Businesses must evaluate long-term assets’ economic lives (ICAEW interview April 2024)

Jose Hopkins, Founder and CEO of Simplify Climate, spoke to ICAEW in April 2023 to raise the importance for businesses to immediately evaluate long term assets economic lives, as a result, of the UK Government net zero target of 2050 (this impacts all companies business models) and the changes in extreme weather we are experiencing.

In this article, Jose emphasised the importance of companies fully disclosing the measurement approach of their scope 1, 2, and 3 emissions. When businesses disclose in their sustainability reporting "aligned with the Paris Agreement goals" this must include information as to the approach for all scope emissions in their carbon emissions reduction.

Suggesting that inadequate reporting may lead to accusations of greenwashing and could result in stakeholders withdrawing capital due to dissatisfaction with the company's climate strategy. He further stresses that companies should prioritise reviewing and assessing the climate related risks associated with buildings and physical assets because these are the first to be impacted severely by extreme weather events (i.e. flooding, heatwaves etc.).

When evaluating the useful economic life of their physical assets, businesses must also consider the existence of potential impairment indicators affecting the valuation of long term physical assets as the timing of their useful economic life may not align with the net zero commitments issued by the business.

Jose further discusses the importance of defining "sustainability" and "ESG" internally and externally and to ensure management is developing appropriate governance structures to support these definitions and reporting ambition. This also includes documenting climate related judgments affecting the preparation of financial statements in their internal accounting working papers supporting disclosures. 

Jose raised the importance of engaging with critical stakeholders (such as the business bank and insurance provider) to understand their ESG expectations and related commitments. For example, insurance companies have visibility as to how insurance premiums are increasing in climate-affected UK regions. If companies have an understanding of their key manufacturing sites and key locations affected by incremental climate risks, they can implement monitoring controls to manage these risks effectively.

For the full article, see the link below to the ICAEW website: 

https://www.icaew.com/insights/viewpoints-on-the-news/2023/apr-2023/businesses-must-evaluate-longterm-assets-economic-lives

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Phase 1 "The ESG Doctor" diagnostic assessment which covers:

(a) What is affecting your business model now? Climate and nature initial qualitative risk assessment. 

(b) Initial qualitative assessment on your cost saving and potential opportunities.

(c) Where you are versus where you need to be? Your existing strategic, sustainability, accounting and reporting policies are calibrated against your current and future sustainability regulatory requirements and stakeholder expectations.

(d) What is the initial carbon reduction plan, accounting and reporting considerations you need to consider

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