A story approach can help small companies with green reporting

“In some cases, especially for small and medium-sized businesses, it’s not really necessary to do a complex quantitative analysis of scenarios,” says Eskham.

“Many people think they may need specialists to engage in complex climate modeling.

“However, a qualitative approach can be taken that describes the scenario of global warming of 1.5 degrees or higher and the impact on their supply chains and ultimately their business. Our starting point is that this is a story that can be told narratively, highlighting qualitative rather than quantitative information.”

An example of this would be to analyze the scenario around the real estate business in different locations.

“One of the requirements is to describe the physical risks from climate change that you might face,” Askham says. “If you own a property in a particularly cyclone-prone area, those risks will be different to a property business in the Sydney CBD.

“There is evidence that it is virtually impossible to quantify some types of physical risks at the postcode level as well,” he says. “In that case, it’s actually better to write a narrative supported by publicly available government data, to tell a story — and there’s a lot of government data to back it up — about the impact of climate change on a particular area.

“Telling this narrative often provides a stronger and more believable story than trying to, for example, model changes in the likelihood and impact of a cyclone in a particular geographic location.”

He says the new requirements — with a focus on “climate first, but not just climate” — give small companies the ability and flexibility to eventually also report on social impacts such as gender equality and modern slavery.

According to him, Grant Thornton uses a step-by-step approach to its clients, removing their fear and creating education around mandatory reporting.

“We don’t want to force companies to pay year after year for consultants to prepare their reports,” says Askham. “We want to teach companies how to report on their own so they can continue to build on what they’ve learned and produce better reports every year.”

According to him, customer feedback on this approach was “mostly positive.”

“To help the client understand what some of those risks and opportunities might be, we bring together people from different companies who understand the supply chain and customer base better than we do,” Askham says. “Then they tell us what’s relevant, and we help them determine what’s essential.

“It’s a really collaborative approach that we’ve taken.”

“This collaborative approach is key,” says Dr Tanya Fiedler from UNSW’s Institute for Climate Risk and Response, who recently chaired research published in collaboration with climate scientists on using story lines for business.

“The term ‘storylines’ can be misleading because it implies a narrative constructed only through imagination,” says Fiedler.

“However, the concept was developed in climate science as a way of conveying the causal relationships that cause climate extremes such as cyclones to change in the uncertain future.

It is important, she says, that such narratives are based on hard science – models, historical observations and expert judgments.

“In this way, storylines have four advantages over quantitative models. First, when developed in collaboration with experts, they provide more information useful for decision-making about those types of climate impacts for which models have low confidence,” says Fiedler.

“Secondly, as a decision-making tool, they are better able to make the uncertain future tangible than numbers. Third, when developed in collaboration with climate and other forms of expertise, they provide an opportunity for mutual learning.

“Ultimately, they contribute to more transparent information disclosure than proprietary models for which the underlying assumptions are unknown. As such, story lines are a much more powerful strategic tool for financial decision-making and reporting.”

Askham says that while the new reporting requirements present challenges, they also offer huge opportunities, particularly for accounting and auditing professionals.

“We are doing a lot of retraining of our existing audit and financial reporting professionals to understand these new obligations and this is an opportunity to re-energize them and get them excited about accounting and auditing,” says Askham.

“The future of accounting and auditing is in the non-financial space, in particular with emissions calculations. Reported information should be subject to the same level of scrutiny as traditional financial information.

“We see this as an exciting avenue for the profession.”

To learn more, visit Grant Thornton.