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Sustainable accounting moves closer

The Prince’s Trust initiative takes off but survey shows low take-up of sustainability tracking by business

24 Jan 2011

By Rachael Singh

The Prince of Wales speaking at the Prince's Trust

A collection of international accounting bodies have released a survey through the Prince’s Trust Accounting for Sustainability Project (A4S) that measures the state of sustainability reporting in the UK and US.

The survey, produced by the Chartered Institute of Management Accountants, the American Institute of Certified Public Accountants and the Canadian Institute of Chartered Accountants, looked at how much finance is involved with corporate sustainability.

Finance can add value by making sure that information related to sustainability - particularly information that enters the public domain - is produced and managed with the necessary levels of rigour. But the contribution of finance is underdeveloped, the survey suggests, with only one third of respondents reporting they are tracking sustainability performance measures.

The report was released at the end of 2010, on the same day that some 200 representatives from the international business and finance communities, governments and investor groups met to discuss ways to provide comprehensive information to corporate and government finance departments on how to accurately value natural capital such as water, how to integrate sustainability into capital expenditure decisions, and the development of a global system to account for sustainability in financial reports.

The latest A4S meeting concluded with a roundtable hosted by Justin King, Sainsbury’s chief executive; Jonathan Porritt, co-founder of environmental organisation Forum for the Future; and Min Zhu, special advisor to the managing director of the International Monetary Fund.

The Prince of Wales opened the meeting and said that he saw a growing recognition that natural capital “is the most important and irreplaceable asset we have” but added that “much of it does not appear on our balance sheets and its consumption is not recorded in our profit and loss accounts”.

He singled out the accounting profession as responsible for changing mindsets in business over how to report sustainability, adding that accountants have the finger of blame pointing in their direction for the lack of a sustainability reporting framework because they appear to be more comfortable with certainties than the longer-term consequences of climate change. “Who better to take the lead and set an example than the accountancy profession which, in so many respects, is the engine room of the corporate world,” he said.

However, there has been some progress. The A4S has published the findings of a research project that details how organisations including Aviva, EDF Energy, HSBC, Novo Nordisk, Sainsbury’s, the Environment Agency and West Sussex County Council have em-bedded environmental reporting into their accounting practices. Meanwhile, the UK government has integrated the reporting guidance A4S issued in 2009 into its public sector financial reporting manual.

 

Connecting strategy and sustainability: what should be reported

1 Market context An analysis of the environmental and social trends which have a material impact on the sector, and of the market and regulatory context within which the business is operating, in quantitative terms and supported by evidence where possible. For example, changing patterns in customer demand towards more sustainable products, as evidenced by trend data on the market share of ethically sourced products as a percentage of total market

2 Business model A description of the implications for the way that the business operates and generates value in response to identified environmental and social trends. For example, within the food retail sector, changes to the structure of relationships with suppliers to improve security of supply in the face of projected scarcity of key products resulting from increasing water stress

3 Objectives and strategies; risks, resources and relationships The connection between material sustainability impacts and issues, the achievement of the company’s objectives, and implications for the strategies it has adopted. The analysis of material sustainability issues should include:
• The principal risks and opportunities, an explanation as to why they are important, and an estimation of their impact in either financial or operational terms;
• An assessment of the sustainability of key resources and key relationships (for example supplier, customer, employee, regulator or community) upon which the strategy is dependent;
• A reference to the approach followed by management to determine which sustainability factors are material;
• A description of the actions being taken by management to affect organisational change, including development, training and incentives
Source: Accounting for Sustainability

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