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Adrian Henriques

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.

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Sustainability

By Gordon Hewitt, sustainability advisor, ACCA

UN climate talks opened in Doha this week, marking the 18th Conference of the parties (COP18) to the UN Framework Convention on Climate Change (UNFCCC). The Convention came into force in 1994 with the ultimate objective of ‘stabilising greenhouse gas (GHG) concentrations at a level that will prevent dangerous human interference with the climate system.’ Since 1995, parties to the Convention have met annually to assess progress in dealing with climate change. The meetings have made limited progress over the years and have been fraught with challenges. The most significant challenges are arguably the dynamic between developed and developing counties, and how climate change can be addressed is a manner that is equitable. This is an important point, considering that much of the CO2 that is causing global warming was emitted by developed countries over the past 150 years and that the impacts of climate change are hitting developing countries hardest. Other major challenges include getting governments to turn the reduction targets set at climate negotiations into concrete actions and streamline the fragmented approach to this global issue by national governments.

Progress towards a legally binding agreement on GHG emissions has been slow, but made a step in the right direction last year in South Africa. COP17 ended with 195 countries pledging to negotiate a new international climate treaty by 2015, known as the ‘Durban Platform’. Whilst this does put governments on track to reach a legally binding deal, some argue that the timeframe is too long and that much more urgency is needed if we are going to limit global warming to 2oC (the commonly regarded limit to avoid dangerous climate change).

This point has been demonstrated well by a recent report by the accountancy firm, Pricewaterhouse Coopers, which concluded that current governments’ ambitions to limit warming to 2oC appear highly unrealistic. The 2012 Low Carbon Economy Index has demonstrated that global carbon intensity (the average emission rate per unit of output) decreased between 2000 and 2011 by around 0.8% per year. Such a level of reduction has meant that governments need to cut carbon intensity by 5.1% every year, from now until 2050 to avoid dangerous climate change – a rate that seems unattainable considering the lack of commitment made by governments to date. The current rate of emissions cuts has put the world on track for an estimated 6oC of warming, a level that would have unthinkable implications for humanity.

The slow progress demonstrated by governments is also reflected by the corporate sector. In 2012, 81% of corporations from the Global 500 responded to the Carbon Disclosure Project (CDP) questionnaire. Their responses have provided a valuable insight into how companies are addressing the risks and opportunities associated with climate change. It is clear that some companies are aware of the need to act on climate change, but only a few leading companies are setting the necessary targets and required to ensure long term resilience against the negative impacts of climate change.

Accountants and finance professionals are very important stakeholders when looking to increase corporate action on climate change. This is due to their role within corporate risk assessment, as well as within corporate reporting. There is evidence that CFOs are becoming more aware of the need for greater action on the part of corporates. The accountancy firm, Deloitte Touche Tohmatsu, surveyed 250 CFOs of large companies (firms with annual revenues of at least $1 billion), and found that 49% saw a significant link between sustainability performance and financial performance. The greatest risks highlighted by the CFOs surveys related to energy prices, commodity prices and carbon regulations, so it is clear that climate related issues are rising up the corporate agenda. Accountants and finance professionals need to ensure that the risks posed by climate change are addressed with concrete actions.

As the effects of climate change are becoming ever more apparent, such as the increased incidence of extreme weather events, both governments and corporates need to switch on to the urgent need for action. In October this year, Hurricane Sandy swept up through the Caribbean, causing devastation across a number of island nations, before heading west into the US and Canada. The storm resulted in an estimated $71 billion worth of damage. Images of scores of people left homeless in Haiti – as well as flooded subway stations and blackouts across Lower Manhattan – show how vulnerable both rich and poor nations are to the effects of such massive storms, and provide a glimpse of the future if action is not taken soon.