"You have to make it a part of your story "Elder statesman of sustainability, John Lelliott speaks to ACCA about the business imperatives of sustainability
John Lelliott has had a ringside seat to the last ten years of the UK’s sustainability reporting journey. Formerly Finance Director at the Crown Estate, he was one of the earliest proponents of the International Integrated Reporting Council’s <IR> framework, and now sits as a non-executive director (NED) on a number of boards. He spoke to ACCA about what it was like to be a pioneer then, and to be steering at the helm now.
“At the Crown Estate, stewardship had always been part of the remit,” says Lelliott. “But in 2012, Alison Nimmo became CEO, who had been design and regeneration director at the Olympic Delivery Authority. Obviously she brought a wealth of sustainability knowledge and experience with her, and she wanted to make it far more a part of our corporate objectives.” Lelliott describes how the Crown Estate board began to think of sustainability “as a must-to-have, rather than a nice-to-have,” and, seeing early manoeuvres in the market towards sustainable business, the company decided to lead, rather than follow.
“The <IR> framework was released in December 2013, and we had investigated it thoroughly, and believed it could be valuable to us,” says Lelliott. The Crown Estate became part of the <IR> pilot programme, with Lelliott and his team deciding on a three-year programme to implement not only integrated reporting, but ensure that sustainability was integrated across the business. “We didn’t just want to publish an integrated report,” he says, “but to really embed it into the organisation, and into the company mindset too.”
The Crown Estate was successful in its effort to “look beyond the financial return” and won multiple awards for its reports. Lelliott was hooked. “Off the back of that, I became much more involved in the sustainability agenda,” he explains. “I was asked by ACCA to chair their global forum on sustainability, and was invited onto the Accounting for Sustainability (A4S) advisory council.” While sustainability is front of corporate mind now, in those days, says Lelliott, the agenda was largely driven by interest groups, energetic individuals, and a handful of forward-thinking corporates.
Lelliott has been retired since 2016, but a full NED portfolio keeps him busy. He sits on or chairs a number of audit committees, including the Environment Agency, the Department for Environment Food and Rural Affairs (DEFRA), University Hospital Dorset, and JTL - an apprenticeship charity. In each role, he tries to bring his functional knowledge of sustainability to bear. “Financial directors are under a lot of pressure,” he says, “they’ve got so much compliance and regulation to grapple with, and now sustainability too - a far less regulated space where there’s a lot of competing frameworks and advice.” He sees his role as a provider of clear advice. “As a former FD, I worry about no-one stepping up to take responsibility for sustainability,” he says, “I hope I can have an effect on that.”
Choose your words carefully
Lelliott says that one of the biggest barriers to sustainability is the word itself. “People have the wrong idea about it,” he explains, “sustainability is about risk and resilience. CEOs and CFOs need to approach it from three angles: cost, regulation, and taxation.” It’s not a moral thing, he says, but a necessary thing, entered around ability and license to operate.
That said, Lelliott is encouraged. “The landscape has changed radically in my time - even in the last five years,” he says. “I don’t think it will be too long before we have a common format for reporting that includes sustainability in its metrics.” He is heartened by the International Accounting Standards Board’s entry into the fray with its proposals for a twin Sustainability Standards Board. “There has been too much territoriality about it - it got too political. I’m glad someone has stepped up.”
But standards is only one part of it, he explains, the other part is skills. “We used to talk a lot about the skills auditors of the future would need. Well, it’s auditors of the very near future - if not the auditors of now!” Lelliott says that the demand from investors for more information on sustainability will inevitably lead to its need for the same level of assurance provided over the financial statements. “There has to be a move towards reasonable assurance,” he says, “but who does that assurance is another matter.”
Skills gap imminent
Regular auditors won’t have the skills, he says, “it will take partnering with a lot of people with the right expertise - surveyors, valuation experts, and so on. Then it will be up to the auditors to look at the reasonableness of those findings.”
But, says Lelliott, despite a need for auditors to up their game, this is an exciting time for accountants. “They’re having to look beyond the numbers, and exercise more and more judgement. Their work is helping companies to build this information into the business model, into risk planning. There’s an opportunity here for them to play a really important role in companies driving towards net zero. It won’t be easy, though, he says. “If you look at balance sheets now, there’s so many intangibles. Accountants are mostly trained to deal with fixed assets, so there’s an element of training them to make judgements that are based on information with a lot more nuance and variability.”
Lelliott recounts an instructive experience at the Crown Estate that he says illustrates the difference between sustainability as simply a reporting process and sustainability as a business process. “I remember going into the second year of our integrated reporting programme and sharing the draft report with Alison (Nimmo, the CEO). She called me and said 'John, this looks like you’re trying to follow a framework. I don’t like it. I want you to tell me our story within the framework.’ That’s true today. For this to work, accountants can’t just slavishly follow a framework. You have to make it a part of your story - a part of the way you actually do business.”