Milton Segal, executive director of standards for the South African Institute of Chartered Accountants (Saica), says the KwaZulu-Natal floods have brought home the devastating economic impact of climate change and why businesses need to make sustainability front and centre of their operations as a matter of urgency.
“There's been an acknowledgment by boards, audit committees and risk committees that incorporating sustainability into their strategy, their functioning and their reporting needs to happen. The KwaZulu-Natal disaster has driven home the urgency of it happening sooner rather than later.
“South African corporates as a whole are not at the point where they need to be in terms of really taking in sustainability as a key priority. Sustainability needs to be operationalised. It needs to become less of a useful discussion topic and rather something that's built into the core of each business.”
The accounting profession has a key role in this given that chartered accountants occupy leadership roles as senior board members, CEOs, CFOs and audit and risk committee chairs.
The profession is going to have to adapt to the new reality much faster than it has so far, Segal says. It needs to be doing much more to highlight the systemic and material risks climate change poses to its corporate clients.
“But the conversation has started to shift towards sustainability, and particularly climate, in the boardrooms, which are generally led by accountants.”
Through such regulators as the JSE indicating their expectations around climate sustainability reporting, things are moving in the right direction, but there's a long way to go, he says.
“There needs to be dedicated focus to emphasise corporate reporting and corporate responsibility, not just financial reporting and financial responsibility.”
There's still too much of a compliance or tick-box perspective, he says. “It's got to be from a real operational perspective.”
The material risks for businesses that don't “operationalise” climate change and sustainability measures are clear.
Investors are very quickly moving towards a climate and sustainability focus, so the ability to raise finance, to trade on an exchange, will start becoming compromised
— Milton Segal
“From a regulatory perspective they will start running into trouble sooner rather than later. From an investor perspective, investors are very quickly moving towards a climate and sustainability focus, so the ability to raise finance, to trade on an exchange, will start becoming compromised.
“Their auditors will start showing some resistance to the business being a going concern. They'll start asking if management has applied its mind fully to ensure it will continue as a going concern, are they thinking of all their stakeholders and shareholders? That's the kind of language they would start using.”
The KwaZulu-Natal floods have illustrated what the more brutal consequences could be, with the cost of damage to roads infrastructure in the province alone said by premier Sihle Zikalala to be R5.6bn and counting.
“They've made starkly clear the impact that climate change is having, the destruction that it can have, that it has the ability to shut down many, many industries, not only those that are traditionally affected by climate such as agriculture.
“They're a very vivid and very real demonstration of the impact that climate change has on society and, specifically, on corporates.”
The accounting profession has an overall responsibility to oversee and implement sustainability reporting, climate-related reporting and disclosure at a local and international level, he says.
It's a whole new set of skills and requirements for the accounting profession. “We're seeing a move away from traditional financial reporting to corporate reporting. A move to integrate the financial and nonfinancial reporting.”
The cost of damage to roads
— R5bn +
There's a lot of change that needs to happen, and it will take some time, he says. Which no-one has.
“We need to transition more quickly towards nonfinancial reporting, but specifically towards integrating the financial and nonfinancial that speaks to a far wider community of interested stakeholders than simply the old traditional shareholders or investors.”
Sustainability as a subject needs to be elevated in importance, says Segal, who was head of the financial accounting division at the Wits University school of accounting before joining Saica as head of corporate reporting in 2019.
It's a whole new ball game for older generation accountants who are schooled in “the big four” — financial accounting, managerial accounting, auditing and taxation — he says.
“Sustainability is going to have to be right up there as a fifth designated subject.”
It needs to be taught at a post-qualification as well as pre-qualification level.
“More mature members of the profession who haven't had a background in this nonfinancial landscape need to be brought up to speed with more urgency than the newer generation of accountants we see qualifying .”
Saica this month set up a sustainability technical committee to help this process and to be part of the conversation around where sustainability reporting is going globally and how SA reacts to it, he says.
In addition to upskilling older accountants, it needs to ensure that sustainability is given appropriate attention at a prequalification phase at universities.
We're not at a point yet where all businesses, particularly medium and smaller businesses, are fully cognisant of the impact of climate change on their own sustainability
— Milton Segal
“It's a paradigm-shift that needs to happen and it will take some time for us to get there.”
He says the institute is seeing growing awareness among its members in auditing practices and in corporates that there is a need to start acting on sustainability and reporting.
“There's an appreciation by business that it needs to happen. The question is, how do they go about it? And what are the cost implications?
“There's clearly an investment required from the corporates. The questions are just how big is that investment, and what would need to be put in place so that sustainability starts becoming a living part of their organisations and audit firms.”
Too many businesses are waiting to see what their competitors are doing, he says.
There's also a reluctance to go all out from a reporting perspective while waiting for developments on the international scene, “which are happening at a very rapid rate”.
South African businesses have a lot of catching up to do, he says.
“I think there's a willingness, but uncertainty about what the next move should be. We're not at a point yet where all businesses, particularly medium and smaller businesses, are fully cognisant of the impact of climate change on their own sustainability.
“There's still the belief that climate is someone else's problem, it doesn't impact my business. I think we're getting to that realisation, but slowly.”
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