Storyline approach can help smaller companies with green reporting

“In some cases, particularly for smaller and mid-sized businesses, doing a complex quantitative scenario analysis isn’t actually required,” says Askham.

“Many people think they may need specialists to engage in sophisticated climate modelling.

“However, it’s possible to take a qualitative approach which describes a 1.5 degree or higher global warming scenario and the impact on their supply chains and ultimately their business. Our starting point is that it’s a story that can be told narratively, highlighting qualitative rather than quantitative information.”

An example of this could be a scenario analysis around a business with properties in different locations.

“One of the requirements is to describe the physical risks from climate change that you might face,” Askham says. “If you’ve got properties in a particularly cyclone-prone area, those risks are going to be different to a business with properties in the Sydney CBD.

“There’s evidence that it’s not actually possible to quantitatively measure some types of physical risks at a postcode level as well,” he says. “In that case, it’s actually better to describe a narrative supported by publicly available government data tell the story – and there is plenty of government data to support it – about the impact that climate change could have on a particular area.

“Telling this narratively often provides a stronger, and more plausible, story than trying, for example, to model changes in cyclone likelihood and consequence at a particular geographic location.”

He says the new requirements – with a focus on “climate first, but not climate only” – offer scope and flexibility to smaller companies, allowing them to eventually also report on social impacts such as gender equality and modern slavery.

Grant Thornton takes a step-by-step approach with its clients, extracting the fear and building education around mandatory reporting, he says.

“We don’t want to make companies pay for consultants year after year to do their reporting,” says Askham. “We want to teach businesses how to do the reporting themselves and they can continue to build on what they learn and create better reports each year.”

Feedback from clients on this approach, he says, has been “overwhelmingly positive”.

“To help a client understand what some of those risks and opportunities might be, we’ll get people together from across the businesses that understand supply chains and customer bases better than we do,” says Askham. “They then tell us what’s relevant and we help them work out what’s material.

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

“This collaborative approach is key,” says Dr Tanya Fiedler of the UNSW Institute for Climate Risk and Response who recently led research published in collaboration with climate scientists on the use of storylines for business.

“The term storylines can be misleading, as it suggests a narrative constructed through imagination only,” says Fiedler.

“The concept was developed in the climate sciences, however, as a way in which to communicate the causal networks that drive changes to climate extremes such as cyclones in an uncertain future.

Importantly, she says, underpinning such narratives is hard science – models, historical observation, and expert judgement.

“Storylines thus have four advantages over quantitative models. First, when developed in collaboration with experts, they provide more decision-useful information for those types of climate impact over which models have poor confidence,” says Fiedler.

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

“Finally, they facilitate more transparent disclosures than proprietary models for which the underlying assumptions are unknown. Storylines thus provide a much more powerful strategic tool to underpin financial decision making and reporting.”

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

“We’re largely retraining our existing audit and financial reporting people to understand these new obligations and it’s an opportunity to re-energise them and get them excited about accounting and auditing,” says Askham.

“The future of accounting and auditing is in the non-financial space particularly with emissions calculations. Information going into reports will need to be audited to the same level as traditional financial information.

“We see that as an exciting path for the profession.”

To find out more, please visit Grant Thornton.