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Accounting for change: The role of accountants in driving sustainable business practices

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Accounting for change: The role of accountants in driving sustainable business practices

Kurt Sartorius, a 72-year-old accounting professor from the University of the Witwatersrand, first paddled down the Amazon River in 1972. Back then, the effects of climate change were already apparent, and he vowed to return in 50 years to document changes along the Rio Madeira tributary and to raise awareness of accountants’ role in tackling climate change.

True to his word, Kurt—along with his son, Professor Benn Sartorius (Oxford University), and Wayne Van Zijl, an associate professor, chartered accountant, and researcher from Wits— returned to the Brazilian rainforest in July 2022 to paddle 1,100km along the tributary.

Their mission was three-fold:

  1. To document the effects of climate change in a portion of the Amazon,
  2. To promote a new genre of corporate integrated reporting, and
  3. To encourage accountants and businesses to drive meaningful change in sustainability reporting.

“Climate change knows no geographical boundaries,” says Kurt. “The accountancy profession can take a global lead by demonstrating their commitment to the environment and encouraging their clients to do the same.”

Accountants will need to design tools to integrate financial and sustainability information. They are uniquely positioned to create the systems to help their clients become more sustainable as part of a wider commitment to protect the planet.

In this article, we explore how accountants can step into this advisory role as businesses come under increasing pressure to reduce their impact on the climate and society.

Holding the world to account

Sustainability has become fundamental to a company’s survival. But many businesses don’t know how to measure sustainability or how to manage sustainability risk.

In fact, a global survey of 3,000 accountants and finance professionals found that only 15% of organisations have set targets to be net zero compliant by 2050—and only 38% are willing to invest significantly more than they are now in addressing climate change over the next three to five years.

But businesses must change how they think about, deliver on, and improve their Environmental, Social, and Governance (ESG) credentials—or risk potentially huge financial and reputational risks.

Accountants have a crucial role to play in driving a mindset and cultural shift.

They can be part of the change by helping businesses develop strategies and practices that tackle sustainability issues. This is because they already speak the language of business and have the analytical skills, knowledge, and ability to understand and integrate ESG information into day-to-day operations and systems.

In other words, your expertise is transferable.

Here are five ways you can add value and lead sustainability conversations in your business and with your clients.

1. Provide better corporate information

In 2004, the United Nations published the Who Cares Wins report, which argued that embedding ESG considerations into capital markets would lead to better societal and financial outcomes.

As a result, businesses proudly and voluntarily started to include ESG criteria in their annual reports. But it’s no longer enough to have ESG targets on diversity and inclusion or emissions reduction; these targets will need to be benchmarked, measured, disclosed, tracked, and assured.

To do this, reporting needs to be reimagined, and accountants play a key role because there are no universally accepted ESG reporting guidelines or standards.

In fact, knowledge of sustainability accounting should become a priority for all finance practitioners. The ability to identify, collect, analyse, and report on information related to non-financial topics—such as environmental footprint, societal impact, and stakeholder management—is becoming an in-demand skill, as is the ability to incorporate sustainability into the business strategy.

As an accountant, you can bring your data mindset and knowledge of numbers and dashboards to the nuance and complexity of sustainability. And you can apply your entrepreneurial mindset to create innovative tools to capture non-financial dimensions of the business’s value and to better include sustainability concerns in day-to-day decision-making.

2. Provide independent assurance on ESG data and reporting

In the past, a business’s success depended heavily on its financial performance. As a result, business strategies were designed to maximise profits and reduce costs and risk.

“The problem with only reporting on profit is that investors naturally put their capital into the business that makes the most money. If we only report on a company’s financial performance, there’s no way to judge which companies are really doing their bit to save the planet and enhance society, and which are merely paying lip service to the cause,” says Wayne.

However, traditional CSR reports lack the rigour, transparency, and credibility of financial reports, which means accountants have an opportunity to centralise sustainability information and include it in annual reports.

To do this, you’ll need to work closely with the sustainability department to understand the company’s environmental and social impact, goals, and progress. In turn, you’ll need to educate the sustainability team on the related financial risks, processes, and controls, and figure out how to reflect these in numerical and easy-to-understand formats that can be used to guide strategic decision-making.

