This article was was originally published on ICAEW.
“Mark Gough, Chief Executive Officer of the Capitals Coalition, says Paris alignment is important, and for it to be successful, it must address climate, nature and people.
“‘An equitable, nature-positive and carbon-neutral future’, is a phrase that you will be hearing more and more,” says Gough. “We cannot look at climate in isolation. Nature, people and climate are all interdependent and we can’t solve one without the others.”
He points out that accounting will play an essential role in delivering the Paris Alignment as it is needed to robustly inform decision-making. “Including the value of a stable climate, healthy ecosystems and thriving communities, is as important as including the financials,” says Gough.
As to whether the accounts are adequate as a reporting mechanism in the context of Paris alignment, Gough says: “I would argue that most of the information that is included in the accounts at the moment, doesn’t provide enough ‘useful and relevant’ information (as defined through the IFRS Conceptual Framework). The figures included in accounts will tell us the number of things, e.g., 1,000 tonnes of carbon dioxide, but not what this means to society or the business.”
Making information meaningful
There are ways to make this information more valuable though and the Capitals Coalition is curating efforts around the world to advance practice and application in this area, with significant and growing success. The work is based around the idea of capital, or a stock of value that can be invested to create ‘returns’. But instead of thinking of just financial capital the concept has been expanded to cover natural, social and human capital as well. As with financial capital, if we withdraw too much from the capital stock, we will limit its ability to provide us with value into the future. If we invest in the stock and use it wisely, we increase its ability to create value for both current and future generations.
We have been severely depleting our global stocks of natural capital and this is leading to the collapse of the ecosystems that both our social and economic prosperity depend on.
How do you include this less tangible value that you receive from nature and people into your accounts? “Well, there are lots of people within our community that are working on this question.” says Gough. The Natural and the Social and Human Capital Protocol’s provide internationally accepted frameworks to identify and measure this value, and to use it to inform decision-making. Sector guides and supplements already exist for the Protocols, and they are now being strengthened further with recommendations for standardization, which will provide consistency around what and how to include it.”
“And explaining the numbers becomes particularly important in regard to climate change” says Gough, “because it affects us all. A stable climate is a global shared asset, and therefore we all have a role to play in protecting it as well as adapting to the changes we are already seeing.”…”