Beyond the climate rhetoric

Some participants highlighted concerns that some banks were already increasing the cost of lending to companies they deemed insufficiently concerned by climate change. ‘Banks are turning off the pipeline of cash,’ said one. ‘Climate change is an immediate financial risk. Can companies survive with a much higher cost of capital?’

A roundtable member from a major financial centre in Asia saw these changes as a good thing. ‘If you want people to take it seriously, you have to hit them in the face with what they owe to the environment and make them pay it. They can choose to remodel or to shut down.’

Performance horizons

The cost of capital and capital allocation was a key concern for many participants, particularly since many economies in the region are classed as emergent. But many also had concerns that investors were being unrealistic.

‘Investors have to accept the cost of investing in net zero,’ said one. Another argued: ‘It is a fallacy that if you embark on ESG-friendly business strategies your company will perform better. Sure, there is a lot of capital-allocation switching happening at the moment while funds select leaders in the space, but as it becomes mandatory for everyone to do it, businesses will have to pivot away from what has made profits for them in the past.

‘To reduce your emissions, you have to do things that will not earn you a return in the short term, so we have to be realistic about the incentives to do this because they are not immediately financial.’

Not just policy commitments

Some roundtable members put forward possible solutions. As well as philosophically accepting lower economic growth and lower returns, they said, it was important for governments to properly incentivise the greening of business.

One participant explained: ‘In one market in ASEAN, for example, there was a huge investment in solar power generation because the government promised to buy the energy at a good price. The country jumped from 10% to 25% solar power generation in a short period of time.

‘However, these commitments were subsequently not honoured, and in addition there was no transmission capacity to get the energy from rural to high-use areas. Governments therefore need to stand behind their commitments. Policy is not enough. Implementation and planning need to be clear and to work in practice.’

The general consensus was that governments tended to wait too long and often developed policy in a vacuum. ‘There has to be a concerted effort involving all stakeholders,’ one said.

Monopoly businesses also came under fire. ‘Monopolies force purchasing behaviour that undermines climate-responsible decision-making,’ said another roundtable participant, ‘but this can come from a lack of understanding of the science.’

All participants agreed that education was key to hitting net-zero targets.

Accountants’ critical role

Some participants discussed important opportunities for accountants to help drive the agenda.

‘It’s the job of accountants to tell a story to the CEO and then to the board. If they don’t have the right data – including non-financial data – then the company cannot make the right decisions.’

However, another participant warned that one-size-fits-all environmental accounting tools wouldn’t work right now. ‘The TCFD standards are popular with multinational corporations,’ she said, ‘but they are unfamiliar in Vietnam, for example, because they are principle-based.

‘What Vietnam needs now is tools that they can implement immediately. Adoption of complex climate-related reporting standards is too challenging for some regions, and they won’t make the progress needed.’

Summing it all up, one participant declared: ‘Ultimately, business is systemic. It is an ecosystem in itself, and we need a reasonable runway to help us gather pace towards targets.

‘We cannot underestimate the amount of work that businesses have to do, and so policies and standards need to have a strong element of co-creation with the people facing on-the-ground realities. We need the proper metrics to get us out of this mess.’

‘Accountants are the gatekeepers of the money,’ said another, ‘and there are huge financial opportunities here for them if they are willing to take a truly multidisciplinary approach.’