Climate risk and business resilience: How the profession can help
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Climate risk and business resilience: How the profession can help

Oct 12, 2020 · 4 min read · AICPA Insights Blog

At the beginning of 2020, before the COVID-19 public health crisis severely impacted communities across the globe, the World Economic Forum sounded the alarm about climate risk in its 2020 Global Risks Report. For the first time, the top five long-term risks were all environmental: extreme weather, climate action failure, natural disaster, biodiversity loss and human-made natural disasters. Considering that in 2019 weather disasters cost an estimated U.S.$232 billion worldwide, it’s not surprising that the environment took center stage in their risk assessment. This year, risk has become reality for many. Even as people and economies across the globe struggle with the challenges of the pandemic, we are witnessing the dire consequences of environmental events as fires and floods threaten the economic recovery of impacted communities.

Just as our profession has been leading a path through pandemic-driven disruption by focusing on business continuity and resilience, the profession also has a crucial role to play in anticipating and mitigating the impact of climate risk. In a world where politics are increasingly polarized and people often lack trust in information and business, accounting and finance professionals bring a much-needed ethical commitment to objectivity, accuracy and reliability. The profession’s role is not to takes sides in any political debate, but to properly assess risk and provide reliable information on the commitment and measurable impact companies make on sustainability.

United Nations Sustainable Development Goals and recovery

In 2015, the United Nations announced its Sustainable Development Goals (SDGs) for 2030. These were meant to advance the well-being of people across the globe and the health of the planet, but as economic growth has slowed, COVID-19 has imperiled progress on these laudable goals. In their recent update on SDGs, the U.N. reports progress on climate action has been “the most disappointing,” even though the forced inactivity of the pandemic has temporarily eased CO2 emissions.

This is a crucial moment. How governments and organizations approach recovery from the economic impact of COVID-19 will have far-reaching consequences for mitigating backsliding on SDGs and for long-term resilience. Our profession has an important opportunity to help organizations implement and demonstrate a commitment to sustainable business practices that consider stakeholder and environmental impact and drive long-term value creation.

Call to action in response to climate change

Given the severity of climate risk and the opportunity for the profession to take a leadership role, in February of this year, on behalf of the Association of International Certified Professional Accountants, I signed a call to action in response to climate change, along with the CEOs of 12 other accounting bodies. As members of the Princes of Wales' Accounting for Sustainability Project (A4S) Accounting Bodies Network, we collectively represent 2.5 million accountants in 179 countries.

The statement is a call to action not only for accountants, but for the accounting bodies that represent them. It’s a call for us as an Association to support the important work our members do to address climate risk through resources and guidance and our advocacy work with policymakers.

How the profession can make a difference

The profession will make its impact in at least two key ways: by advancing integrated thinking and providing reliable, objective disclosure of sustainability-related information.

Integrated thinking about the range of financial and non-financial factors that materially affect an organization’s ability to create value is required in our complex, interdependent world. Charged with managing the flow of essential information and insight, the profession is uniquely positioned to advance a more holistic understanding of risks and opportunities — one that includes assessing and planning for climate-related risks such as disrupted supply chains and regulatory changes. Through integrated thinking, we will enable better decision-making.

Underpinning all smart decision-making — whether it’s by business leaders, regulators, investors or consumers — is reliable information. Together, the profession’s skill set and expertise make management and public accountants uniquely qualified to measure, report and provide assurance on consistent, comparable and meaningful sustainability-related information.

Towards a consistent global approach and broader business reporting

A consistent global approach to sustainability accounting standards and comprehensive corporate reporting will maximize usefulness for all stakeholders. The International Integrated Reporting Council, where I serve as Board Chair, has been working towards the goal of a comprehensive approach to reporting with the Integrated Reporting <IR> framework. And, last month, in an important step, the International Federation of Accountants (IFAC) called for a new sustainability accounting standards board. In a time when businesses, investors and other stakeholders need robust and trusted standards, IFAC’s recommendations help advance meaningful progress.

Rationalization and simplification of frameworks and standards will help us move towards a global, uniform and reliable system. I’m encouraged by the initiatives and cooperation currently being explored by the likes of the International Financial Reporting Standards Foundation (IFRS) consultation paper into a new sustainability standards board; the statement from the Climate Disclosure Standards Board (CDSB), the Global Reporting Initiatives (GRI), the International Integrated Reporting Council (IIRC), the Sustainability Accounting Standards Board (SASB) and CDP (formerly the Carbon Disclosure Project) on working together towards comprehensive corporate reporting; and the World Economic Forum’s (WEF) report towards consistent reporting on sustainable value creation. These are clearly demonstrating a new era in systems thinking in the business reporting space.

Times of crisis can also provide opportunities for change. Today, in a world full of challenges, we are seeing increasing emphasis on business practices that consider people and the planet, alongside profit. As customers, regulators, shareholders and communities demand more in the arena of broader business reporting, the profession must be versed in what is being considered and continue to provide the much-needed trust in information and stewardship of resources that build resilient organizations for the long term.

Barry Melancon, CPA, CGMA

Barry C. Melancon is the CEO of the Association of International Certified Professional Accountants, the most influential body of professional accountants in the world with 650,000 members and students. Formed in 2017, it combines the strengths of The Chartered Institute of Management Accountants (CIMA) and the American Institute of CPAs (AICPA), which Melancon also leads as President & CEO.

Melancon joined the AICPA in 1995 when he was 37 years old, and is now the longest serving CEO in the organization’s 129 year history. Under his tenure, the AICPA has grown to become the largest membership body of CPAs in the world and has spearheaded a number of initiatives to benefit not only the profession, but also investors, business owners, lenders and the general public. These include audit quality centers; private company reporting standards; eXtensible Business Reporting Language (XBRL); the computerized CPA exam; and two consumer financial literacy education programs.

Under Melancon’s leadership in 2011, the AICPA formed a joint venture with CIMA to elevate management accounting globally. They created the Chartered Global Management Accountant (CGMA) designation for those professionals who meet the highest benchmark of rigor and quality. Today, approximately 150,000 professionals hold the CGMA designation worldwide. Building on this success, AICPA and CIMA members in June 2016 voted to evolve the joint venture into the Association. Its mission is to drive a dynamic accounting profession around the world that powers trust, opportunity and prosperity. Melancon was named the Association’s first CEO.

Melancon is also Global Chairman of the Board of the International Integrated Reporting Council (IIRC), Chairman of XBRL-US, and a founding and current board member of both the Global Accounting Alliance (GAA) and the Center for Audit Quality (CAQ). He is a founding and current board member of the Government Transformation Initiative, serves on the board of the U.S. Chamber of Commerce’s Center for Capital Markets Competitiveness, and is a member of the delegation to the International Federation of Accountants (IFAC). During 2007-2008, Melancon served on the U.S. Department of the Treasury Advisory Committee on the Auditing Profession.

Melancon has testified for the profession before Congress numerous times, has been honored with many awards, including the 2011 National Association Executive of the Year.

Prior to joining the AICPA, Melancon served for eight years as Executive Director of the Society of Louisiana CPAs. He began his accounting career in 1979 at a small CPA firm in Louisiana. In 1984, he was elected a firm partner. Melancon graduated in 1978 from Nicholls State University in Louisiana, majoring in accounting with a minor in government. He also earned an MBA in 1983 from Nicholls State University and subsequently served as an adjunct professor of accounting at his alma mater for four years. He was also awarded his alma mater’s first and only Honorary Doctorate of Commerce in 2008.

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