CLIMATE CHANGE IMPACT ON SUSTAINABILITY ACCOUNTING IN THE 5.0 ERA

Abstract

Climate change in the era of 5.0 is becoming more significant. Society will need more power than before to keep enormous data information. Also, cooling of the servers and processors will become vital for data manipulation not only for society but also for business. The gathering and measurement of that information could be done by sustainability accounting in era 5.0. In terms of assessment, sustainability accounting can provide data and insights into a company's environmental and social effects, as well as its sustainability performance. In terms of paperwork, sustainability accounting can assist businesses in transparently reporting on their sustainability performance and communicating their sustainability objectives to stakeholders. In terms of business models, sustainability accounting can inform a company's strategy by recognizing the potential for the circular economy, supply chain sustainability, sustainable innovation, and stakeholder engagement. Finally, in decision-making, sustainability accounting may provide data and insights on the triple bottom line, scenario analysis, cost-benefit analysis, and risk management to help businesses make better-informed decisions that balance financial, social, and environmental factors. Overall, in the 5.0 era, sustainability accounting can assist businesses and authorities in contributing to reducing their influence on climate change and managing it in a sustainable way.

Full text

Air pollution and climate
change
CLIMATE CHANGE IMPACT ON SUSTAINABILITY ACCOUNTING IN THE
5.0 ERA
Chief. Assist. prof. Nikolay Katsarski PhD
Sofia University St. Kliment Ohridski, Sofia Bulgaria
ABSTRACT
Climate change in the era of 5.0 is becoming more significant. Society will need
more power than before to keep enormous data information. Also, cooling of the servers
and processors will become vital for data manipulation not only for society but also for
business. The gathering and measurement of that information could be done by
sustainability accounting in era 5.0. In terms of assessment, sustainability accounting
can provide data and insights into a company's environmental and social effects, as well
as its sustainability performance. In terms of paperwork, sustainability accounting can
assist businesses in transparently reporting on their sustainability performance and
communicating their sustainability objectives to stakeholders. In terms of business
models, sustainability accounting can inform a company's strategy by recognizing the
potential for the circular economy, supply chain sustainability, sustainable innovation,
and stakeholder engagement. Finally, in decision-making, sustainability accounting may
provide data and insights on the triple bottom line, scenario analysis, cost-benefit
analysis, and risk management to help businesses make better-informed decisions that
balance financial, social, and environmental factors. Overall, in the 5.0 era,
sustainability accounting can assist businesses and authorities in contributing to
reducing their influence on climate change and managing it in a sustainable way.
Keywords: climate change, sustainable accounting
INTRODUCTION
The European Commission identified measures to achieve the following
objectives in its Communication titled "Action Plan: Financing for Sustainable Growth"
on March 8, 2018: redirecting capital flows toward sustainable investments to achieve
sustainable and inclusive economic growth, managing financial risks arising from
climate change, resource depletion, environmental degradation, and social issues, and
promoting transparency and long-term orientation in financial annexes.
Directive 2013/34/EU contains no specific mention to other reporting areas
deemed significant by information users, some of which are congruent with disclosures
included in international frameworks, such as the Task Force on Climate-related
Financial Disclosures guidelines. Disclosure regulations should be detailed enough to
ensure that businesses provide information on their resilience to risks associated with
sustainability challenges. Firms should be required to disclose information on their
business plan, as well as the flexibility of their business model and strategy to manage
risks connected to sustainability issues, in addition to the reporting categories specified
in Articles 19a(1) and 29a(1) of Directive 2013/34/EU. They should also be compelled
to reveal any plans they may have in place to guarantee that their business model and
operations are sustainable.

