Nina Johansson, CIPFA Sustainability Advisor and Henning Diederichs, ICAEW Public Sector Financial Reporting Manager
Sustainability is commonly defined as meeting today’s needs without compromising the ability of future generations to meet theirs. But sustainability covers more than just the environment – it also relates to ethical, societal and governance issues. ICAEW and CIPFA strongly advocate for the role that the finance function can play in combatting the impact of climate change across the public sector.
Climate change impact
In July 2022, the UK saw its highest ever temperature (40.3C). Large parts of Europe were similarly breaking temperature records, leading to large wildfires in Portugal, Greece, Spain and France.
What we used to describe as ‘once in a lifetime events’ are happening with alarming frequency. This sense of change is backed up by scientific data from the Intergovernmental Panel on Climate Change (IPCC) but at this stage it is still difficult to predict exactly what impact climate change will have in various regions. The UK’s prediction is for wetter winters and drier summers and so we must be prepared for these changes - individuals, business and government alike.
Public sector specific response to climate
Currently the government has issued a plethora of reports and frameworks. The most prominent is the net zero report but others cover energy, heat and buildings. Some decisions have already been made to reduce carbon activity such as phasing out gas boilers and fossil fuel powered cars.
However, these are policies aimed at mitigating CO2 emissions in line with the net zero 2050 target. What is urgently required is a dual response to both mitigate greenhouse gas emissions but to also adapt to the increasing risks that climate change brings with it.
The public sector is unique when considering the variety of services provided to the wider public and its regulatory powers in relation to the environment. Climate will impact social housing, food availability, energy costs, transport, health and education to name but a few areas. It will also affect our natural resources such as water availability and the types of flora and fauna that can survive.
The impact of climate change on both human systems and environmental systems is profound and an area that must be at the top of the government’s priorities.
Role of the finance profession
Finance and accounting professionals need to move beyond simply measuring and reporting the impact of climate change, environmental regulation, supply chain pressure and rising energy costs. They must focus on understanding those implications and integrating them into financial management and business planning.
The ability to integrate climate risks into overall operational risks is a major challenge. The finance profession will need to be able to collect data from different professions (scientists, valuation experts, biologists, meteorologists etc) and be able to understand but also challenge assumptions and projections. The importance of effective communication to both internal and external stakeholders must not be underestimated. Climate reporting should result in decision makers having all the information necessary to be effective, to measure progress and to hold those responsible to account.
Opportunities and risks must be identified and stress tested using various scenarios, including temperature rises of 2C and more. The impact of collapsed ecosystems must not be ignored – from rising sea levels to food scarcity and the mass migration of people whose land is no longer inhabitable. We need honesty, transparency and above all leadership to tackle the climate issues that exist and lie ahead.
The current focus on net zero emissions by 2050 misses the point that climate change is already happening. There is an urgent need for adaptation measures to be introduced that allow the UK to live with higher temperatures, wetter winters and warmer, drier summers. At the moment we are severely under prepared.
This is a call for urgent action from government, both at central and local level. The IPCC recommended threshold of limiting temperature rises to 1.5C is set to be broken. Temperature rises above 2.5C will mean ecosystems will collapse which will have severe repercussions on our society as a whole.
CIPFA and ICAEW share the view that the finance function has an important role to play in combating climate change. We would like to see the finance profession taking the lead for the public sector in its efforts to tackle climate change.