You can also offer an independent, expert opinion to verify the accuracy of data and reporting. Through independent audits, you can ensure that the information in an integrated report is trustworthy and provide assurance on a business’s sustainability practices.

And since there are many codes and guidelines on ESG reporting, but no universally accepted standards just yet, you’ll be able to guide your clients on choosing the right reporting framework for their business and sustainability goals.

3. Help set clear, attainable sustainability goals

A lack of standards has led to an increase in ‘greenwashing’, where businesses only report on the good stuff and gloss over the bad. They’d leave out things like overuse of natural resources, inadequate health and safety conditions, data breaches, and so on.

But when you also report on the business’s weaknesses and offer insights into the long-term business and societal implications, you can start to drive meaningful change and course correct.

At the end of the day, what gets measured gets done. The good news is that purpose-driven leaders are realising that they can have a positive impact in the world without affecting—and even improving—financial performance. But with so many competing priorities, businesses may not know where to put their focus for maximum impact.

Accountants can help businesses to embed sustainability into their operations by formulating a strategy to improve processes and measure performance.

One way to do this is through the integrated report. Why? Because boards of directors have to read it before they sign it off—and that gives you a captive audience.

Through the report, you can alert the board to aspects of the business that might be inefficient, wasteful, or provide an opportunity for expansion or differentiation—and that can be immensely value-adding.

“Integrated reports force boards of directors to look at information they wouldn’t normally look at. As they read the report, they invariably recognise information that could be value-adding, and they start using that information to make internal decisions about management processes,” says Wayne.

4. Assign monetary values to negative environmental and social impacts

Business operations come at a cost to society—both good and bad—and there’s a clear financial link between a company’s sustainability aspects and its long-term value creation. Doing good in the world creates values in financial terms and can be linked to business performance and profits.

But traditional accounting practices don’t capture sustainability risks, which means businesses could be missing out on hidden costs that negatively impact their profitability, people, and the planet.

Accountants have the tools and knowledge to reflect these risks in rands and cents.

In assessing and being transparent about the real costs of corporate activities on society (for example, pollution, human rights violations, or unethical business practices), accountants can help businesses to identify long-term risks and guide the business in taking steps to reduce them.

The bottom line is that businesses perform better when they report on sustainability matters. That’s because they’re more likely to identify opportunities for change and can build resilience into their business models.

5. Help businesses implement upcoming ESG regulations

Regulators and stock exchanges are putting increasing pressure on businesses to measure, disclose, and improve on ESG-related issues.

There is also a push for standardised reporting around the world: the European Union has published its Non-Financial Reporting Directive, and in the US, the Securities and Exchange Commission has proposed rules that would require fund managers to give standard ESG disclosures.

Institutions like the Sustainability Accounting Standards Board (SASB), the Global Reporting Initiative (GRI), and the Task Force on Climate-related Financial Disclosures (TCFD) are developing standards that companies can use to report on the non-financial aspects of their performance.

While there are many codes and guidelines on ESG reporting, in South Africa, King IV is probably the most important. The Johannesburg Stock Exchange requires listed companies to adhere to this code and provides useful guidelines on how to do that.

Soon, businesses will need to report on the good and the bad, which will allow stakeholders to make better-informed decisions about who they buy from, what they invest in, and where they work.

South African businesses should take lessons from the implementation of the Protection of Personal Information Act (POPIA). Rather than waiting for sustainability reporting to become law, they should start preparing now and get a head start.

As an accountant, you can help your clients to comply with existing and upcoming ESG legislation and offer strategic advice on how they can adapt their structures, systems, and processes in preparation for the inevitable.

There’s a lot you can start doing now to put your clients on the front foot, including identifying and collecting relevant ESG data, setting up the systems to monitor and analyse data, and deciding which reporting framework is best suited to the business needs and sustainability goals.

In helping your clients to understand the shifting sustainability landscape, you can help them to make real progress on climate change.

Counting on accountants

If you have a passion for sustainability and want to be part of the change, you’re already well-positioned to become the strategic partner that many businesses need to transition to a more sustainable future.

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