Why Accounting Really Matters for Climate Change, and What You Need to Know About It
IASB has made it clear that existing accounting rules require climate to be considered where material... So what happens next?-
One reason is that, until recently, companies were able to declare profits as though climate change simply did not exist. They assumed that their newly discovered oil well could be valued as though the oil coming out of it will be sold at $80 a barrel through to 2050 and beyond. They valued a thermal power plant, or a fossil fuel engine factory, as though its future was indefinite and unchallenged by climate concerns. Indeed, in most cases they didn’t even tell their investors what climate assumptions underpinned the company’s profits – and the bonuses they paid their executives.
In an interpretation of its standards, the IASB has made it clear that existing accounting rules require climate to be considered where material, and assumptions shown. The IAASB has further clarified that climate must also be part of the audit. In other words, the historic practice of ignoring climate considerations and hiding assumptions must come to an end.