Climate-related strategies must be based on the most recent scientific data,
including reports from the Intergovernmental Panel on Climate Change (IPCC) and the
European Climate Change Scientific Advisory Board. Where appropriate, information
disclosed in accordance with Article 8 of Regulation (EU) 2020/852 on the amount of
capital expenditure (CAPEX) or operating expenditure (OPEX) associated with
taxonomy-aligned activities may support the financial and investment plans associated
with those plans. Businesses should also be required to disclose whether and how their
business model and strategy are aligned with stakeholder interests; business
opportunities arising from sustainability issues; implementation of aspects of the
business strategy that affect or are affected by sustainability issues; and sustainability
targets set.
In that context, there are new definitions that are based on the new approach in
financial-economic science in relation to sustainability reporting.
‘climate change mitigation’ means the process of holding the
increase in the global average temperature to well below 2 °C and pursuing
efforts to limit it to 1,5 °C above pre-industrial levels, as laid down in the Paris
Agreement;
‘climate change adaptation’ means the process of adjustment to
actual and expected climate change and its impacts;
‘greenhouse gas’ means a greenhouse gas listed in Annex I to
Regulation (EU) No 525/2013 of the European Parliament and of the Council
(70); [1]
All of these new fields of study are not possible without the appropriate
development of technology. In nowadays society is faced up to put together robotics,
the Internet of things and etc. to achieve a sustainable future at any time of our life. The
key is Industry 5.0. Industry 5.0 should not be viewed as a substitute or an alternative to
the present Industry 4.0 paradigm, but rather as an evolution and logical continuation of
it. As a result, the notion of Industry 5.0 is centered on values rather than technologies,
such as human-centricity, and environmental or social benefits. This paradigm shift is
founded on the notion that technologies can be fashioned to support values, while
technological transformation can be created to meet societal requirements rather than
vice versa. This is especially crucial when the fourth industrial revolution changes the
way value is created, transferred, and distributed.
MATERIALS AND METHODS
Picture 1 Green gas emissions in the EU [2]
Technological approach The European
Union's struggle against climate change
raises several issues - electricity generation,
industrialisation, agriculture and waste
management. Energy production accounts for
the highest share of emissions. In the context
of digital transformation, electricity is a
resource of paramount importance. Particular

Air pollution and climate
change
importance is attached to the production and storage of this energy. Around 77% of
emissions are taken up by electricity generation. Industry is particularly energy-
intensive, requiring huge amounts of energy for production. To reduce this, switching to
renewable energy sources is a step in the right direction. Excessive warming of the
Earth's surface could cause problems of various kinds. For example, at high
temperature, solar panels reduce their efficiency, drought is a reason for limiting the
yield from water plants, etc. Agriculture and farming 10.55%.
Waste management has a relative share of 3.32% and this percentage should increase in
the near future. Waste is the main problem of any business. In order to achieve these
requirements, more attention should be paid to the transition of production and, in
particular, of assets to Industry 5.0. The need to move directly to 5.0 is a result of the
epidemic that has delayed the transition to 4.0.
The three core principles of Industry 5.0 are human-centricity, sustainability and
flexibility.
A human-centered approach
The production process is becoming increasingly human-centric and tailored to the
specific needs of people and society that have been poorly or not met. This approach
links technology and human to a sense in which they complement each other. This puts
society and humans at the center, and technology is a complementary element building
on human knowledge, and opportunities to meet those needs that have not been possible
to realise before.
Sustainability
Sustainability refers to the implementation of circular policies to allow different models
to be used to evaluate and disclose financial and economic information. The
implementation of appropriate accounting policies, regulations, accounting systems and
standardisation will help to reflect on an ongoing basis those business phenomena and
processes that have not been used before. Particular importance is attached to reuse,
recycling, efficient use of natural resources, investment in water and air purification
technologies, renewable energy sources - water plants, air turbines, solar panels,
batteries, etc. This gives reason to consider it necessary to expand accounting and
financial activities in enterprises not only on an ongoing basis but also in real time. The
use of precision technology with the help of quantum computers and the Internet of
Things will facilitate management decision-making at any moment, rather than
quarterly, half-yearly, etc., as before.
Flexibility
Offering several possible outcomes from a particular situation is important to maintain
the market position of any business. Making flexible decisions leads to improved
sustainability of the business and the business model used. This provides opportunities
to overcome shocks, crises caused by unpredictable weather conditions, pandemics, etc.
Flexibility is provided by sophisticated algorithms, robotization of processes and
activities, autonomous control systems, etc.

