Accountants in business — at the heart of sustainability?

IFAC’s Professional Accountants in Business Committee recently set out to get a better understanding of the role of accountants in sustainability efforts worldwide. This resulted in two research papers that suggest accountants can be crucial  to the process.

In 2006, the International Federation of Accountants’ (IFAC) Professional Accountants in Business Committee (PABC) set out to increase the awareness among Professional Accountants in Business (PAIBs) of the important issue of sustainability. This led to the publication of two papers: Sustainability — the Role of the Professional Accountant in Business, and Professional Accountants in Business — At the Heart of Sustainability?

The latter of these two papers included a lengthy discussion with accountants from around the globe regarding what they and their companies are doing to make these organizations sustainable entities. The views of many of the professional accountants in business surveyed for this project are innovative in the context of the profession’s efforts towards sustainability. IFAC continues to be at the forefront in promoting ethics and corporate social responsibility to all its member bodies. The following is an excerpt of this important paper.

Rising awareness

Sustainability is a vital issue for business and the concept, quite simply, is about developing a corporate strategy that responds to stakeholders’ expectations while ensuring long-term performance and profitability.

Andrew Hewett, global sourcing development manager for U.K. retail group Kingfisher, illustrates the link between his business and sustainability. “We sell garden products so timber sourcing is a key issue for us,” he explains. “If we do not focus on sustainability, then we will not be able to sell products in the future. We will not have a supply or customers may not buy them from us.”

Of course, good environmental and social standards mean nothing if they do not ultimately make a positive difference to peoples’ lives. For some of the firms featured in this project, sustainability and its positive effects on business have been focal points for a long time.

Henk de Bruin, head of the corporate sustainability office at electrical appliances giant Philips, believes that the founders of the firm had sustainability in their genes. “Philips introduced profit-sharing in 1906 and company schools in 1905 so for us, sustainability is nothing new,” he explains.

Michael Foley, assistant corporate controller at U.S. healthcare giant Johnson & Johnson, agrees. “Sustainability is a fairly recent term,” he says, “but the concept has been well known within our firm for many years. It is part of our value system.”

A similar approach is evident at banking giant ABN AMRO which has just produced its third annual report on sustainability. Sandrijn Weites, head of sustainability strategy and reporting, explains the importance of sustainability to the banking industry; “Banking is all about trust and we need our clients to be able to trust us.” In fact, ABN AMRO tested sustainability against six core values to check whether sustainability adds value. “In each case, we have proved that sustainability does add value, not only for our bottom line but for our stakeholders and our reputation,” Weites explains.

Nancy Tse, director of finance for the Hong Kong Hospital Authority, believes accountants have a key role to play in contributing to the sustainability of the organization. Her views on the best way that professional accountants in business can be equipped with what they need to know on sustainability are to the point. “We need continuous learning,” she says. “And we need to think globally and creatively in the use of assets.”

One of the foundations of sustainability is good business sense, which Corinne Proske of the National Australia Bank, underlines. “I sometimes worry that the sustainability lobby believes its own rhetoric,” she argues. “They forget that sustainability has to be relevant to the business. It’s not about applying some formula. Sustainability should be about good risk management and reputation, which previously hasn’t been actively managed.”

Understanding sustainability

For professional accountants in business, sustainability is about thinking in broader terms than just finance. Issues such as science, statistics and performance measurement all come into play.

Some interviewees for this project offered different definitions of sustainability; some preferred internationally accepted definitions. Tony Trahar, CEO of mining giant Anglo American, adheres to the Brundtland definition which says sustainability is about meeting the needs of current generations without compromising the ability of future generations to meet their own needs.

Johnson & Johnson’s Michael Foley believes sustainability is a question of “the ability to meet the needs of the present without compromising the future.” Philips’ Henk de Bruin defines sustainability as “an ideal state of where you think the world will be in 30-40 years time.”

He adds, “You do have to be a good corporate citizen but there is also a business case for cost savings and being an employer of choice.”

“We don’t view sustainability as a business add-on or hype,” agrees Corinne Proske of National Australia Bank. “For me, sustainability has evolved over time. Initially I concentrated on the environmental side of sustainability. Now I see it as balanced decision making, factoring in non-financial values, primarily the social and environmental impact on performance.”

Separating sustainability from hype was important. Andrew Jackson, CFO of the U.K. Atomic Energy Authority says he has seen sustainability used in the “politically correct” sense. “In the business sense, sustainability is about optimizing long-term objectives, not maximizing the short term,” he adds.

