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Environmental Accountability


The Earth Summit pulled its punches on sustainability reporting but the corporate momentum is still strong, as a recent ACCA event made clear

The atmosphere at the Rio+20 Earth Summit was fuelled by high hopes for a binding treaty on sustainability reporting. But while the outcome statement that eventually appeared was considerably watered down, there is, judging by a discussion at ACCA’s Accounting for the Future conference, no loss of momentum on the part of the major players in this arena.

The ACCA-backed Corporate Sustainability Reporting Coalition (CSRC) wanted Rio to force companies to think about the sustainability issues that matter to them and to report appropriate measures of their sustainability performance. After a great deal of negotiation, paragraph 47 of the final agreement opted to encourage rather than compel them to do so.

But Steve Waygood, founder of CSRC and chief responsible investment officer with Aviva Investors, was not downhearted. He told attendees at the ACCA event: ‘We fell short of getting the treaty, but we did get the clearest message that we’ve ever had from the UN that this matters to them and to companies and to economic value creation. We had 193 UN member states agree to paragraph 47. It was an incredibly important outcome.’

Pietro Bertazzi, senior manager – policy and government affairs with the Global Reporting Initiative (GRI), pointed to the creation by Brazil, Denmark, France and South Africa of a group called the Friends of Paragraph 47, which, Bertazzi said, would ‘act in support of the implementation of Paragraph 47, making an inventory of policies on sustainability reporting and developing models for best practices’. Waygood said he had ‘huge confidence’ that membership would swell far beyond the founding four, ‘hopefully to all 193 member states in the UN’.

Also at Rio, the Sustainable Stock Exchanges Initiative secured agreement from five stock exchanges (São Paulo, Johannesburg, Istanbul, Egypt and Nasdaq) that they would agree to do more to promote sustainable reporting by companies listed on their markets. Since then, Hong Kong has said that it will, in due course, also make integrated sustainability reporting part of its listing requirements. Exchanges in Malaysia and Singapore have recently issued guidance along these lines and Canada and Germany may follow suit.

One of the buzz phrases at Rio was ‘natural capital’. Sarah Nolleth, programme director of the Accounting for Sustainability (A4S) Project, explained: ‘Our economy depends on somewhere between US$33 trillion and US$72 trillion of “free services” that we get from nature.’ That is how much money humanity would have to spend to get services such as fresh water, pollination from bees and so on from the eco-system if they didn’t exist. Also known as ‘externalities’, free services ‘underpin a lot of our corporate and national activities [but] aren’t being taken into account in our day-to-day decision-making and aren’t reflected in our P&L and balance sheet’, Nolleth said. ‘Without that, how will you allocate capital? How are businesses going to make the right decisions that are sustainable in the long term?’

David Pitt-Watson, former chair of Hermes Focus Asset Management and founder of Hermes Equity Ownership Service, said: ‘Putting numbers to what we get from the environment, in some ways, is a funny thing to do. But if you think about this in accounting language, what’s the “going concern” of the world? How would you measure it? I can tell you on a quarterly basis what [a company] is doing. But I can’t tell you whether they might be destroying the planet. That is crazy.’

Lois Guthrie, executive director of the Climate Disclosure Standards Board (CDSB) and technical director to the International Integrated Reporting Council (IIRC), said that a crucial outcome post-Rio was the UK’s recent publication of draft regulations for mandatory carbon reporting. ‘About 30% of UK companies that [will be] affected are already reporting to the Carbon Disclosure Project so they are very well prepared for compliance,’ she said.

The UK government has also acknowledged that the climate change reporting framework developed by CDSB can also be used for calculating greenhouse gas emissions. That is useful because, as Guthrie noted, her organisation has been working with the UN Conference on Trade and Development (UNCTAD) as well as the OECD ‘to encourage greater international consistency of reporting on climate change’.

Perhaps the three most critical messages to come out of the discussion were, first, that what gets measured gets managed: ‘The invisible hand of the economy can’t guide invisible risk,’ said Guthrie. She accepted that a lot of work was being done on measurement, but said: ‘What we want is for the reporting to translate itself into action.’

Second, this is not just about the environment. ‘It does actually make good commercial business sense,’ said Nolleth. ‘It reduces your risks; it highlights opportunities.’

Finally, accountants have a critical role to play, and need to engage with the process today. ‘Don’t wait for measures and standards,’ said Pitt-Watson. ‘Do something now, so that you’re managing your company better.’

This article first appeared in Accountancy Futures, Edition 6, 2013


Published: 22 Jul 2014