Accounting for society’s values

We talk about a just transition — a progression to a more socially equitable society. We talk about change in organisations, and what it means for us. But why does it matter to our profession? Here are three views that I hope will give you some ideas.

The social agenda is clearly relevant to the finance and accounting profession. The "social" is people — people like you, people like me, the people in businesses. Businesses have an impact on society, and society has an impact on business. The social agenda is clearly a material business issue, so if you're interested in business success, you should be interested in the S agenda. I do believe that if you ignore it, you do so at your own peril.

Secondly, as CFOs are the custodians of organisational performance, I believe the S agenda is a key differentiator going forward in driving organisational success. I've been lucky enough to go through that process — a painful process, I must say — but really something that I'll be able to utilise when the ISSB standards come into place, at least for the social part of it. I feel I have a much better handle on it now.

One other thing I'd like to close off with is my personal experience. To me, it was a very humbling journey. It's something that, until you carry it out and do it yourself, you won't experience the difficulties you face trying to address one of the most difficult parts of our day-to-day jobs: the social and people side, and the understanding of human rights. It's something I believe all CFOs should start taking steps to understand.

Businesses have a big impact on society, and society has a big impact on business. So the S agenda really is material to all businesses, and if you're interested in business performance, you really should be interested in the S.

It has many dimensions. Addressing it has many challenges — not least of which is, where do I start? To give you some ideas and some thoughts, here are insights from three professionals who've dealt with these issues in their own ways for their organisations.

There's a lot of actions that businesses can take to progress the social agenda. Two to focus on: I think one is to recognise there's more to life than accounting for financial capital. Social and human capital are critical issues to get a real picture of the business — those things need to be brought into the formal accounting system. Secondly, there are some who say there's no kind of agreement on the S issues, but there are a lot of issues we do agree on. There's a large set of fundamental human rights, and there's a very good framework called the UN Guiding Principles on Business and Human Rights, which shows how companies should respect those rights. Those issues, and respect for human rights, underpin so much of the social agenda.

One of the things that I honestly feel I learned, that was different, was to understand the forced labour indicators as introduced by the ILO — understanding that these are not rule-based accounting standards, but guidelines, and we needed to learn. I've been involved in some of the standard-setting process, and there are a lot of things coming down the line which people working in the reporting space are going to have to deal with.

I think, first, take a deep breath — there's going to be a step change in what you have to disclose, and how much effort that's going to take. Secondly, ask for help — there are a lot of people who've been doing this for decades, and you aren't alone in this, so don't be afraid to ask for support. And lastly, I think, really, don't focus on the minimum viable product when it comes to reporting. Embedding the social agenda in your strategy, and in the way you do things across the organisation, I think that would be the key thing — because it's about how you live and breathe the social agenda. It becomes quite important, and you elevate that.

Second, as well, is to really be challenging in how you go about that — so really make yourself feel uncomfortable, in order to reach greater heights in terms of what you could achieve as far as that's concerned.

Forced labour can have significant impacts on organisations — brand reputation, financial loss. To illustrate this, the Resilinc organisation notes that between the end of February and the end of May 2023, the U.S. Customs and Border Protection agency impounded goods worth $496 million from over 2,000 shipments, simply because of forced labour and ESG non-compliance allegations. This can create massive disruption for businesses. Here is the story of one of our members and how their organisation successfully managed the challenges.

I'm CFO of Sime Darby Plantation, which is a public listed company in Malaysia — largely a plantation company that is involved in oil palm plantation, and is the largest oil palm plantation company by land area, spanning about 14 countries.

So just to set a little bit of context in relation to the forced labour experiences that Sime Darby Plantation has faced in recent years: it all began with a Withhold Release Order that was imposed on the company by the Customs and Border Protection authority of the United States, which really meant that we could not export to the US any items produced by our Malaysian plantations, given the forced labour indicators that were apparently present in our plantations.

So the immediate implication to the company was actually quite far-reaching, because we had to address both the reputational and financial implications — and in our case, more reputational, because we are a public listed company, and our stakeholders, whether customers, financial institutions, or investors, were clamouring for explanations. So that was perhaps the key thing that got the process started.

The process that we underwent really stemmed from reviewing all the actions and all the processes on the ground, to assess whether there were any forced labour indicators present in our plantations. That involved appointing consultants to assist us, because there's only so much that you know, and so much help that we needed at that point.

That, thankfully, took about a year — the review of processes, the introduction of new policies, and the result of actually having to pay some amounts of money in relation to the reimbursement of recruitment fees, which fell under the forced labour indicator of debt bondage. That was perhaps the biggest impact that we had.

So if you think about the whole process, and as a CFO, what I went through here and learned — I will not repeat the things that I expected of a CFO, and what our real skill sets are, which is process review, understanding the business, and so on and so forth. But really, one of the things that was a little bit unusual was bringing myself up to speed with the requirements of the forced labour indicators dictated by the ILO. You'll understand that, unlike an accounting standard — which is more or less rule-based these days — these were merely guidelines.

And the other thing that I think was super useful is that this was exactly the time when the ISSB came up with sustainability standards.

One other thing I'd like to close off with is really my personal experience. To me, it was a very humbling journey — something that, until you carry it out and do it yourself, you will not experience the difficulties you face trying to address one of the most difficult parts of our day-to-day jobs: social and people issues, and the understanding of human rights. It's something I believe all CFOs should start taking steps to understand.