Climate reporting in the Pacific: The accountant’s next big challenge

Reporting on environmental, social, and governance has become an integral part of corporate disclosures across the Pacific region. Over the past decade, the Pacific has been affected by some of the biggest natural disasters, such as Cyclone Winston in Fiji and Cyclone Harold in Vanuatu, which affected the Solomon Islands. With the completed versions of IFRS S1 and S2 released in 2023, Pacific accountants have a major challenge on hand, which is not only understanding the standards or disclosure requirements but finding the data for such reporting.

Climate reporting brings in a different type of data set into the corporate reporting environment. Much of it sits outside traditional finance systems and may be generated by operations, procurement, facilities, technology providers or external suppliers. In many organisations, the processes for collecting and validating this information are still developing. While data collection and validation are fairly familiar territory for Pacific accountants, the new disclosures bring in a new set of challenges for the Pacific.

These would be in the form of owning the emission data, how information is validated, how estimates are calculated and what evidence is available to support the methodology.

Famed for their history as masterful seafarers, Pacific communities are now charting a new kind of voyage dictated by global financial directions. With the arrival of IFRS S1 and S2, sustainability is no longer an optional narrative in Pacific corporate reports; it is a regulatory anchor. IFRS S2 completely reframes climate disclosures by demanding transparent data on risk exposure and operational survival. When an event like Cyclone Harold strikes Vanuatu, it can no longer be dismissed with an open-ended statement like, “we have been hit by a cyclone”. Companies must now map physical destruction directly to the balance sheet, explicitly calculating the monetary value and percentage of assets in the risk zone. For example, a business would have to explicitly report if 50 per cent of its corporate asset portfolio sits in a zone vulnerable to a Category 3 cyclone and so forth.

A good climate reporting process should have clear ownership, defined methodologies and appropriate documentation. Estimates should be understood rather than simply accepted. Changes in methodology should be explainable. Data received from external parties should have a basis for validation. There should be a clear review process before information becomes part of corporate reporting.

In a Pacific environment, even something as straightforward as electricity consumption can create challenges. Where operations span multiple islands, one site may provide actual meter readings while another relies on landlord information or an estimate. From a finance perspective, the issue is not simply consolidating the numbers. It is understanding the basis of each number and being comfortable that the same methodology has been applied consistently.

Climate information will inevitably involve estimates and assumptions. That is not necessarily a weakness. Financial reporting itself contains estimates. The important issue is whether the organisation understands the basis of those estimates and applies the methodology consistently. This is where Pacific finance teams have an opportunity to contribute.

Rather than becoming involved only when climate information reaches the reporting stage, accountants can help shape the process from the beginning. This means working with operations, procurement, risk, technical and sustainability teams to establish how information will be collected, who is responsible for it and how its reliability will be assessed.

The region faces significant exposure to climate-related risks, while businesses and governments are also working to strengthen sustainable finance, investment and resilience. Reliable information will increasingly be necessary to support those efforts.

This requires more than producing a carbon figure at the end of the year. It requires an information trail.

The accountant should be able to understand the source of the information, the methodology applied, the assumptions made and the controls around the calculation. Just as importantly, the process should be capable of being repeated and improved over time.

For accountants across the Pacific, climate reporting therefore represents more than another emerging reporting requirement. It is an opportunity to apply a discipline that the profession has developed over generations to a new and increasingly important category of information.

As accountants, we share the ultimate responsibility for the integrity of the information that reaches management and the board. Climate reporting will increasingly require us to extend that discipline beyond the traditional financial statements. The scope may be different, but the principle remains the same, which is to understand the source, challenge the assumptions and make sure the information can stand up to scrutiny.

Rishneel Deo is a member of the Institute of Public Accountants Australia who has around a decade of experience in the Pacific accounting field.