Climate change imposing significant financial costs on nations

Inayat-ur-Rahman, Business Editor

Climate change has proved to be a formidable force, imposing significant financial costs on nations all over the globe. To effectively combat these challenges, a self-sustaining global fund should be established to provide comprehensive support.

In addition, countries must implement regulations mandating the disclosure of the financial impact of climate change in annual reports, as well as the projected consequences if adequate measures are not taken.

Moreover, achieving long-term sustainability requires the integration of comprehensive accounting and financial-related Environmental, Social, and Governance (ESG) reporting.

This was revealed by Faisal Qayyum, Unit head Accounting and Financial Reporting - Finance Division Environment Agency Abu Dhabi (EAD), during an exclusive interview with Gulf Today, adding that the international community prepares for COP 28, it is essential that these crucial issues be addressed.

Highlighting the economic effects of climate change on nations, Qayyum noted that the financial risks posed by climate change to nations transcend multiple sectors. Rising sea levels and extreme weather events cause significant infrastructure damage, necessitating costly restorations and impeding economic expansion. Crop failures in agricultural sectors result in food shortages and increased reliance on imports. The transition to a low-carbon economy requires substantial investments, and failure to adapt can result in stranded assets and diminished market competitiveness.

“To effectively address the financial repercussions of climate change, it is essential to create a self-sustaining global fund. This fund would provide countries with the financial resources necessary to implement adaptation and mitigation strategies for climate change. The fund would support initiatives such as renewable energy projects, sustainable infrastructure development, and climate resilience measures by aggregating resources from multiple nations. It would ensure a coordinated and equitable response to climate challenges, especially for developing nations that are most susceptible to climate change’s negative effects.”

He echoed that in addition to the global fund, nations must implement regulations mandating the disclosure of the financial impact of climate change in annual reports. These regulations should include projections of potential financial repercussions if the necessary steps are not implemented. Such requirements would compel businesses to assess and report on climate-related risks, allowing stakeholders to make informed decisions and assess the financial resilience of organizations. In addition to fostering transparency and accountability, enhanced reporting and regulation will motivate businesses to take proactive measures to address climate risks.

“Integrating robust accounting and ESG-related financial reporting is essential for comprehensive climate risk management. By integrating environmental, social, and governance factors into financial disclosures, all counties can increase their financial statements’ transparency and precision. Important elements of this report include:

Carbon Accounting and Emissions Reporting: Precise measurement and reporting of greenhouse gas emissions permit nations to monitor their carbon footprint and trace their progress in reducing emissions.

Resource Efficiency and Cost Optimization: Reporting on resource management, energy efficiency, and waste reduction enables nations to identify cost-saving opportunities and improve their financial performance.

Social Impact Reporting: Assessing and reporting on the social impact of climate change policies, such as job creation, community engagement, and equitable benefit distribution, demonstrates a nation’s commitment to sustainable development.

Governance and Risk Management: Reporting on governance structures, risk assessments, and adaptation strategies demonstrates a nation’s proactive approach to addressing climate-related risks.

He added that the 28th Conference of the Parties to the UN Framework Convention on Climate Change (COP 28) provides a crucial forum for addressing the financial impact of climate change comprehensively. A few key areas of concern should be:

Establishing a Global Self-Sustaining Fund: Discussions should center on establishing a fund that assures global financial support for climate change adaptation and mitigation initiatives.

“More importantly the fund should be an investment tool to self-sustain for future challenges and should have proper governance structure to address the global challenges in effective and efficient ways.