Green economy risk reporting: a catalyst for change

The prime minister’s ten-point plan for a green recovery builds on last week’s announcement by the Chancellor Rishi Sunak of the UK’s intention to make climate disclosures mandatory for large companies and financial institutions by 2025. It is undoubtedly a positive step in the right direction and highlights how finance can impact the world far beyond the economy, but it will be critical to measure for success.

Many businesses showed during the pandemic that they could pivot to a new normal. Let us not underestimate that they could surely start making some positive changes now in response to the global shift to a greener economy and the Government’s desire to accelerate change.

Sustainability reporting is going mainstream

Transparency and accuracy of sustainability reporting is becoming increasingly important. Investors, shareholders and customers alike are demanding that organisations step up their game on climate-related and wider environmental, social and governance reporting. The organisation of which we are a founding member, the International Integrated Reporting Council (IIRC), would be an appropriate body to task with providing such framework and implementation support.

As we continue to fight through the pandemic, some may think that we have more immediate matters we need to focus on, as if climate change is secondary. Surely, we should focus on both because they are clearly interdependent.

To build better business and societies, we cannot afford to wait until 2025 for organisations to accurately start assessing and disclosing corporate climate-related risks and opportunities. We must start managing and integrating these factors into corporate decision-making now if we truly aim to reach the UN Sustainable Development Goals by 2030 and the UK Government net zero target by 2050.

Where do we start?

We should of course strive for excellence by continuing our work to develop a unique, global and purposeful climate risk reporting framework and its associated standards. This should be our aim, but it won’t happen overnight.

So what should be do in the meantime? A good starting point is to read the recommendations released by the Task Force on Climate-related Financial Disclosures (TCFD).

These are structured around four main areas: governance, strategy, risk management, and metrics and targets. They can be applied to organisations across sectors and locations, making it easier for organisations to ensure best practices when evaluating and reporting on climate-related risks.

If you take out the specific climate references from the TCFD recommendations, it also provides a broader sustainability framework that can work with any of the core elements of sustainability, whether environmental protection, social inclusion or governance. This could also prove quite valuable as we put a greater focus on business resilience and sustainability in the post-pandemic world.

The importance of finance professionals

Finance professionals have a key role to play in driving sustainable strategic and operational decisions, including risk management. We do this by providing better accounting and management information, including financial and non-financial measures. Organisations can then confidently take important decisions based on relevant data and information.

Finance professionals can help organisations understand the scale of the problem, come up with viable solutions and ensure they are properly implemented. They have a pivotal role in providing business intelligence to support strategy and influence decision making. Without the rigour and business acumen of the finance function, it may prove impossible to truly embed sustainability into “business as usual”.

We cannot afford to wait. Pushing back the deadline is not the answer. What we need are multiple, linked policies which we can start implementing immediately. We must also keep our focus on creating an internationally recognised, comprehensive framework to make sure that organisations systematically and consistently report on the impact of climate-related risks and opportunities. If we are to achieve long-term, positive change, we must connect the dots between our past, our present and our future. Transform today to thrive tomorrow.