A solid business view of sustainability, in which environmental considerations can actually prove to be profitable, was important. Nick Shepherd, president of the Canadian-based consulting and training company, EduVision, believed there are wider stakeholder interests involved and intangible assets have grown in importance. He explained, “These issues tend not to sit on the balance sheet but they are the issues that enable business to survive in the long term.” He added that for him, sustainability is a simple concept. “It is the capability of a corporate organization to add value and to continue to exist as an entity.”

However, he added a warning, “Unless the accountancy profession embraces sustainability, we will become less and less relevant to society.”

PricewaterhouseCooper’s Luis Perera, who is based in Chile and is in charge of sustainable business solutions for the firm, emphasized the fact that the financial service sector is a provider of public trust in the financial performance of a company. “The public need for public trust is not just financial,” he explains. “It is about how a company can sustain itself in the future and there is a need for professional accountants to assure the public that a company is acting in a way which sustains.”

“Sustainability,” as Andrew Jackson puts it, “is about understanding what the long term objectives of the business are about. If you don’t understand that then the future is less predictable.”

Sustainability within a corporate model

The concept of sustainability appears to be having a profound effect on the way professional accountants in business see their role. In the wider business context, it’s about making a difference. Moreover, it’s not just an issue for accountants working for large corporations; sustainability matters to all firms, large and small. Corinne Proske explains that sustainability is the basis of her role. “I see myself as a change agent for sustainability in the organization,” she adds. “The strength of my accounting skills enables me to talk to the business in their language.” In essence she is the bridge between the two cultures. “I am a translator,” she says.

Nick Shepherd believes sustainability is “beyond compliance.” He adds, “It is about being a leader rather than a follower.” Luis Perera, meanwhile, says for him, sustainability is about understanding each other better. “Sustainability allows you to get a sense of a mission in what companies are doing,” he explains. “If you have a long-term view, then sustainability can help you adhere to a model that links your longer-term view with that of your organization.”

Henk de Bruin concludes, “If you understand sustainability, you understand that on the one hand sustainability is about risk and reputation and on the other hand it is about business opportunities.”

Sustainability and corporate change

The concept of sustainability as a force that brought about other changes within the financial model is another theme which emerged from the interviews. Intangible efforts on behalf of sustainability need to be recognized and understood. For example, Sandrijn Weites of ABN AMRO believes energy use reductions would create a better environment but would also improve employee engagement as staff became aware of the company’s drive to create a better environment.

Michael Foley provides another example; “If we prioritized investment solely on the basis of financial return then many projects such as environmental ones wouldn’t make the cut. We came to an agreement to allocate funds to environmental projects rather than having it compete with other allocations, but we need to recognize objectives which don’t always have financial measures.”

Of course, sustainability opens up business opportunities which wouldn’t have been touched before. Corinne Proske gives a specific example; “I have been working on a program about providing loans to low-earning people who the bank would normally decline. For us, it is about going back to how to interpret sustainability and make it relevant to the business we are in.”

“Organizations need to recognize sustainability as an integrating umbrella,” Nick Shepherd adds. “For example, if you look at management tools like the Balanced Scorecard, companies are filling in all the boxes but they need to look at what the tool is supposed to be doing for them and to look at it in the context of sustainability.”

Stakeholder pressures

Engagement with a wide range of stakeholders lies at the heart of sustainability. In the 21st century, the expectations of stakeholders — from consumers, employees and investors to communities and governments — are rising. Shareholders may continue to demand greater dividends, but no longer at the expense of the environment and public interest. Tony Trahar, CEO of Anglo American explains, “We are working within an industry with a high impact on social systems and the environment. People are becoming more vociferous and the mining industry has not been good at addressing these issues. We try and act in such a way that governments can see we are adhering to high standards wherever we operate.”

ABN AMRO’s Sandrijn Weites says sustainability is a system for stimulating change. “We have 500 meetings with NGOs annually,” he adds. “We engage with them when developing a new risk policy by asking their opinions. The same goes for clients, staff and even our suppliers. Suppliers have to understand there is a need to have a proper policy in place, otherwise they cannot be a supplier of the bank.”

These sorts of debates and pressures produce results. Henk de Bruin at Philips explains, “We started redesigning products to reduce energy consumption at the beginning of the 1990s and we have influenced legislation on the recycling of electronic products to reduce environmental impact.” All these measures produce old-fashioned business advantages. “Green products drive costs down,” de Bruin adds. “Using our EcoDesign principles, the material costs of the products go down in six out of ten cases.”

