Archives For Sustainability

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By David York, head of auditing practice, ACCA

An authoritative global survey of the views of smaller accountancy practices was published in March 2015 by the International Federation of Accountants. The survey concluded that the biggest challenge faced by firms was attracting new clients and half of those surveyed said they were concerned about differentiating their firm from the competition.

One UK firm that has cracked this problem is Green Accountancy. If you call yourselves Green Accountancy the differentiation from competitors is about as obvious as it can get.  But what lies behind this is an innovative service that any firm can add to its own service lines to give an edge in attracting new clients. In this case, clients that benefit from it may also get a ‘green advantage’ with their own customers.

ACCA has worked with Green Accountancy to promote this service. We issued detailed guidance in the form of Technical Factsheet 190, which is available as a free download on the ACCA website and crucially it is issued copyright free, to encourage firms, other accountancy bodies, or indeed anyone, to tailor it to their own needs: translate it, change UK to local figures, or include it in their own materials. The service is all about helping smaller businesses measure and reduce their main environmental impacts, so the more accountants that get involved in this the better. To quote ACCA Past President, Brendan Murtagh: ACCA believes that our members’ accounting and financial reporting skills have a key role to play in the transition to, and management of, the low carbon economy. By providing additional green accounting skills . . .  professional accountants will have a pivotal position measuring and managing carbon emissions.’

Recently we have released a video to introduce the service in detail and have put a transcript and the slide deck online.  There are also short articles that provide an overview: on the IFAC Global Knowledge Gateway as well as elsewhere on ACCA’s website.

The guidance was initially issued as ‘interim guidance’ because we wanted to improve it by responding to feedback from users. It is now (June 2015) due to be updated for 2015 year-end reporting and so, in addition to a feedback request in the factsheet itself (many thanks to those who have already provided their views) we have launched an online survey. The survey is not just for those who have introduced this service; anyone who has read the Factsheet can comment.  Please do so.

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By Ewan Willars, director of policy, ACCA

Last week, the Prince of Wales’ Accounting for Sustainability project celebrated its 10th year anniversary. The great and the good of the sustainability world gathered in London to mark the occasion. ACCA was there, and we have also helped A4S identify the issues that will matter in the next ten years.

Looking back, the past decade has seen the sustainability agenda championed, challenged, and even denied.

Sustainability has been (and remains) an issue of fervent debate.

Policy-wise, there is of course more work to be done. The outcome of the Rio+20 global summit in 2012 showed that a global consensus on sustainability reporting is hard to achieve. Agreeing on reporting measures remains a challenge.

However, against these dynamic, and often difficult political, social, scientific and environmental contexts, A4S has played an instrumental and highly influential role in leading the sustainability debate. It has pushed for greater transparency from business, for clearer reporting and for an integrated approach to sustainability. A4S’s assertion that sustainability is critical for the future prosperity of the world is one that ACCA supports whole heartedly.

As a member of the executive board of the A4S project, ACCA is proud to play a part in A4S’s important work. With A4S, ACCA has published research into the developments and progress of sustainability and non-financial reporting, examining the wider corporate and social responsibility debate and the part the accountancy profession plays in sustainability reporting.

ACCA has long recognised that sustainable development is critical to society and business. The accountancy profession has a vital role in defining and delivering the means by which sustainable development is measured and reported.

To celebrate the 10th anniversary of A4S we conducted research amongst over 4500 of our students around the world, from Africa to Australia, to understand their hopes, fears and aspirations for the future, and specifically their thoughts on sustainability and business over the next ten years.

The main focus of our questioning was: what will the world look like in 2024 for them, as financial professionals of the future? We wanted to get opinions of tomorrow’s finance professionals  on how they believe the global macro sustainability trends will impact businesses and the role of accountants in 10 years from now.

To what extent do you think the following sustainability issues will have impacted businesses by 2024?

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We asked the students what they saw as the key global trends that might impact business over the next ten years.  The top three concerns were the decline in natural resources; population rise and instability in the finance markets.

