The case for building climate reporting into financial accounting
Introduction by Professor Leonard Seabrooke (Copenhagen Business School) and Professor Richard Murphy (University of London)
There is a crisis created by global warming. It is now acknowledged science that this has been created by human activity, largely as a consequence of the burning of fossil fuels, much of which has been undertaken in the course of commercial activity. Despite this, many of the calls for social, economic and environmental reform, such as those described as the Green New Deal, have very little at all to say about how private sector commercial activity will be impacted by the transition to a net zero carbon economy that they propose. In this think piece we suggest that sustainable cost accounting (SCA) might provide a mechanism to address this deficiency by integrating the impact of climate change into the financial statements of major commercial organisations.
For mitigation efforts against climate breakdown to be effective they need to bring in the private sector in a meaningful way. Current standards for financial reporting for commercial organizations focus on the interests of capital suppliers to the exclusion of other stakeholders and civil society. These stakeholders include the suppliers of capital, trading partners, employees, regulators, tax authorities, and civil society. So far initiatives to include environmental and social costs have been additive rather than substantive. In this think piece we offer a radical proposal in the form of sustainable cost accounting (SCA). As a standard SCA would build on existing accounting principles to require commercial organizations to report on how they will manage the costs of becoming net carbon zero compliant. SCA does not include carbon pricing or the cost of offsets. It would require the commercial organization to establish the costs of the transition to carbon neutrality. Regulatory requirements, enmeshment in transnational standards, and adequate auditing would implement SCA. If SCA was mandatory and comprehensively applied it would take a significant step in bringing business onside in addressing climate breakdown.
Please read the complete think piece here (pdf)
Leonard Seabrooke is Professor of International Political Economy & Economic Sociology in the Department of Organization at the Copenhagen Business School. His work has been published in American Sociological Review, Journal of European Public Policy, Review of International Political Economy, Public Administration, and many other journals. His most recent volume is Professional Networks in Transnational Governance (edited with L.F. Henriksen, Cambridge University Press 2017). email@example.com
|Richard Murphy is Professor of Practice in International Political Economy at City, University of London and Director of the Corporate Accountability Network. He has advised governments throughout the world and numerous international organizations and professional bodies on tax policy. He has worked extensively on the issue of Country by Country Reporting. He is the co‐author of Tax Havens: How Globalization Really Works, published by Cornell University Press. firstname.lastname@example.org|