To meet the three core principles in Industry 5.0, the use of assets is required to improve
production processes. These are assets with specific relevance to improving the business
model of enterprises, green technologies and meeting the objectives of European green
economy strategies. All this requires investment in assets, tangible and intangible, that
contribute to these objectives.Използването на специфични активи в ерата 5.0
трябва да служат за постигане на екологичните цели, а именно - climate change
mitigation; climate change adaptation; [3] which were motioned above. These assets are
associated with the following opportunities:
- Human-centric solutions and human-machine interaction technologies that connect
and combine the strengths of humans and machines.
- Biology-inspired technologies and smart materials that enable the use of materials with
embedded sensors and enhanced performance, while being recyclable.
- Real-time digital twins and simulations to model entire systems.
- Cyber-secure data transmission, storage and analysis technologies that can address
data and system interoperability.
- Artificial intelligence to discover cause-effect relationships in complex, dynamic
systems in eral time, leading to operational intelligence.
- Technologies for energy efficiency and reliable autonomy, as the above technologies
will require large amounts of energy.
As a result of using Industry 5.0 technologies, the following benefits are available:
- The emergence of Industry 5.0 is accompanied by many benefits that illustrate the
importance and potential of this new paradigm. If that doesn't sound enticing enough,
these benefits will also save you money.
- Cost reduction. The drive toward business models that use the fewest resources to
generate the greatest profits finds its apex in Industry 5.0, as humans and machines
collaborate to generate the optimal financial solutions for the organization.
Making sustainable decisions
- Unlike other industrial transformations, Industry 5.0 considers environmental
protection as a priority. It will help manufacturers focus on environmentally friendly
solutions, tackling climate change.
- Waste management is a top priority.
Mass customisation and personalisation
- Industry 5.0 is expanding collaboration between humans and robots in response to
increased product customisation. While Industry 4.0 laid the foundation for
customization and personalization of products, Industry 5.0 promises mass
customization on a large scale.
Cost reduction

Air pollution and climate
change
- The drive toward business models that use the fewest resources to generate the greatest
profits finds its apex in Industry 5.0, as humans and machines collaborate to generate
the optimal financial solutions for the organization. Thanks to better connected systems,
manufacturers can reduce their production costs and become more competitive.
Everything so far requires defining the financial dimension of these processes. For this,
enterprises must also disclose the following non-financial information:
- the proportion of their turnover derived from products or services associated with
economic activities that qualify as environmentally sustainable under Articles 3 and 9;
and
-the proportion of their capital expenditure and the proportion of their operating
expenditure related to assets or processes associated with economic activities that
qualify as environmentally sustainable under Articles 3 and 9. [4]
The circular economy is a`model of production and consumption, which involves
sharing, leasing, reusing, repairing, refurbishing and recycling existing materials and
products as long as possible. In this way, the life cycle of products is extended. [5] This
includes activities such as:
- Packaging and plastics - the problem of single-use plastics is a serious issue that
requires a switch to recycling or extending the life of plastic products.
- Sustainable textiles
- Electronics and information and communication technology - creating opportunities to
upgrade as well as replace with spare parts of the equipment, return to battery
replacement, etc. Repair and reuse of goods of different nature.
- Construction and buildings - building passive environmentally friendly projects and
reusing building materials.
- Batteries and vehicles
- Food chain.
- Critical raw materials.
RESULTS
Climate change is undoubtedly having an impact on society and business as a whole.
People are increasingly engaged and committed to green policies. Society is interested
in products and their impact on their lives, nature and the models used. The application
of sustainable accounting is found in different areas of our socio-economic life. In
particular:
- GDP (Gross Domestic Product): GDP is the measurement of the total value of
goods (products) and services produced in a certain territorial area (a country),
during a certain period (a year). Changes in weather patterns, such as extreme
weather events or changes in agricultural productivity, can affect GDP growth
rates. In addition, information could be provided on the share of environmental
goods and services in the total.
- Cost of climate-related disasters: Climate change may lead to an increase in the
frequency and intensity of natural disasters, including hurricanes, floods,
droughts and wildfires. The role of sustainable accounting in relation to costs
associated with damaging events, such as infrastructure damage, insurance

