By Alan Johnson, President of the International Federation of Accountants (IFAC), and Datuk Bazlan Osman, President of the Malaysian Institute of Accountants (MIA)
The UN Secretary-General Antonio Guterres put the climate crisis in context during his address to world leaders at COP26 in November last year: the 2020s, he said, is “the critical decade.” Global warming beyond 1.5 degrees Celsius will mean irreversible environmental catastrophe, and currently greenhouse gas emissions through 2030 are projected to exceed that level. “The critical decade” has begun. In fact, we have only three-quarters of it left — and we have already reached 1.1 degrees of warming.
How we choose to spend the rest of the decade — and whether we find a way to meet the urgent demand and need for non-financial information — will decide our future both in Malaysia and globally.
State of Play and How the Global Accountancy is Best Positioned to Lead
COP26 led to significant commitments to mitigation, including the adoption of the Glasgow Climate Pact in which nations agreed to strengthen their 2030 emission reduction targets to align their policies more with the Paris Agreement. If climate action and mitigation efforts are to succeed, then the accountancy profession must help lead the world from commitments to implementation — starting with institutionalizing ESG measures.
Specific plans, with clear measures and targets, need to be made to cover every step of global and local climate action strategies. Professional accountants have the skills and competencies that are critical for connecting financial and sustainability information, including a grasp of business models, risk management, systems & processes, and performance measurement — along with growing specific knowledge of ESG factors and the ability to collaborate with experts.
As global demand for regulatory guidance on ESG reporting standards increases, so does the need for sustainability assurance services — and for trust in the non-financial information being reported. Seated at the center of information flows and decision making, professional accountants are uniquely positioned to capture, analyze, report on, and assure sustainability information.
And the accountancy profession has a global reach like no other profession: as strategic advisors and business partners, our duties extend broadly to ensure the needs of global capital markets, global clients, and global supply chains are met. We also have a public interest mandate — as a regulated profession, professional accountants everywhere are subject to an ethical code and public oversight, and act with professional judgment, skepticism, and independence.
The Malaysian Agenda
As a member of ASEAN and a COP signatory, Malaysia has announced its own commitments to climate action and net zero targets. The Government has even stressed that the climate change and green technology agenda is a national priority, and the commitment is further emphasized in the 12th Malaysia Plan (12MP) – fundamentally to spur sustainability.
The national statement at COP also highlighted the country’s aspiration to achieve net zero GHG emissions as early as 2050, subject to findings of the Long-Term Low Emissions Development Strategy to be finalized by the end of 2022 by the Ministry of Environment and Water. Mindful of the above, MIA has been actively advocating that accountants upskill their competencies and drive climate action towards net-zero — specifically in the key areas of disclosure, sustainable growth, and climate governance.
We expect climate disclosure demands to rise as more companies adopt net zero targets to comply with the 2050 national target — and as external GHG emissions limits are imposed by more trading partners, authorities, and regulators in other jurisdictions.
Climate-related measurement, disclosure, and assurance will be urgently required, and this is where accountants can upskill and leverage their domain expertise in corporate and financial reporting to add value.
Firstly, to ensure sustainability goals are met, accountants can guide businesses to capitalzie on emerging opportunities from a net zero growth strategy, including investment and trading opportunities. One key development in the pipeline is the implementation of the voluntary carbon market before it transitions to the Domestic Emissions Trading Scheme.
As Malaysia draws low carbon investments into the country, this will not only enhance the credibility and international competitiveness of Malaysian products and enable access to sustainable financial resources for Malaysian entities, but also will educate accountants on the implications of these developments.
Secondly, accountants can drive good climate governance backed by the profession’s values and integrity. In Malaysia, the Government has announced plans to strengthen climate change governance in the country through measures such as the establishment of the National GHG Centre to improve transparency in climate change data and information reporting.
The accountancy profession can collaborate with key stakeholders to provide advocacy and expertise on disclosure and assurance for good climate governance. By doing so we can also support sustainable nation-building.
The Road Ahead – Challenges and the Pathways to Net Zero
Ultimately, to drive meaningful climate action, the accountancy profession must set out to advocate for smart sustainability-related policymaking & regulation. What rings equally true is the call for greater cooperation from the global and local accountancy profession. IFAC and MIA will continue to collaborate innovatively together and with our stakeholders for the betterment of the profession and business in the climate and sustainability space.
Whether it is Malaysia or around the world, future prosperity depends on how effectively the world’s public and private organizations can adopt and integrate ESG factors into their planning, strategies, operations, and disclosures.
By championing an integrated mindset and breaking down information silos within companies, professional accountants can bridge the gap between financial performance, risk management and ESG considerations to ensure the resilience of businesses, and society, as a whole — through sustainable value creation, trust and fairness in institutions, a healthy natural environment, and economic revival.