Recording and advising on money-based transactions has been the superpower of accountants for centuries.
To enhance their superpowers accountants must now take account of natural and social capitals. Already larger companies are required to report on their environmental, social, and governance (ESG) impact. It is only a matter of time before smaller organisations are required to follow suit.
Don’t wait for regulation
It is a mistake to wait for regulation before acting. This is because the success of organisations is now influenced by the extent that they can mitigate the risks and take advantage of the opportunities that arise in the new sustainable economy.
Already, smart organisations of all sizes are implementing strategies that respect natural and social capitals in their business models. These organisations will be the winners in the new sustainable world.
Examples of how accountancy firms are advising these winners are being seen in the new AccountingWEB Pride – ESG category at the Accounting Excellence Awards. Firms entering this category have already explained how their support of green initiatives has increased client and staff retention.
The accountants advising the winners start by taking account of the impacts of natural and social capitals before they are reflected in financial/monetary transactions. They gain a strategic advantage by acting in advance of economic change.
What are these different capitals?
Financial/monetary capital: The measurement of possessions gathered by creating monetary wealth and day-to-day movement in economic transactions.
Natural capital: The essential resources on which humanity and all living things depend, including air, water, soil, plants, food, biodiversity, natural habitat, and climate.
Social capital: How we function together as people effectively. It includes collaboration, fair distribution, trust, participation and caring for each other.
Why is it inevitable that natural and social capitals will be reflected in financial capital? The simple answer to this question is that if we don’t, society as we know it will likely fall into chaos. The natural world would become inhabitable in many places around the globe due to water shortages, crop failures, pandemics and other disasters arising from climate change, biodiversity loss and other human influences on the natural order of the planet.
Why is this part of the accountant’s remit?
The following forces are driving the inclusion of natural and social capital into the accountant’s remit:
Governments: Governments worldwide are taking action to encourage organisations to account for natural and social capital by passing laws and creating taxes and incentives that accelerate the transition to environmental and socially positive outcomes.
The natural world: Severe weather events cost money in numerous ways. Biodiversity loss has been linked to issues such as pandemics that disrupt economies. Abuses of the natural world are costly and are making some operations uninsurable.
Society/consumers: People are starting to understand the issues relating to environmental and societal justice and are concerned for the future. Consumers are beginning to make choices based on the sustainability footprint of their purchases.
Investors: Environmental and social issues put investments at risk. Investors are starting to require that their money positively impacts society and the environment. Regulators are accelerating the shift to responsible and impact-led investment.
Business acquirers: Businesses are being sold for a premium if they can demonstrate that they are mitigating the risks and taking advantages of sustainability issues.
Economics: Scarce natural resources, the impact of climate change and the cost benefits of green technologies create compelling economic scenarios. These save money and create competitive value and wealth for risk-takers and breakthrough inventions.
Technology: Humans are inventing methods of harnessing natural resources such as solar, wind, and waves that are less harmful to the environment. The cost of new green technologies is decreasing rapidly without costing the earth.
Customers: Consumers, larger companies, and governments are bringing sustainability factors into their procurement choices, so it is becoming harder for non-sustainable businesses to win business.
Employees: Employees want to work for companies that positively impact their communities, society, and the environment.
Cost of running business: Sustainability often means less waste, the avoidance of unnecessary consumption, less travel and improved efficiency. By acting sustainably businesses use fewer resources to achieve the same outputs. This results in cost savings and improved profits.
Purposeful business: A focus on natural and social capitals alongside ensuring that the financial side of a business works, brings about renewed purpose for businesses that creates positive motivation and success.
Grant funding: Charities and businesses with sustainability credentials are being prioritised for grants over those that can’t demonstrate net zero plans and ESG credentials.
The above forces are changing organisational business models. Accountants that include the impact on financial plans, business cases, budgets, and cashflow forecasts, help their clients succeed in the new sustainable economy.
Failure to do so will result in missed opportunities and possibly business failure.
How do you start enhancing your superpowers? Watch out for more articles on this topic.
ESG, SDG, CER, GRI, FSC, LCA, WELL Read More