How CPAs can navigate the net-zero transition

As the global drive toward net zero intensifies, professional accountants are increasingly playing a key role in climate-related reporting. This is partly due to the stretching requirements in emerging frameworks and standards. The International Sustainability Standards Board’s IFRS S2, for example, requires entities to report on anticipated changes to financial position, and to detail the availability and flexibility in existing financial resources. The Transition Plan Taskforce’s Disclosure Framework includes specific reference to financial planning. These requirements are almost impossible to respond to effectively without the involvement of finance teams.  

Investors are also increasingly interested in corporate net zero transition plans, with various frameworks being developed to assess their credibility, part of which includes considerations around financial planning. As such it will be increasingly necessary for finance teams to take the lead on transition planning to ensure that it stands up to scrutiny. 

Read more

• A4S (2024) Climate-related Financial Disclosures Maturity Map 
• The Transition Plan Taskforce (2023) The TPT Disclosure Framework 
• Assessing Transition Plan Collective (2024) Assessing the credibility of a company's transition plan: framework and guidance 
• Government of Canada, Guide to the June 2024 amendments to the Competition Act, Accessed 26 September 2024 
• Climate Engagement Canada (2024) CEC Net Zero Benchmark Company Assessments 

Canadian regulation and disclosure trends 

Canada’s regulatory framework is also evolving to drive transparency around net zero. The Canadian Sustainability Standards Board works to advance the adoption of the ISSB standards. In addition, the recent amendments to the Competition Act means that it will now cover emissions reductions targets and penalize misleading net zero claims highlighting increasing scrutiny.  

Data from Climate Engagement Canada shows progress in disclosure practices, but many companies still face challenges in linking climate commitments to actionable financial strategies. While several companies have begun mobilizing their capital expenditures to align with action on climate, the 2023 CEC Benchmark showed that none have explicitly aligned capital expenditures to their targets in disclosures.  

“Aligning financial planning and transition planning requires a total mindset change”. Commented the CFO of The Co-operators Group, Karen Higgins, “CFOs and finance leaders need to think about the carbon implications of every decision, to avoid locking in emissions and jeopardizing their net zero targets. The architecture of financial planning needs to be completely re-wired to ensure that carbon is embedded into each and every decision that is made”. 

A transformation of finance 

Net zero isn’t just about reducing greenhouse gas emissions, it’s about creating a financial transformation that requires fundamental change in the way that corporates operate. They will need to understand how decision-making impacts upon emissions, and to consider how emissions affect their financial returns. For example:  

• Making a capex investment in a high-carbon asset may make financial sense under existing financial thresholds, such as the internal rate of return. However that same capex investment may not make sense if a carbon price is embedded within the future cash flows of a net present value calculation, as this would change the internal rate of return. Developing tools and methodologies to embed future risk into today’s decision making is therefore an important element of financial planning. 
• Deciding to invest in a carbon-intensive asset, which has a useful economic life of 20-30 years, will lock in emissions and may make it more difficult to achieve net zero targets. Accountants will increasingly need to look beyond 3-5 years to consider the long-term impacts of decision making.  
• Investing in a low-carbon asset now, rather than having to replace or retrofit an asset that is not aligned with your net zero trajectory in 5 years, may be less costly in the long-term.  

 “Considering the financial impact of the net zero transition, and planning accordingly, will be critical in mobilizing capital towards net zero,” says Nicholas Goodman, CFO of Brookfield commented. “Also, understanding the ways in which decarbonization can drive financial value creation and capital preservation will become increasingly important in supporting businesses in realizing their net zero ambition over time.” 

Accountants will also need to understand the impact of capital budgeting and capital raising on their net zero strategies. Sustainability-linked loans, which can offer preferential interest rates for meeting sustainability targets, are likely to play a role in financing the transition but will be increasingly linked with sustainability performance. Without a solid financial plan, sustainability targets risk becoming disconnected from core operations and may impact financial resourcing.  

 “Aligning financial planning and transition planning is essential for achieving net zero targets Tim Deacon, CFO of Sunlife Financial said. “Without a clear business plan with clear capital allocation for net zero, it will be impossible for organizations to achieve their decarbonization objectives”. 

The accountant’s skillset 

Professional accountants are uniquely positioned to navigate the financial complexities of net zero, and their existing skillsets play a critical role in achieving it:  

• Investor engagement – understanding investor needs and communicating action and positioning on net zero. 
• Cross-functional collaboration – working across divisions and business units to capture and interpret data for use within strategic decision making.   
• Board engagement – channelling, interpreting and presenting key data and information to senior leaders.  
• Responsibility for financial processes – ensuring that net zero is embedded within strategic financial planning, budgeting and forecasting. 
• Treasury – understanding the requirements for raising capital and ensuring that there is adequate provision for financial resourcing. 

Key items to address  

While many accountants working within organizations are ready to take on the challenge of net zero, several key areas will need to be addressed quickly in order to succeed:   

• Ensuring that there is clear strategic direction to support net zero 
• Developing strong governance and accountability  
• Establishing credible data and information to support decision making, reporting and oversight  
• Managing and being comfortable with uncertainty  
• Understanding how risk and adaptation could impact upon the strategy  

Accountants are essential in navigating the financial complexities of net zero. By embedding net zero objectives into financial planning and reporting, accountants can ensure their organizations are prepared for the challenges ahead. As regulations tighten and investor expectations grow, the role of the finance team will continue to evolve—placing them at the forefront of corporate efforts to achieve a sustainable, resilient future.