Defining a company’s true profit
The statutory requirements in Australia determine that companies must keep appropriate and adequate written financial records and these records must correctly record and explain its transactions, financial performance and position and allow for ‘true and fair’ financial statements to be prepared and audited.
However, looking deeply at a company’s performance on achieving net zero can shift the conversation on what true profit is and recognise and that there are costs in nature that are not included in a balance sheet.
Joubert says; “it is the duty of the board to consider the true profit of the company.
“Look at the way we have been doing business for years, we have been taking nature for free and we have never paid for our impact and we have never paid for the work that nature has done to supply us with this product - we just produce a number based upon a cost that doesn't exist.”
Carbon pricing is one mechanism that brings more transparency to costs: “All these costs, either the services that are being used free of charge such as water and air or the impact that you have, are not in the balance sheet, and they are not in the P&L, but this is changing for CO2 pricing is growing everywhere, and I think things are changing in Europe because of this.
“So slowly, nature is sending the bill and saying that nature has no price is just sending the bill for the next generation,” said Joubert.
Look at the way we have been doing business for years, we have been taking nature for free and we have never paid for our impact”
Higher market expectations in the future
The most recent Hutley Opinion acknowledges that evolving market expectations on climate change have considerably elevated the standard of care required to discharge a directors' duty of due care and diligence. It also highlights the risk of liability for misleading disclosure, in the form of 'greenwashing', should there be inconsistency between a company's stated position and ambition on climate risk management, and its internal strategy, plans and actions.
Joubert says ‘greenwashing’ prohibits progress: “Once you decide to go to a net zero economy or society, you discover that the technology is there. It's just a matter of scaling up, implementing, and more importantly, putting the right price level in the system, because if you have fake numbers or fake costs, then you don't progress.
“Somebody will tell you one day: you knew this, you were distributing dividends and paying bonuses on fake numbers, and this is a board duty that you have not fulfilled.
“This is why governance and law are so important, because if you don't have the right law or if you don't have the right governance, the market will not correct itself.
“We should kill this idea that market will act alone by magic - you need guidance, you need law, and you need right governance and that's why working with boards is so important, because it is where everything starts.”
If you don't have the right law or if you don't have the right governance, the market will not correct itself”