claims and lost productivity, provide insights into the economic impact of
climate change.
- Employment and labour productivity: Climate change can affect employment
patterns and labour productivity in different sectors. For example, rising
temperatures can reduce labour productivity in agriculture, while changes in
weather patterns can affect sectors such as construction or tourism. Reflection of
these phenomena and processes is recorded by sustainability accounting.
- Energy prices: Changes in climate policies, such as carbon pricing or
renewable energy subsidies, can affect energy prices. These price fluctuations
can have a significant impact on businesses and consumers and determine
investment decisions in the energy sector.
- Agricultural productivity: climate change can affect agricultural production
through changes in temperature, precipitation and the spread of pests and
diseases. Indicators such as crop yields, food prices and agricultural incomes can
reflect the economic impacts of climate change on the agricultural sector.
- Insurance costs: insurance companies assess climate-related risks and include them
in premiums and coverage. Higher insurance costs in areas prone to climate-related
risks may indicate the economic impact of climate change.
- Investment in clean technology: Increasing investment in clean energy, energy
efficiency and other sustainable technologies is an indicator of the economic shift
towards climate change mitigation and adaptation. Tracking investment trends can
provide insights into the economic opportunities associated with climate change
solutions.
All this combined with Industry 5.0 enables AI, Big Data and Data Analytics should
be considered as drivers for changes in the accounting domain. Because they are
impacting and will further impact the role of accountant, there is a call for accounting
educators to change their mindset and develop the required skills and competences
related to the smart technologies and their augmented business applications. [6]
DISCUSSION
Using specific assets incorporated with human knowledge we could achieve zero carbon
emissions. The following questions may be applicable for non-financial assets:
• Has the entity's existing use of the asset been altered as a result of changes in response
to climate risk?
• Are there any indicators that market participants' utilization of similar assets has
shifted?
• Is the asset affected positively or negatively by present and/or expected climatic
changes (e.g., rising water levels, shifting weather patterns)?
• Why is the current use different from the greatest and best use?
How do these results relate to the original question? Do the data support your
hypothesis? Are your results consistent with what other investigators have reported? If
your results were unexpected, try to explain why.
CONCLUSION

Air pollution and climate
change
Undoubtedly, climate change has an impact on people, businesses and the
environment. This undoubtedly has an impact on the business models used as they adapt
to the changing climate. To assess this effect, conventional financial accounting is
complemented by sustainability accounting, which is oriented towards non-financial
information and its impact on companies' financial performance. In the era of Industry
5.0, sustainability accounting provides opportunities that were previously not assumed
to exist. Namely:
1. Supply chains are relevant to the entire business. Determining the mode of
transportation and timing of delivery impacts the overall production process. Inventory
by warehouse and transmitting this accounting information to the production centers in
real time allows for greater precision in ordering, optimizes the warehouse, limits
restocking, accounts for shelf life, etc. It also allows for ongoing inventory when an
employee leaves. A possible solution is to use a model by which the necessary
investment would be made as part of the utility’s investment program with a follow-up
redistribution of the costs among all connected consumers. [7]
2. Analysis of value drivers. Defining it describes how the business creates value for its
stakeholders .
3. Cost Structure Analysis. Defining the costs associated with sustainability
reporting requires specific reporting. This enables the analysis of costs by analytical
accounts that contain specific financial and non-financial information.
4. Analysis of the competitive environment.
5. Compilation of integrated report. It presents the financial and non-financial
information that the company generates in the ordinary course of business. It reflects the
links and dependencies between the financial, environmental and social sides of the
business. It also presents the company's strategic objectives and the business model
used.
6. Moving from a linear to a circular economy requires a robust product life cycle
assessment. This approach representing the environmental impact of products, goods
and articles. In the era of 5.0, the conditions are being created for the production and
consumption of technologies for a longer time and wider application. In addition, this
posture approach ensures higher profitability.
7. Environmental, social and governance (ESG) performance. This calls for
appropriate management decisions in line with global trends, treaties and agreements.
ACKNOWLEDGEMENTS
This publication is realized under the project "Research Fund" of the Faculty of Economic and
business administration at Sofia University St. Kliment Ohridski contract number 80-10-89 on
the topic: Exploring the impact of digitalization and sustainability on accounting and accounting
education
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