By CPA Victoria Wambui Chege
Why It Should Be the Accountant’s Concern
It is a Friday afternoon, the last Friday of November 2024. There is a heavy downpour lasting about an hour or so. Road users of the Thika -Nairobi superhighway are distressed due to a bad traffic snarl. This time, it was caused by a unique phenomenon: flooding. On the same day, Ahero, an area in western Kenya, is almost completely submerged in water, and other roads in Nairobi are impassable. In other places, people who initially lived near some lakes and rivers were involuntarily dislocated to unfamiliar habitats, probably on higher grounds.
Temperatures are rising, food security is questionable, many plant, animal and aquatic species are already extinct, disease-causing pathogens have mutated, and tropical diseases like malaria are on the rise. Mountain peaks with zero human encroachments are not spared either. The snow caps on Mt. Kilimanjaro and Mt. Kenya have shrunk. All this is happening while the accounting fraternity maintains its focus on balance sheets and ratios, enhanced compliance to standards and audits, and everything else accountants do.
As usual, many people may be oblivious to the future of their prestigious profession in a dilapidated, inhabitable earth damaged by climate change.
People have different perceptions about climate change because they experience it differently. The simple science behind climate change is that the world receives energy from the sun and emits some of the energy back into the atmosphere. Climate change is the shift in temperatures and weather patterns due to natural or human factors. Natural factors such as significant volcanic eruptions are unusual; human economic activities have been the main force behind climate change, mainly through the emission of greenhouse gases. While greenhouse gas emissions led to a rise in global temperatures, pollution affects biodiversity, ecosystems, the general aesthetics of the environment, and the quality of air, among other effects. The earth is a connected system; thus, a simple thing such as a rise in atmospheric temperature can influence changes in many different areas. The earth is also a closed system where many naturally occurring elements are depleted due to the population increase. These global concerns on climate change led to the United Nations framework on climate change, commonly known as the KYOTO protocol, an international treaty on climate change signed in 2016 known as the Paris Agreement and several COP (Conference of Party) meetings, with the latest being the COP29.
The main goal of these climate-related frameworks and conventions is to hold the increase in global average temperatures at 1.5 %. According to the Intergovernmental Panel on Climate Change, crossing this mark would result in severe climate change impacts, including more severe heat waves, droughts, flooding, diseases and food insecurity. To mitigate against such catastrophic effects, people and countries need to participate in significantly reducing emissions. In addition, these conferences reaffirm the need for climate financing to minimize the dangers of climate change because large-scale investments are required to reduce emissions significantly.
The Institute of Public Finance opines that Kenya requires an investment of up to 62 billion USD by the year 2030, which will be raised from both public and private sources. Such money is not easy to raise for a country whose 63% of its people live below the international poverty line of USD 2.15 per person per day in 2024, as defined by the World Bank. This is where the accountant’s role comes in because they are the fiduciary agents for the meagre climate resources that could or will be availed.
Accountants can no longer afford to stick to their traditional roles of bookkeeping and balancing figures, oblivious to the global dynamics of climate change. Instead, they should be at the forefront of combating climate change and promoting environmental sustainability. The environment is unforgiving if not well preserved, and accountants should be mindful of this when accounting for climate finances. This is an area where ethics in the profession should be 100% applied, creative accounting should not be allowed, and the bar of professionalism should be raised higher. The rest of our future generations pay the ultimate price. There are many roles that accountants, well-armed with relevant tools of the profession, can play at the front line of the war against climate change.
Accountants should not just account for climate finances but evaluate the impact of the finances as far as the intended purpose is concerned. They should not just post ledgers and balance books but be actively involved in projects that benefit from climate finance allocations. They must ensure there is value for money, no deviation of climate finances to non-climate related projects and no free lunches with respect to climate finances. They need to build their capacity on climate change and environmental sustainability. Being the fiduciary agents of climate finances, enhancing their capacity on the subject is advantageous to them, their governments, the environment, and future generations.
Accountants must engage in research and innovate credible policies regarding the environment and its sustainability. They have to act as the influencers of reason and get away from the noise and discontentment of profit-seeking individuals and corporations in climate discussions so that they provide optimum policies that maximize social welfare. They must evaluate between taxing emissions or developing carbon markets through carbon credits and carbon offsets, cap and trade systems or combinations of different strategies all aimed at reducing emissions. However, while there are global strategies under consideration, accountants should innovate local strategies that are inclusive and highly impactful to the immediate society.
In cost accounting, accountants should never ignore the cost of externalities in costing their products and services. Failure to internalize the said costs does not give the actual cost of production, thus resulting in higher marginal private benefits to the producer compared to the marginal social benefit to society. On the other hand, internalizing the cost of emissions ensures that the marginal social benefit to society is higher or equal to the marginal private benefit of the producer. This way, the producer and the society are at their optimal Pareto. They should be the strategic business advisors on environmental sustainability. They need to ensure investment in pollution abatement equipment and that there are budgets towards reducing emissions. They are critical in developing waste accountability and ethical disposal policies. They must actively participate in strategic planning and implementation. More importantly, they should advise their entities to budget, finance, monitor, and evaluate impactful environmental sustainability projects and programs of choice.
Accountants should cultivate climate-resilient processes and procedures within their workplaces, such as water and power conservation, reduced paperwork through automation of processes, allocating climate finance targets, innovations and collaborations with other professionals to tackle this global challenge. They must embrace and adopt IFRS S1 and IFRS S2 with prompt attention. They are required to be objective in identifying sustainability-related risks and opportunities, coming up with data-driven metrics and targets and conducting climate-related scenario analysis for fair presentation in their financial statements. Though early adoption of the standards is allowed beginning January 2024, and entities have been allowed time to build the capacity necessary to report consistent, complete, comparable and verifiable sustainability-related financial disclosures, accountants should take an early lead rather than lag in implementing these standards.
The Institute of Certified Public Accountants regulates the profession and ensures that fiduciary agents are well-trained and certified for practice. This includes engaging accountants in robust, continuous capacity development programs on environmental sustainability. It is through outcome and impact-based accountability of climate finance resources that will see accountants contribute to the global call to halt the rise in global temperatures thus safeguarding the environment for future generations.
I partially quote the Senegalese president Bassirou Diomaye Faye.” I don’t really want my picture in your offices; instead, put the pictures of your children so that you will look at them whenever you are about to take a decision”. As fiduciary agents who will be called upon to manage climate finances, maybe accountants shall need to put the pictures of their loved ones in their workspaces, those who will be the ultimate sufferers or ultimate beneficiaries of either poor or well-managed climate finances, so that they will look at them whenever they shall be required to take a climate finance decision.
The writer is a Senior Accountant-Tax at the Independent Electoral and Boundaries Commission of Kenya, an accountant in agribusiness and a student of Development and Environmental Economics at the University of Nairobi.
The views are of the author not of the university of Nairobi or the Independent Electoral and boundaries Commission.
