A recent survey by ACCA has found that organisations globally are attaching more importance to environmental factors and expect significant change in business practices in order to meet net-zero targets but need more support to increase access to, and awareness and knowledge of, green finance products.
The research, which ties in with the theme at the COP27 climate change conference in November 2022 of transitioning the world’s economies to carbon neutrality, reveals that a lot of organisations lack the requisite skills and expertise to develop, implement and manage robust ESG (environmental, social and governance) strategies. What is required is significant upskilling, or external recruitment from a highly competitive market with a small pool of experts.
But finance professionals are well placed to provide leadership in the training and development of skilled resources to enable transformation and to embed ESG and sustainability best practices across organisations, by considering both financial and non-financial business drivers.
It is critical that finance professionals understand green finance innovation and blended finance options
What is climate finance?
Climate finance refers to local, national or transnational financing, drawn from public, private and alternative sources of financing that seek to support mitigation and adaptation actions that will address climate change.
It is critical in the drive to enable the large-scale investments required to support recovery of nature, deliver on climate change mitigation and adaptation actions, and significantly reduce greenhouse gases.
An understanding of green finance innovations (eg green or social bonds, sustainability-linked loans, carbon credits, green investment funds) and blended finance options (eg loan guarantees, insurance), and access to them, is critical if finance professionals, are to:
- deliver sustainable development initiatives (eg new infrastructure, innovative technology solutions) that can support the decommissioning of brown assets, the transition to green economies and responsible supply chains, while providing the required return on investment
- incentivise and enable business to deliver on agreed climate-related outcomes, while providing attractive and competitive financing terms, and returns on investment.
Knowledge plus skills
The survey also found that businesses feel underinformed on climate finance opportunities and climate risk management. But finance professionals can play an essential role in helping organisations develop well-structured and derisked sustainable development initiatives and portfolios of greener assets.
They can offer support with analysis, monitoring and reporting of ESG-related financial and non-financial data covering costs, benefits, risks and opportunities. They are also able to grasp the fundamentals of carbon accounting and pricing.
Finance professionals can act as effective partners and strategic advisers to the business by upskilling in the following:
- assessing business requirements
- analysing impacts
- developing strategic action plans
- considering the evolving global financial markets landscape
- sourcing and managing green finance products
- understanding and responding to emerging global sustainability disclosure requirements such as IFRS sustainability standards, Task Force on Climate-Related Financial Disclosures (TCFD), and Taskforce on Nature-related Financial Disclosures (TNFD).
In order to prepare for the plans that organisations will have to put in place, ACCA recommends that finance professional consider the following actions:
- Support the business in defining net-zero strategies and setting targets (near term to 2030, and long term to 2050) to reduce emissions across operations and the wider value chain.
- Take a lead role in driving the green finance agenda, helping to identify, assess and advise on the costs, benefits, challenges and opportunities involved in the net-zero transition journey.
- Develop a climate finance strategy and operating model based on sustainable business models, and a sustainable investment or financing approach. Ensure skills development and knowledge-sharing on green finance across your organisation (including boards, C-suite, accountancy and finance professionals, and management).
- Enhance your understanding and awareness of green finance products (eg carbon credits, green investment funds, green bonds, sustainability-linked loans), and how to access and use these products to deliver tangible ESG and economic impacts.
- Establish appropriate policies, procedures, methods and practices to enhance ESG data insights and enable sustainability accounting and disclosures that meet requirements of key stakeholders (eg shareholders, investors, regulators, customers/clients, employees, communities).
Find ACCA and CFA Institute's CPD module on climate finance
ACCA's research will be explored in further detail in its report on climate finance, and the role of business in driving decarbonisation globally, due to be published in February 2023