{"id":6800,"date":"2019-10-30T13:58:32","date_gmt":"2019-10-30T13:58:32","guid":{"rendered":"https:\/\/progressiveeconomyforum.com\/development\/?p=6800"},"modified":"2019-10-30T14:00:47","modified_gmt":"2019-10-30T14:00:47","slug":"we-need-climate-change-accounting-now","status":"publish","type":"post","link":"https:\/\/progressiveeconomyforum.com\/development\/blog\/we-need-climate-change-accounting-now\/","title":{"rendered":"We need climate change accounting now"},"content":{"rendered":"\n

It is very welcome that Mark Carney has, as director of the Bank of England, acknowledged that US$20 trillion (\u00a316 trillion)<\/a> of the world\u2019s financial assets might be at risk from climate change<\/a>. It is also good that he has said \u2018disclosure by companies of the risks posed by climate change<\/a> to their business was key to a smooth transition to a zero-carbon world as it enabled investors to back winners\u2019. Despite this, however, the world\u2019s accounting standards setters have not, as yet, tackled this issue. That task has instead fallen to the Mark Carney-led Bank of International Settlements promoted Task Force on Climate-related Financial Disclosures (TCFD)<\/a> who have suggested \u2018voluntary, consistent climate- related financial disclosures that would be useful to investors, lenders, and insurance underwriters in understanding material risks.\u2019 <\/p>\n\n\n\n

I direct the Corporate Accountability Network (CAN) <\/a>which thinks that this approach is inadequate. That\u2019s because this issue is too important to be considered outside the framework for financial accounting, which the TCFD necessarily does; too significant to be voluntary; and of interest to a much wider range of stakeholders than the TCFD approach addresses. Why the climate change reporting needs of civil society, regulators and governments are, for example, ignored by the TCFD, is incomprehensible to us. As a result the Corporate Accountability Network thinks that a different approach is required. <\/p>\n\n\n\n

Sustainable\nCost Accounting<\/strong><\/p>\n\n\n\n

The Corporate Accountability\nNetwork suggests that we need a mandatory approach to climate change\naccounting. It calls this approach sustainable cost accounting (SCA). To\nachieve this goal sustainable cost accounting would have to be an accounting\nstandard that all large companies would, ideally, have to comply with, but it\ncould be introduced by countries in isolation if they so wished.<\/p>\n\n\n\n

The essence of sustainable cost\naccounting is simple. It would require that every large business prepare a plan\nto show how it will manage the consequences of climate change. This plan would\nhave to state how it might become carbon-neutral by a specified date, both\nwithin its own business and within its supply chain. <\/p>\n\n\n\n

That plan would have to be\nspecific as to what the business must do to achieve this goal, or alternatively\nstate that this is not yet known. A precautionary principle would apply: in\nother words, the plan could only rely upon those technologies now known to\nexist and that have been proven to work. In addition, the plan would have to\nshow where the impact of the changes would arise geographically: it would be\nunacceptable to solve the problem in some countries and not others, or to\nexport carbon risk to developing countries. <\/p>\n\n\n\n

That plan would then have to be\ncosted. The requirement of sustainable cost accounting would then be that the\nfull cost of the change to being net-zero carbon emitter should be provided for\nin the accounts of the companies to which sustainable cost accounting would\napply at the time that it was adopted, which could be by 2022 if sufficient\nurgency was applied to this task. <\/p>\n\n\n\n

If this provision resulted in a\ncompany being shown to be insolvent then the company would have then have to\nshow how their solvency might be restored. This could, for example, be by\nraising new money for investment in the company, but they would have to\nconvince their auditors that this was possible. We stress we think that all the\nsustainable cost accounting data would require financial audit since the\nintention is to include it in financial statements.<\/p>\n\n\n\n

And, if a company could not show\nhow it could fund the cost of the transition, or it could not estimate the cost\nof completing that process, or it concluded that it simply could not make the\ntransition, then we suggested that it would have to be declared \u2018carbon\ninsolvent\u2019. This would not mean that it was financially bankrupt. But it would\nmake clear that the company was not going to survive into the era that we are\ngoing to have to live in. As a result an orderly winding up of its affairs\nwould be required, and carbon insolvency administrators would have to be\nappointed to achieve that goal. <\/p>\n\n\n\n

The\nbenefits of sustainable cost accounting<\/strong><\/p>\n\n\n\n

Sustainable cost accounting will achieve four goals. It will bring the biggest issue facing companies today into financial reporting. As such it will make clear which businesses can and cannot survive into an era of sustainability. It will as a result redirect capital to those best able to use it. And by providing data geographically it will enable all the stakeholders<\/a> of a business to plan their future relationships with the companies with which they engage. <\/p>\n\n\n\n

Sustainable cost accounting is the accounting for the climate crisis that we now need. In comparison there is no other issue more important in accounting. <\/p>\n\n\n\n

Photo credit: Flickr\/Mark Seymour<\/a>.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

Richard Murphy, PEF Council Member, member of the Green New Deal Group and Director of the Corporate Accountability Network, writes for the PEF blog on the urgent need for sustainable accounting.<\/p>\n","protected":false},"author":11,"featured_media":6805,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"nf_dc_page":"","_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"site-sidebar-layout":"default","site-content-layout":"default","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"default","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center 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