CH 7+9: Accounting for Climate-change Risk ESG & Data Issues

Data: definitions, collection, verification, interpretation, auditing

Shell: will sell energy to only those companies that also have “cradle to grave net zero” plans in place.

ensure that oil and gas companies disclose their “Scope 3” emissions which is CUSTOMER EMISSSIONS.

Bank & Asset Managers: "Financed Emissions"

• Oil and gas
• Power generation
• Large scale farming
• Cement production etc.

BANKS' SIN RATING

League Table

PARTNERSHIP FOR CARBON ACCOUNTING FINANCIALS (PCAF)

SCIENCE-BASED TARGETS INITIATIVE (SBTi)

WHAT ROLE FOR FINANCIAL INDUSTRY?

The new (October 1, 2020) SBT initiative is designed to enable financial firms to invest responsibly.

• The worst polluters have not signed up.
• focus is less on the risk to financial firms PORTFOLIOS (though that is important also, of course) but on the extent to which financial firms can DRIVE climate change mitigation through the lending and investing DECISIONS.

IMPACT WEIGHTED ACCOUNTS INITIATIVE (IWAI)

IMPACT INVESTING refers to investments "made into companies, organizations, and funds with the INTENTION to generate a MEASURABLE, BENEFICIAL SOCIAL or ENVIRONMENTAL IMPACT alongside a financial return".

(IWAI) is attempting to find an appropriate way to incorporate PRODUCT IMPACT, as well as risk and return into our financial accounting system

Monetary VALUATION of IMPACTS and their incorporation into accounting statements will explore whether MONETIZATION, as a form of valuation:

1. Translates all types of social and environmental impact into comparable units that business managers and investors intuitively UNDERSTAND;

2. can be meaningfully aggregated and compared without OBSCURING important details needed for DECISION-MAKING;

3. displays financial and impact PERFORMANCE in the SAME accounts, allowing for the use of EXISTING financial and business analysis TOOLS to ASSESS corporate performance.

DISCLOSURE STANDARDS & REPORTING FRAMEWORKS

SASB MODEL

Sustainability Accounting Standards Board (SASB)

similar to TCFD, SASB looks at three primary drivers of financial impact: revenues and costs, assets and liabilities, and cost of capital.

GLOBAL REPORTING INITIATIVE (GRI)

In October 2016, GRI launched the first global standards for sustainability reporting

• Developed by the Global Sustainability Standards Board (GSSB)
• GRI Standards enable all organizations to report publicly on their economic, environmental and social impacts – and show how they contribute towards sustainable development.

The Finance Industry Transition to Sustainability: Climate Science, Societal Issues, Regulation & Accounting
Chapter 2: The Paris Agreement, 1.5 Degree Target versus Net Zero Target