriculture (methane caused by animal respiration). So why is this relevant? There will be an increase in the number and intensity of global disasters (already witnessed) such as floods and heatwaves due to the “unprecedented” weather events caused by global warming. These, in turn, cause famines, death, poverty, and destruction of ecosystems, further reducing the survival and biodiversity of plants and animals. As a result, Increasingly, ecologically sustainable environments are disappearing. Many large cities are located on the coast, so a rise in sea level due to melting glaciers of “more than half a metre will impact 800 million people in 570 cities”, as highlighted by the group C40. (A network of 100 world-leading cities committed to urgent action on climate change). The impact would also cause untold destruction and political unrest to these hubs of government, population, and key strategic centres, e.g., London, New York, Amsterdam, Hamburg, and Dubai. Consequently, there is a real need to ramp up the approach to carbon reduction, or it will cost us dearly, and not just in financial terms. At the Paris Agreement in 2015, it was agreed that global warming must be limited to a maximum of 1.5°C by 2100. COP-26, the UN Change Conference held in Glasgow in 2021, however, highlighted that all the countries who had subscribed to setting and reaching these targets for carbon reduction had not made the necessary progress needed to achieve these targets. We must halve current emissions by 2030 to achieve these targets and drop to “net zero” by 2050 (Net zero means that effectively no carbon is emitted). If we continue at the current rate of global warming, we will reach 1.5°C by 2040, as the Intergovernmental Panel on Climate Change (IPCC) have predicted. In reality, “net zero” is often unattainable, so “carbon offsetting ” is used instead. The theory is that environmental strategies, for example, planting woodland, can be used to effectively store (sequester) carbon from the atmosphere. In this case, trees and soil offset the enterprise's industrial carbon emissions. Other measures to reduce carbon include reducing energy consumption, limiting commuting, business travel, waste, and especially replacing burning fossil fuels with renewable energy, e.g., solar power or wind power. Plus, reuse and recycle resources based on a “circular economy” rather than the more wasteful linear economy—use of Electric vehicles. Iceland has the world’s largest carbon capture plant, “Orca,” using geothermal energy to pull 4,000 metric tons of carbon dioxide p.a. out of the atmosphere and pump underground, where the gas, mixed with water, will slowly become stone as it cools. How can the accountancy sector lead in spearheading the drive for carbon reduction over and above impact investing? Leading by example is one key and effective measure. ACCA, the global accounting body, has, in conjunction with 13 other accounting bodies, formed an accounting alliance - the Accounting Bodies Network (ABN). It includes many accounting bodies such as Chartered and Certified Public Accountants. The ABN has publicly committed to achieving net-zero within its organisations. ABN has led the commitment by providing an enabling environment for its members to go Net-Zero. Including providing the infrastructure to support the membership by educating, training, and guiding members to roll out the expertise to other sectors, which in turn can attain net-zero. We can drive practical actions in several ways as accountancy and finance professionals in all sectors: Climate and nature-related considerations must be central (not separate to the organisation’s overall strategy. Place ESG (Environmental, Social and Governance) at the heart of organisational strategy. Executive buy-in is crucial at the board level before it can be embedded throughout the organisation. Play a lead role in supporting boards and executive leadership in net-zero transition plans. Key targets to achieve by 2030 to be set to ensure net-zero by 2050. Cost the long-term impact of climate change and its risks incorporated into the strategy. Report meaningfully on non-financial information. Science-based targets and KPIs (key performance indicators) built into regular reporting and reviews. The new International Sustainability Standards Board (ISSB) is evolving and addressing material impacts to an organisation’s real value to society. A holistic approach to decision making by considering the organisation’s entire value chain should play a lead role whilst financial impacts of climate issues quantified to support this decision making. Fostering trust and integrity will lead to more meaningful reporting of sustainability performance and avoid more cynical “greenwashing.” How can we monitor, measure, and apply what we know in financial terms to the progress of carbon reduction and capture? Much more collaboration with the scientific community is vital to quantify specific data regarding carbon capture, e.g., oak trees are the most effective and translate this into the financial KPIs. Effectively measuring and monitoring is essential to make progress. My passion for ecology led to my BSc Honours degree from Durham University, where David Bellamy was my Botany lecturer. I am an FCCA, too – so I am very invested in bridging the Eco Finance gap. I invested in 9.5 acres of Native Deciduous Woodland in Kildare, with over 8,000 trees planted in February 2022. I also committed my investment in ecology by growing organic strawberries in the 1990s and supplied Tesco and Superquinn. We also invested in ten solar panels last year and have planted many other deciduous trees. I passionately support and encourage investment in the Circular Economy. The main barriers to a circular economy are entrenched business attitudes, viewing it as too financially risky. For centuries, the economies of the developed world have been linear (making, using, and disposing of resources and waste irresponsibly) with scant regard for the environment. Accountants and those in the financial sector have the perfect opportunity to change these attitudes, lead the way and accelerate much-needed change to create a sustainable and cost-effective economy that nurtures our people and environment. By Mary MacRory, Life and Business Coach, helping Clients in Careers, Business and Accountancy