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The climate crisis is no longer a distant challenge, it’s here, reshaping our planet and how we do business.
As accountants and environmental, social and governance ("ESG") practitioners, you’re at the frontline of ensuring businesses understand the financial implications of these changes.
In this blog, our CEO Jose Hopkins ACA provides a summary of 2024’s key climate change trends and their impact on accounting and reporting, framed with practical considerations.
Global temperatures break records
The UN calls it the "era of global boiling," and the data backs it up. In 2024, global temperatures have risen 1.62°C above the 1850-1900 average. This means higher risks to infrastructure, supply chains, and employees, especially in regions like Southern Europe, which faced 60 days of “very strong heat stress.”
Accounting considerations:
Impairment testing: Prolonged heat can damage assets like buildings and equipment. Review their value in light of heat-related operational risks.
Employee provisions: Rising temperatures may lead to increased costs for health and safety measures, which need to be reflected in employee benefit obligations.
Oceans heating and extreme rainfall
Warmer oceans have supercharged rain clouds, causing intense rainfall and flooding. Between 1994 and 2023, 61% of global land saw more extreme rainfall compared to earlier decades.
Accounting considerations:
Inventory losses: Floods can destroy stock, necessitating write-downs. Ensure inventory valuations reflect potential climate risks.
Insurance premiums: Rising flood risks mean higher insurance costs. Include these in your financial forecasts and disclosure notes.
Drought and water scarcity
Droughts are also increasing, with nearly half the global land area affected for at least one month this year. Industries dependent on water—like agriculture—are feeling the strain.
Accounting considerations:
Revenue risks: Disrupted supply chains can lead to delays or cancellations, affecting revenue recognition. Adjust projections where necessary.
Provisioning for disruptions: Plan for increased costs or penalties from supply chain interruptions, and reflect these in provisions.
Greenhouse gas emissions continue rising
Despite global agreements, emissions from fossil fuels are expected to rise by 0.8% in 2024. Carbon dioxide concentrations have hit 420ppm—51% higher than preindustrial levels.
Accounting considerations:
Carbon liabilities: Businesses operating in regulated markets must account for carbon pricing or emission-related taxes.
Disclosures: Climate-related risks, aligned with ISSB standards, must be transparently disclosed in financial reports.
Sea levels and ice loss
Melting ice and rising sea levels threaten coastal infrastructure, while Arctic changes may intensify heatwaves and floods elsewhere.
Accounting considerations:
Asset retirement obligations: Coastal infrastructure may require earlier-than-expected decommissioning. Account for these costs now.
Property revaluation: Properties in at-risk areas may need downward revaluation to reflect flood risks.
Progress in renewables and electric vehicles
There’s good news: renewable energy capacity hit a record 3,870GW in 2023, and EV adoption continues to grow globally. But progress remains uneven, with developing nations lagging behind.
Accounting considerations:
Capitalising renewables: For companies investing in renewable energy, ensure costs are capitalised appropriately under relevant standards.
Depreciation of EVs: Review depreciation schedules for electric vehicles, which may differ from traditional vehicles.
Why It matters to you?
Climate change is transforming risks into financial realities. As accountants, you’re key to helping businesses understand and adapt to these changes. Whether it’s valuing assets, managing liabilities, or improving transparency, your expertise ensures organisations can build resilience and find opportunities in sustainability.
How Simplify Climate can help you
Struggling to keep up with and/or integrate climate change, social impact and sustainability? Simplify Climate is here to support you. From providing clarity on regulations to offering tailored solutions, we aim to make climate action simpler and more accessible.
Reach out to us at help@simplifyclimate.co.uk to learn how we can help.
Together, we can turn these challenges into opportunities. Let’s simplify climate action and shape a resilient future!
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