The impacts of social, environmental, population, economic and political changes are a concern to the majority of respondents – 78% said this was a worry, agreeing that the sustainability of businesses will be challenged as the world changes in the future.

Looking ahead to 2024 and beyond, to what extent do you agree with the following statements about the possible role of the finance and accounting profession?

  • 87% think finance and accounting professionals will need to provide businesses with more decision-making insight than now e.g. forecasting (so, more on what might happen in the future, than recording what has happened)
  • 79% think sustainability issues will be more prominent in business
  • 74% think the environment’s impact on organisations will be a bigger focus for finance and accounting professionals
  • 73% believe the role of finance and accounting professionals will be more crucial to the performance of businesses than it is now
  • 68% think sustainability considerations will impact my everyday working life
  • 68% believe the finance function will be key to creating a sustainable business
  • 62% think business will have established ways of addressing global sustainability issues
  • 57% believe there will be greater opportunities for finance and accounting professionals than now 
  • 34% believe the world will be a better place for me to live in

Our research also showed that finance and accounting professionals will need to provide businesses with more decision-making insight than now, such as forecasting and providing insights on more of what might happen in the future, rather than recording what has happened.

So how can accountants manage these future challenges? ACCA’s policy paper, Sustainability Matters (May 2014), said that the global accountancy profession has an important role in making organisations more responsible and accountable in the pursuit of sustainable development.

From sustainability reporting to integrated reporting; the assurance of non-financial reporting and disclosure; climate change; natural capital and the green economy – accountants are central to making the sustainable equation add up and make business sense.

In terms of integrating sustainability issues into business in the future, do you see finance and accounting professionals becoming…?

  • 54% believe they will be much more involved
  • 34% said somewhat more involved
  • 8% said same level as today
  • 3% said less involved
  • 1% said not involved 

Accountants’ professional skills in developing metrics, information systems, reporting and designing economic instruments, among other business attributes, will help make economies greener, companies more accountable, and achieve global and national measures that look beyond economic output to factor in non-traditional measures, such as human well-being and natural capital.

The bottom line is that the finance professionals of 2024 will have more challenges ahead of them than now, with research from the UN and the OECD telling us that climate change will have a major impact on business. The OECD’s Environmental Outlook 2050The Consequences of Inaction” (2012) said that: “Climate change presents a global systemic risk to society. It threatens the basic elements of life for all people: access to water, food production, health, use of land, and physical and natural capital.”

We believe that the young accountants of today will go on to develop the skills, abilities and knowledge to shape and change the future; many are already doing so. Our hope is that by 2024, the accountancy professional, wherever that person may be working, will be creating a brave new world with sustainability integral to it.

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By Carol A Adams, Monash University

Tony Abbott’s criticisms of the ANU’s divestment decision will come back to bite him. The tide of change is such that Vice-Chancellor Ian Young and the ANU Council will be seen as leaders. Others will follow.

Abbott has added his voice to a growing chorus condemning the decision by ANU to divest from seven resource companies, including treasurer Joe Hockey, education minister Christopher Pyne, and blacklisted companies Santos, Iluka Resources and Sandfire Resources.

But if these companies are unhappy with the analysis of their environmental and social performance, they should take responsibility for better valuing and reporting their environmental and social impacts.

The risk of fossil fuels

Abbott’s claim that divesting deprives fund members of a good investment could ultimately be proven incorrect. Even the generally conservative accounting profession is making an increasing amount of noise about the impact of climate change on asset valuations (or stranded carbon assets).

This is a particular issue in the fossil fuel sector.

“Fossil fuel companies should start accounting for the risk that their vast reserves may ultimately end up as stranded assets.” That’s the title of an article published by the Association of Chartered Certified Accountants (ACCA) earlier this year.

A report published last year by the ACCA and the Carbon Tracker (with a foreword by the president of the International Federation of Accountants) found that companies typically do not disclose information that is material to investors on carbon risk.

