Peter Bakker, the CEO of the World Business Council on Sustainable Development, is quoted as saying ‘Accountants will save the world.’
Superhero is not a status usually associated with the profession. What could he mean?
In 2011 Puma, working with TruCost, published the first Environmental Profit and Loss Account (P&L). They attempted to quantify all the environmental externalities embedded in their products and recognise these on the P&L.
They concluded that if they actually had to bear these costs, they would still make a profit, but it would be far lower. This led them to adjust their long-term strategy around what that would produce and the raw materials they would use. Incidentally, the head of strategy for Puma at the time commented that if they included social externalities they would make a loss. Under these conditions, she asked, is the company really sustainable?
A systems perspective
The issue of correcting market failures through adequately understanding externalities is clearly not yet mainstream. But it is becoming increasingly so.
Witness the carbon and sugar taxes. A recent report by the Task Force on Climate-related Financial Disclosures (TCFD), a sub-committee of the Financial Stability Board and ultimately the G20, recommended that companies disclose the consequences of climate risk in their financial disclosures (note the financial disclosures). This is a recommendation not being made by environmental NGOs but by mainstream financial services practitioners and investors from global financial institutions.
This management and quantification of risk is the flip side of opportunity.
Clearly the economy we have does not provide for our economic, social or environmental needs and requires significant economic and social transformation. A recent report by the Business and Sustainable Development Council concluded that implementing the Sustainable Development Goals (SDGs) will unlock US$12 trillion of value globally across 12 system change opportunities and create 380 million jobs.
The SDGs therefore represent a new model for economic growth, a roadmap to sustainable development. In a similar vein, work by the National Business Initiative and Accenture concluded that the opportunity for business in sustainability across Africa is a conservative $350 billion a year.
Achieving the objectives embedded in the SDGs will require an accurate quantification of the risk and the opportunity and embedding these quantitative numbers in strategy and new business model development.
Returning to Mr Bakker’s point, we cannot do this without effective accounting. We need to be able to capture the value created and the risk averted in our financial reports. We need to build social and environmental capital and be able to share our progress with our shareholders, and build greater trust with our stakeholders in general. We need to be held accountable to keep doing it.
Ultimately this means developing appropriate accounting methodologies that account for environmental and social costs in a comparable way and inculcate them in our accounting rules. Not only will this enhance business brand value but, as Puma demonstrated, change they we think about our business and what we produce and consume.
It will also save the world.
This article was commissioned by the South African Institute of Chartered Accountants (SAICA), who are members of the NBI.