When it comes to building a more sustainable world, financial professionals have a key role to play. Here’s how, as a management accountant, you can take the lead in integrating sustainability into decision making – and how CIMA will help you do it.
Sustainability, as defined by The UN World Commission on Environment and Development, is development that meets the needs of the present without compromising the ability of future generations to meet their own needs. In a business context, it’s about promoting prosperity and profit, while protecting the planet and people.
Times are changing. Organisations aren’t judged on financial performance alone anymore. Investors, employees and customers alike are choosing companies that are seen to be focusing on sustainability.
As a finance professional, you’re not just well-placed to help – you’ll take a leading role. That’s because of your skill set and knowledge of organisational governance, strategy, risk management and performance through metrics and targets. You’ll support sustainable decision-making through business analysis. And you’ll own the processes, systems, data, management information and reporting – all things that support a transition to sustainable businesses.
The sustainability space: environmental, social, and governance
To understand sustainability in a business context, you need to get your head around its three components:
Environmental considers how an organisation performs as a steward of nature. It includes things like the extent of non-renewable resources used in production, as well as the release of potentially harmful elements to the air, land or water.
Social examines how an organisation manages relationships with employees, suppliers, customers and the communities where it operates. Social issues range from human rights and health and safety to other responsible business practises, such as product marketing and privacy. Expectations around these issues, as well as environmental issues, define what is often referred to as the social licence to operate.
Governance deals with an organisation’s leadership and effective management of the business. That’s things like executive pay, regulatory compliance and shareholder rights, as well as internal controls and internal and external audits. Effective governance ensures maintenance of the social licence to operate.
Having a robust strategy around environmental, social and governance (ESG) factors is key to building a resilient organisation – and companies who prioritise ESG factors have outperformed rivals during the Covid-19. It’s not that surprising, when you think that ESG reporting and scrutiny allows organisations to rethink their business models in times of stress.
Businesses are crucial to create a more sustainable world
In 2015, the United Nations established its 17 Sustainable Development Goals (SDGs). The goals recognise:
“Ending poverty must go hand-in-hand with strategies that build economic growth and address a range of social needs, including education, health, equality and job opportunities, while tackling climate change and working to preserve our ocean and forests.”
Businesses, then, have a critical role to play. They have the global influence and economic power to make the difference where it matters most — in the communities where people live and work.
The role of finance professionals
In February 2020, AICPA & CIMA CEO, Barry Melancon, signed a call-to-action statement in response to climate change. The statement highlights the vital role professional accountants play to help their organisations embrace a sustainable way of thinking.
- Provide sound advice and services as organisations, capital markets and governments develop and implement sustainability mitigation and adaptation plans
- Use and implement existing and developing reporting frameworks, such as those from the International Integrated Reporting Council and the Task Force on Climate-related Financial Disclosures
- Contribute to the efforts to integrate sustainability risk into organisational strategy, finance, operations and communications
- Support sustainable decision-making by allocating budgets and resources, and by developing high-quality and timely information and insights through measurement and disclosure, built on robust and transparent accounting systems.
Making sense of sustainability
The sustainability landscape is confusing. When thinking about business resilience and sustainability, there are lots of options for standards and frameworks to choose from.
There’s no generally accepted set of international standards of sustainability and non-financial reporting – yet. Until there is, a great place to start is by examining sustainable practice at your organisation through the four lenses of governance, strategy, risk management, and metrics and targets.
What is the organisation’s governance around the sustainability risks and opportunities?
What are the actual and potential effects of sustainability risks and opportunities on the organisation’s business model, strategy and financial planning?
How does the organisation identify, assess and manage sustainability risks?
Metrics and targets
How are metrics and targets used to assess and manage sustainability risks and opportunities?
More than reporting
It’s important to stress that sustainability is not purely a reporting and assurance endgame. Generic sustainability metrics should not be at the expense of genuine organisational insight. There needs to be a balance: resilient sustainable organisations are not built on metrics alone.
As a finance professional, you’ll need to take a holistic view and ensure sustainability is embedded into strategy and becomes a business process across the entire organisation.
How CIMA can help you become a sustainable finance leader
AICPA & CIMA have a yearlong rolling programme of thought leadership exploring accountancy and sustainability. As part of it, we’ll be releasing introductory guides, summaries and white papers exploring sustainability and the role of the finance professional – so watch this space.
We’ll continue to watch the sustainability sphere and play a central role in its development, ensuring that the journey towards the development of standardised comparable ESG metrics is not at the expense of closing any future sustainability debate and innovation.
Finally, we aim to achieve a balance of sustainability reporting and assurance alongside data-driven insights so that resilient organisations and finance professionals can address future prosperity, planet and people challenges.