Why isn’t the Prime Minister of Australia outraged about that rather than a university taking action?

The ACCA/Carbon Tracker report argues that to integrate climate risk into their business, companies need to consider potential CO2 emissions of reserves, and risks to valuations of reserves if demand for fossil fuel energy falls.

Moves towards more disclosure

The Australian Government position is in stark contrast to the mood of recent events in Europe looking at the role of corporate reporting in sustainable development and incorporating the sustainable development goals.

The events, attended by a wide range of stakeholders, concluded that reporting by companies and mandatory reporting requirements were not providing sustainability information needed by investors to assess risk and long term performance.

This is where the focus of policy makers should be — not on a report prepared for ANU highlighting gaps in management and governance by companies of social and environmental sustainability issues.

Assessing environmental value

I know of companies which are starting to develop what they refer to as a “social and environmental profit and loss account” or “net impact statement”. Essentially they are evaluating what they are contributing to society and the environment, and setting against that their negative impacts.

This sort of information attracts ethical investors looking for long term returns. Some are starting to calculate how this impacts on financial profit.

KPMG released a report last month outlining what they refer to as a “true value” approach assessing how social and environmental risks and opportunities will impact on future financial profit. The report uses hypothetical case studies to measure the impact of this value created (or lost) by companies on profit.

A report in Australian Mining complaining about “sloppy criteria” for the divestment by ANU misses the point. It is up to companies to provide adequate information on their risks, policies and activities for investors.

And, at the end of the day, if the fundamental nature of a company’s business is unsustainable, other criteria for divestment, however “sloppy” are somewhat irrelevant.

Universities led charge against Nike…

Universities have a history of being a force for good. The complete turnaround by Nike on corporate social responsibility was due to widespread boycott of its sports products by US universities in the 1990s.

Nike had contracted with factories throughout Asia (which became known as Nike sweatshops) that were found out for using child labour, poor working conditions, excessive overtime, sexually harassing female workers and paying below the minimum wage.

This was widely publicised by CorpWatch (a US based research group), Naomi Klein in her book “No Logo”, Michael Moore and the BBC in documentaries and various anti-globalisation and anti-sweatshop groups.

Nike originally denied the claims and expressed a view that what happened in supplier factories weren’t its concern. This only served to increase the campaign against it. Nike now takes transparency, accountability and corporate responsibility seriously and has restored its reputation.

And social and environmental sustainability practises in the supply chain are of increasing interest to large corporate customers concerned about reputation risk.

… and tobacco

The British Universities Superannuation Scheme (USS), at the time the third largest fund in the UK, made a significant response, through a campaign for responsible investment led by academics through “Ethics for USS” and students through “People and Planet” in the 1990s.

They questioned the morality of investing in tobacco which was dropped by the Australian Sovereign Wealth Fund last year. As a result of the academic and student led campaigns, the USS became the first large UK pension fund to adopt a socially responsible investment policy.

The approach included engaging with companies in which they invested to drive change towards more responsible behaviour. The USS sets out its proactive approach and explains its rationale for not divesting in companies on moral and ethical grounds only and legal advice that it is not permitted to make decisions purely on a moral or ethical stance here.

Students taking the lead?

In any case there is a strong and increasing link between some “moral and ethical grounds” and financial returns. In recognition of this Australian superfunds have also called for greater disclosure on Environmental, Social and Governance risk.

This is not to say that universities themselves should not being doing much more to develop future leaders able to respond to climate change and sustainability challenges. But that is another issue.

Of course, we must not forget that in making the decision to divest, Ian Young and the ANU Council were responding to student protests. They are the true leaders in all of this.

The ConversationCarol A Adams is a part time Professor at Monash University and consults through Integrated Horizons. She writes on her website ‘Towards Sustainable Business’ at http://www.drcaroladams.net

This article was originally published on The Conversation.
Read the original article.

