How management accountants can lead the journey to carbon net zero

Finance leaders have a key role in the move towards climate-friendly economies.
How management accountants can lead the journey to carbon net zero

As world leaders push for action to prevent climate change, management accountants have a critical role in the journey to carbon net zero because of their ability to set targets and devise strategies for reaching those targets.

In December, UK-based Accounting for Sustainability (A4S), an organisation that aims to help finance leaders drive the shift to resilient business models and a sustainable economy, held its virtual 2020 Summit. One of its speakers — on the subject of sustainability reporting — was chartered accountant Russell Picot, chair of HSBC UK pension fund trustee board and the bank’s former group chief accounting officer.

In a subsequent interview with FM, Picot explained the steps companies should take towards climate-related reporting and management accountants’ role in that journey.

Impetus for change

Governments and regulators throughout the world have expressed support for initiatives to battle climate change.

In his financial services statement in November in the UK Parliament’s House of Commons, Chancellor of the Exchequer Rishi Sunak announced the intention “to mandate climate disclosures by large companies and financial institutions across [the UK] economy, by 2025”. HM Treasury at the same time set out a road map of an “indicative path” towards this goal.

It was a bold move — an important tool for ensuring progress towards a carbon net-zero economy by 2050, a target legislated by the UK government in 2019.

The European Commission also recently proposed an initiative aimed at cutting the EU’s greenhouse gas emissions by 55% by 2030, with a goal of becoming climate neutral in 2050. And in the US, Allison Herren Lee, a commissioner with the Securities and Exchange Commission, has urged the development of climate risk disclosure requirements.

In this environment, management accountants will have the opportunity to help their organisations meet compliance targets and deploy climate-friendly strategies.

Board-driven process

Picot, who is special adviser to the Task Force on Climate-related Financial Disclosures (TCFD) and worked on the setting up of A4S in 2004, said that “tackling sustainability and … to begin sustainability and climate change risk reporting needs to be a top-down process driven by the board”.

The boardroom discussion, he explained, is not only about the reporting obligation — “in many ways the tail end of the journey” — but also about the impact of climate change on strategy and the business model.

The TCFD’s 2020 Status Report revealed that disclosure of TCFD-aligned information increased by six percentage points, on average, between 2017 and 2019. However, the report said that “companies’ disclosure of the potential financial impact of climate change on their businesses and strategies remains low”, with only one in 15 of the companies reviewed for the report disclosing information on the resilience of its strategy.

Boardroom conversations on sustainability could be difficult if there is not expert knowledge on the topic around the table, and board members could also be resistant to discussion, Picot said.

He advised board members to:

  • Look to examples in the business and investment community to understand what peers are doing.
  • If the board does not carry expert knowledge in this area, consider appointing an external adviser to lead the board on its journey.
  • Consider the role of the audit committee in discussing climate-related reporting. Picot said climate-related disclosures should go through very similar processes to the financial statements — which in most companies are the province of the audit committee working on behalf of the board. The board’s risk subcommittee may also be involved in the process.

Smaller companies

Smaller companies, often less complex than larger ones in terms of “geographical reach or multiplicity of business lines within their enterprise”, should also consider the same advice, Picot said. “A well-run small company needs to think through the impacts of climate change risk … and that might include, for example, if you have a global supply chain, thinking about the increasing risk of physical disruption to that supply chain.” The cost implications “if meaningful carbon taxes are imposed” also need to be looked at.


Some larger corporates, Picot said, will have their sustainability reports externally assured, but first, management needs to have its own assurance process. The audit committee can ask the CFO to “own the numbers” in the same way that he or she owns the numbers in the financial statements.

Picot explained: “Finance people bring rigour to such processes. They make sure that all the subsidiaries are reporting … that there's some sort of systematic well-organised manner to collect the data. That's really important, and it's not a given if the finance function is not involved.”

The audit committee can also seek external “private comfort on the numbers” — a look at the processes and also “the scope and actual numbers themselves”.

Then, a formal external assurance opinion can be sought “when everyone is comfortable with the process, and numbers are reliable and robust”.

Transparency also benefits companies in their ability to access capital. Picot explained: “There'll be sectors where capital will be either constrained within the sector or indeed constrained for the sector,  and when you're competing for capital, then being transparent about what you need in terms of forward-looking capital is really important.” He added: “So I see benefit to companies getting on the front foot and going early with these disclosures.”

Management accountants’ role

Management accountants and the wider accounting community with their understanding of the power of setting targets have an important role here in helping business leaders achieve progress. Their role is two-fold, Picot suggested:

  • Facilitate a conversation about the company’s response to climate change. “TCFD is about integration of thinking,” Picot said, so bringing together “the principal actors”, including operations, strategy, and finance, to talk regularly is helpful because it breaks down silo-based barriers.
  • Understand your strategy to reach the UK’s legal requirement of net-zero carbon emissions by 2050 and put in place milestones — for example at 2025 and 2030 — to achieve this. Picot said: “It's very difficult to have a 30-year target and to meaningfully handle that because we all work on much shorter time scales — as the accounting community knows.”

Oliver Rowe ( is an FM magazine senior editor.


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