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Mark Billington: Operate within environmental limits.

By Mark Billington

Sustainability should and will move further up the agenda of governments, regulators and businesses. It will as there are signs of the economic crisis easing in parts of the world. This move will be further fuelled by the high profile UN climate change conference in Copenhagen, where world leaders will seek to agree an effective climate change deal. This will follow on from the first phase of the UN’s Kyoto protocol, which expires in 2012.

There are several aspects to sustainability. Environmental sustainability is one of them. However, sustainability is about more than carbon levels. The economic crisis has raised questions about the viability of global markets from other perspectives. It has become clear that we cannot continue in the same track as before; a different vision of the world and business’s role in it must be achieved that meets the imperative of sustainability. The argument is no longer about ‘environment’ or ‘wealth’ but how to achieve a prosperous and sustainable world.

To achieve a market system that promotes sustainability economic activity and business models must operate within environmental limits. Trusted flows of reliable and accurate information are central to the success of any system and especially to one that is as information-intensive as this. Information flows and the processes that support them are the natural territory of accountants and they and the financial services sector have a key role to play in developing markets that drive a world that serves both people and planet.

If there was ever any doubt, the crisis has made it absolutely clear that the world’s capital markets are interlinked. That means there is a need for a globally coordinated response to the crisis and also a globally coordinated effort to promote sustainable markets, business and behaviour.

There will be increased pressure on businesses to demonstrate their sustainable and ethical behaviour in months and years to come. And there will be increased pressure on investors to show that they invest in sustainable companies.

A key objective of the Copenhagen conference is to agree targets for greenhouse gas emission reductions. As climate change is probably the single most important issue we all face today, this is a critical step in the direction of securing a sustainable worldwide economy and society and it will require boldness and leadership to achieve.

However, the global effort to reduce emissions must be properly measurable and comparable across country borders, not least to allow investors to make more informed decisions about the companies they invest in. The ICAEW therefore believes it is essential to agree universal standards for measuring, monitoring and reporting greenhouse gas emissions.

It is also important that this information is integrated into mainstream business reporting and linked to business performance. There is a wider need for a more integrated approach to reporting financial and non-financial information in areas that might impact on the achievement of a sustainable global economy. For all this to happen, we believe the world leaders in Copenhagen should support a collaborative effort to agree a global standard for the reporting of a company’s impact on its environment.

Currently, investors, other stakeholders and regulators need greenhouse gas emissions information. Many organisations all over the world already report such data, something which has come about as a result of, among other things, investor requests. However, the challenge – especially for investors and companies operating across country borders – is that there is a vast number of reporting frameworks and protocols out there, meaning the type of information and the way it is presented varies greatly from business to business and from country to country.

The various frameworks have different ways of calculating emissions, setting targets and monitoring progress. Overall, this paints a rather confusing picture and might hamper rather than aid decision-making. The lack of one agreed global framework might also encourage companies to avoid disclosure.

Benefits of a uniform and transparent global standard for emissions are well documented. They include reduced complexity and increased clarity, comparability across country borders and better information to meet all stakeholders’ needs.

The ICAEW has been actively engaged in working with the Carbon Disclosure Standards Board (CDSB) on developing an effective reporting framework that can provide guidance to businesses on what information they should include in their annual reports.

The framework was published for public consultation earlier this year and is currently being refined ahead of the Copenhagen conference. It is not about more reporting but about better reporting. Rather than creating something new, the framework builds on existing protocols and standards. It also links an organisation’s climate change data to its risk, strategy and financial performance. A key aim of this initiative is to make climate change data reporting as mainstream as financial reporting. A long-term aim is also to ensure that all sustainability issues, not only greenhouse gas emissions, should be reported in the future to further aid the decisions of investors.

Fundamental to the development of a market system that promotes sustainability is reliable and accurate information – this is the domain of qualified accountants and an area to which the accountancy profession can contribute.

There are many lessons to be learnt from the financial crisis. If it can help us make sustainability a true boardroom issue, something good might still come out of it.

 

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