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By Terence Jeyaretnam, director, Net Balance

The International Standard on Assurance Engagements (ISAE 3000) is a standard used globally for assurance engagements for audits or reviews of historical non-financial information. Here at Net Balance, a specialist sustainability firm, we use the ASAE3000 (along with the more qualitative AA1000AS), its Australian cousin, generally alike in scope and application. While the ASAE3000 has always allowed non-accountants to use the standard, the IAASB has only recently adopted this provision.

From experience we believe there are numerous benefits when utilising the suite of ISAE/ ASAE 3000 in conjunction with the AA1000 Assurance Standards (AA1000 AS), which has traditionally been the domain of specialist sustainability firms. The AA1000 AS is a holistic sustainability-focussed standard designed specifically for assessing and strengthening the credibility and quality of an organisation’s social, economic and environmental reporting.

Here at Net Balance we encourage the revised ISAE 3000 to be used in conjunction with a detailed approach of the AA1000 AS, and be applied together during the phases of planning, obtaining evidence and establishing quality controls.

Having the experience of successfully completing over 250 Assurance engagements, we believe a more complete assurance can be undertaken by using both the AA1000 AS and the ISAE 3000 in combination.

Accordingly, this revision creates new opportunities for Assurance providers housing subject matter experts in sustainability to provide Assurance to all organisations. Numerous advantages include:

  • Increased representation of materiality – Defined by the assurance provider and the client organisation, subject matter experts using their professional and experienced judgements can now delve deeper into complex topics such as supply chain issues, water, waste management, or even inform clients about the global landscape on human rights.
  • Risk identification – Subject matter experts understand the clients’ business and operations and therefore they can leverage past experience to address existing risks and to identify new sustainability-based risks.
  • Value add – Subject matter experts can provide feasible value adding recommendations. This is an increasingly important factor as most reports received by management from assurance providers should provide strategies to help clients understand both the risks and opportunities in a fast changing regulatory environment.

Read Deloitte’s viewpoint on the matter here

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By Adrian Henriques, ACCA Global Sustainability Forum member – www.henriques.info

There is no shortage of dreadful human rights abuses around the world – from displaced people, slavery in agriculture, human trafficking and more. I’m sure that all accountants would agree that human rights should be respected at all times. But it may not be obvious what this has to do with the business of accounting – even granted that the accounting profession has a remit to work in the public interest.

The first part of the answer to that is all about what human rights have to do with companies. That issue has been discussed at the United Nations for the last forty years and several unproductive attempts have been made to codify the responsibilities of companies as a result. In 2011, as a result of the widespread consultations of John Ruggie, the UN Human Rights Council unanimously endorsed the ‘Guiding Principles on Business and Human Rights‘. These achieved the remarkable result of securing a good consensus between governments, business and civil society as to the role of companies in relation to securing human rights. The key point was that while governments have a legal obligation to uphold human rights, companies have a duty to respect them.

The second part of the answer concerns how companies can, in practical terms, respect human rights. As set out in the Guiding Principles, the main point is about adopting a systematic approach to setting policies, reviewing risk, reporting and acting accordingly. That amounts to due diligence towards human rights issues. And of course, the rigour of due diligence is something with which accountants are familiar. There is therefore likely to be increasing demand for the services of accountants in this area.

One manifestation of this is the work of the accounting firm Mazars. Mazars is currently one of the main parties behind the development of a standard for reporting on human rights issues, based on the Guiding Principles. It is also developing a standard for auditing those reports. Another manifestation is the increasing attention to human rights being paid by ACCA. ACCA is currently working on a project to look at business responsibilities in relation to child rights.

So there is some human rights accounting to be done for businesses after all. It will address how businesses take responsibility for the human rights consequences of their activities. This forms part of the increasing prominence of non-financial aspects in corporate reporting. The accounting profession can therefore respond positively to the call in the Universal Declaration of Human Rights for every ‘organ of society’ to do its part in promoting human rights.