World leaders are currently meeting (from October 31, 2021 – November 12, 2021) in Glasgow, Scotland to discuss climate change and how best to tackle the growing threats it presents. While there is sure to be a lot of posturing, bluster, and sweeping remarks, there will also certainly be real action taken (or at least agreed upon). On November 2, 2021, leaders representing 85% of the planet’s forests (including the United States and Canada) committed to not only ending, but reversing deforestation and land degradation by 2030. And the Biden administration plans to announce new regulations on methane emissions as well.
If these commitments are followed up on by the respective countries, there will no doubt be impacts on supply chains, costs, and logistics for many businesses. There have been several other recent developments that could impact the accounting profession directly too. Below is a summary of notable items:
- Disaster Retirement Savings Act
On August 3, 2021, Senators Bob Menendez and Bill Cassidy introduced bipartisan legislation to provide relief for people impacted by natural disasters. Retirement plan administrators will already be familiar with the Disaster Tax Relief and Airport and Airway Extension Act of 2017 and, of course, the additional relief provided in 2020 by the CARES Act. However, both of these acts were temporary and natural disasters are becoming more frequent and severe. The newly proposed bill provides permanent relief similar to these previous temporary relief packages - participants affected by federally declared natural disasters would be able to take penalty-free distributions up to $100,000 and would allow for loans up to $100,000, up from the current limit of $50,000. The American Retirement Association and the AICPA both support the proposed legislation.
- Major Investors Demand Action
On November 1, 2021 a group of investors managing over $4.5 trillion issued a letter threatening the Big 4 accounting firms (PWC, Deloitte, KPMG, and EY) that they will seek new accountants unless the firms integrate climate risk into their audits. These audit firms, the investors argue, have misrepresented the true health of companies by not factoring in the impact climate change (and related changes to laws/regulations) is sure to have. The investors cited research showing over 70% of audits conducted in 2020 fell short in their disclosure related to climate change.
- Existing Guidance Needs Enforcement
In 2010, the SEC issued guidance on disclosing the impact of climate change. The guidance described the ways in which existing disclosure requirements necessitated material climate-related disclosures. However, this guidance has not been enforced. Reviews conducted by third parties in 2014 and 2018 found that the SEC had issued only 25 comment letters to companies between 2010-2013, and that when companies did make disclosures, they were inconsistent and/or avoided disclosing company-specific risks. In 2018 and 2020, investigations by the Government Accountability Office (GAO) found that the SEC had essentially abandoned enforcement of the 2010 guidelines. However, in March 2021 the SEC issued a statement seeking input from the public on climate change disclosures, signaling that new requirements or more enforcement may be on the horizon. Other international standard-setters have also proposed more regulation regarding climate change disclosures, and it is probable that similar standards could be enacted in the United States, given the efforts made in recent years to align accounting policies across nations.
- Build Back Better
In October 2021, the Biden administration unveiled its proposed framework for the $1.75 trillion Build Back Better bill. While at the time of this writing it has not yet passed Congress, the framework from the White House promises over $550 billion to combat climate change, mostly in the form of clean energy credits ($320 billion). However, the bill is as notable for the measures it does not include as for those that it does. Notably, an earlier version of the framework included a tax on carbon emissions. The current administration has shown it intends to take climate change seriously, and while a carbon tax is not currently on the table, it’s at least in the room.
- Disaster Retirement Savings Act