Why accounting and finance are sustainability’s front line

April 29, 2022
Article

Accountants’ systematic, process-oriented approach is the kind of discipline that translates well to carbon accounting.

In March 2022, the SEC announced proposed rules forcing public companies to include climate-related disclosures with their financial filings. It would enhance and standardize existing voluntary disclosures. But the more meaningful impact: all public companies—many of which have no environmental knowledge or carbon accounting program—would have to disclose emissions according to the same rigorous format and process as their financial data.  

While this SEC regulation is limited to public companies, its weight should loom large for all companies. It will help push consumers and investors to add more pressure on private companies to act. That means just about every company will need to do some form of carbon accounting and reporting. 

The scale will be massive. 

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On one side, pushing companies to account for and report their emissions—especially value chain emissions (scope 3)—will be a net positive in the war on the climate crisis. On the other, it will leave companies already on their heels further disadvantaged. They’ll need to catch up to their competitors and find innovative ways to comply—and quick.  

Accountants as climate heroes 

And who is well-positioned to be their unsung heroes? Accountants and the financial sector. And here’s why: Financial professionals, specifically accountants—both those embedded inside companies and those part of consultancies—already have rigorous standards for financial disclosures, which must carry over when carbon accounting and disclosure become the norm.  

That’s a distinct shift because, to date, the U.S. has been a carbon accounting Wild West. No mandated disclosure requirements mean no standardization. It has been up to companies to voluntarily report through competing frameworks and methodologies—TCFD, SASB, GRI, etc. That will soon change because the proposed SEC rules will prescribe consistent reporting requirements that formalize ESG disclosures into financial filings, allowing investors to include the financial impact of climate risk in their evaluation of investments. 

Accountants’ systematic, process-oriented approach is the kind of discipline that translates well to carbon accounting. Forbes highlights a COP26 report that accountants and finance professionals also “bring an integrated approach that places sustainability at the heart of organizational decision making.” It says, “they link strategy and governance to data-driven decision making and rigorous measurement of performance using science-based targets, coherent reporting and trustworthy assurance of information used by stakeholders.” 

The long view 

While the proposed SEC rules will position accountants as sustainability leaders, we’ve also seen finance professionals lead the charge in other ways.  

For years, investors have pushed for more ESG reporting, in part because it helps uncover climate risks. Finance professionals push for hazard risk assessments to identify threats to their business’s value chain. For example, understanding the impact disruptions from flooding caused by increased extreme weather events could have on the business. They can also model the cost of inaction when climate-related disasters occur—for example, the impact a reduction in quantity or quality or price increases could have.  

Accountants also tend to take the long view and see the value of capital outlays. For example, a CEO might balk at the initial expense of on-site renewable energy systems (e.g., solar panels to power offices or warehouses). But accountants see benefits beyond long-term energy bill savings. Because they are so closely integrated with financial data, they are the right department to demonstrate the cost-benefit analysis of this kind of capital expenditure. Operating cost reductions from a more efficient operation aside, they’re the ones showing how solar panels protect the business from volatile energy market swings.  

In an AICPA article, financial analyst Sean Stein Smith says, “For instance, your firm may have clients that want to know how energy tax credits and other incentives are calculated and reported.” He goes on to say,” CPAs must be able to understand, report on, and interpret the meaning of these initiatives and information as an increasing percentage of organizations adopt such measures.” 

The opportunity 

While jobs that require sustainability skills have grown 8% year-over-year, there’s only been a 6% increase in workers with the right skills. That substantial delta will require other professions to grow their green skills and fill the gaps necessary to keep emissions below the 1.5°C warming threshold.  

You’re in a good position if you’re an accountant or finance professional hungry for new frontiers. You’re already handling financial accounting, so you’re a natural fit to offer new services like carbon accounting. That means big opportunities for accounting firms to unlock new service offerings for corporate clients and for internal finance teams to lead the in-house charge. 

When—not if—we show emissions as a cost center, that’s when we’ll all make progress on the climate crisis. 

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The takeaway

Financial professionals, specifically accountants, already have rigorous standards for financial disclosures, which must carry over when carbon accounting and disclosure become the norm.