The same process of responding to stakeholder pressures helps in other industries. “There are unique points of view,” says Andrew Jackson. “For example, in decommissioning nuclear risks, logic tells you the quicker you do that the better for the U.K. economy. But local stakeholders worry about what will happen to the economy when decommissioning is complete. They have concerns for local employment and business. So you have a conflict between two admirable goals. Therefore we spend a lot of time engaging with local communities.”

Accountants in business and sustainability

Most interviewees felt that a great deal more effort was required to ensure that accountants in business are up to speed in this field, to understand the role they could occupy and to make a difference. They also stressed the need for teamwork across different disciplines. “The traditional accountant has to learn to think in other ways than money,” says Henk de Bruin of Philips. “For example, you may be used to the accuracy of counting money but if you measure environmental issues you need to understand statistics, variances and scientific measures,” he argues. “You therefore need a multi-disciplinary team.”

“It’s part of the transition from adding up the monthly figures to being more involved in the management of the business,” points out Andrew Jackson. “Accountants must get more involved. That is where the profession is going.”

Luis Perera argues that the profession is still remote to the idea of sustainability. “We are ideally positioned to be the supplier of trusted information but the profession needs to be better educated in sustainability,” he adds. “I would like to see our professional organizations doing courses in this subject so that we are not just involved in providing financial information.”

“Accountants need to take note of the outside world,” says Sandrijn Weites. “They also need to be more open to experimentation when it comes to sustainability reporting and auditors need to familiarize themselves with this field.” Corinne Proske believes there needs to be a greater understanding of what professional accountants in business can bring to sustainability. “The professional accountant in business needs to have an awareness of the sustainability agenda and factor it in to the business and ensure that it is embedded,” she says.

She adds that greater accounting involvement in the purer areas of sustainability would be beneficial. “In the community sector for example there is a lack of rigor, systems, transparency and accountability which is quite surprising. You just keep wanting to throw an accountant in there to fix it.”

How to contribute more

Society has changed and the market has changed and there was no doubt amongst interviewees that sustainability had completely altered corporate strategic goals. Sandrijn Weites sums it up: “Sustainability is a boardroom topic. It’s not something you do because it’s nice. The time of the fast buck is over for responsible companies; the number one priority now must be sustainable growth. Our horizon has become not just the next quarter, but the next quarter of a century.”

One way of managing this, he suggests, is to challenge existing corporate assumptions. “Business managers with day-to-day profit and loss responsibility have a short-term focus,” he explains. “Professional accountants in business need to hold a mirror up to these people and start asking questions. A profit of $180,000 may be a loss of a million dollars a year later. You need to get people thinking about the consequences.”

Nick Shepherd agrees. “The most fundamental issue for the profession is getting the point across that there is a link between financial performance and sustainability in terms of a return in investment,” he says. “It is about the ability to stay in business as an enterprise.”

Corinne Proske adds that professional accountants in business need to be stronger. “I want more accountants in this field,” she says. “I worry we forget about what we are trying to achieve.

“We get tied in by the feel-good factor but sustainability needs to be driven by business and it needs to talk business language.”

Mark Lewis, the finance representative on the Chairman’s Task Force for Sustainability at the Ford Motor Company maintains that, in the broader area of financial analysis, sustainability will be critical for professional accountants to develop analytical tools and techniques that capture the full implications of sustainability rather than just the adverse aspects of short-term costs and potential liabilities.

“The divide needs to be addressed,” argues Luis Perera. “Accountants may say they need hard data and people in business may say accountants don’t understand, but it is the professional accountants who need to bridge the divide. We are the people who understand the financial language and the language of sustainability. That should be the main contribution of the professional accountant in business.”

“It’s absolutely critical,” says Nick Shepherd of EduVision. “If our only claim to fame as an accounting profession is counting things which are less and less relevant then that’s an indictment of our profession.”

Good ethical practices are here to stay. For professional accountants in business, being answerable for behaviour on the issue of sustainability is vital to improving public perceptions and to winning stakeholders’ trust. All professional accountants in business now need the knowledge to handle the responsibility that comes with their expanding roles as it’s clear sustainability can no longer be an optional add-on for business.

To download a copy of the full report, Professional Accountants in Business — At the Heart of Sustainability?, visit the IFAC store at www.ifac.org/store. Excerpt of Professional Accountants in Business — At the Heart of Sustainability? Copyright August 2006 by the International Federation of Accountants. All rights reserved. Used with permission.

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