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Winners in the new sustainable economy

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With the launch of the brand new ESG category at the Accounting Excellence Awards, Peter Ellington urges accountancy firms to take advantage of the new sustainable economy.

7th Mar 2023
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Recording and advising on money-based transactions has been the superpower of accountants for centuries.

To enhance their superpowers, accountants must now bear natural and social capitals in mind. 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 considering 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.

Replies (6)

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By djn
07th Mar 2023 12:45

I wonder if it's only me that couldn't care less about this sustainable accounting type waffle.
Hope I don't offend anyone but it just does not seem to interest me one bit and just seems a lot of work for little benefit.

Thanks (3)
Replying to djn:
Ellington
By Peter Ellington
26th Mar 2023 07:59

I’ll respond with a quote from the IPCC Synthesis Report, which the article is referring to “C.1 Climate change is a threat to human well-being and planetary health (very high confidence). There is a rapidly closing window of opportunity to secure a liveable and sustainable future for all (very high confidence). Climate resilient development integrates adaptation and mitigation to advance sustainable development for all, and is enabled by increased international cooperation including improved access to adequate financial resources, particularly for vulnerable regions, sectors and groups, and inclusive governance and coordinated policies (high confidence). The choices and actions implemented in this decade will have impacts now and for thousands of years (high confidence)”.

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By Hugo Fair
07th Mar 2023 13:23

It's great to have a social conscience and to want to leave a better (not worse) world for our children, but only "Financial/monetary capital" measures the growth (or otherwise) of capital assets in units that we use to charge or pay for transactions.

It is NOT "inevitable that natural and social capitals will be reflected in financial capital", that's a choice ... and the rest of the article is a (failed) attempt to retrofit all the buzzwords into Accounting.

Strangely, it is possible to care about the issues and to seek to ameliorate the outcome in the next 5 / 10 / 20 years - but without making meaningless connections that feel tantamount to greenwashing.

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Replying to Hugo Fair:
Ellington
By Peter Ellington
26th Mar 2023 08:04

“Strangely, it is possible to care about the issues and to seek to ameliorate the outcome in the next 5 / 10 / 20 years - but without making meaningless connections that feel tantamount to greenwashing”.

Very interested to hear your views on how the accounting profession adapts to climate change and how a net zero economy will effect the profession.

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paddle steamer
By DJKL
08th Mar 2023 11:54

The other issue is measurement, it is fine identifying likely/existing environmental issues but measuring impacts in a cohesive framework is currently very subjective, just say look at COP21 and INDCs, they are self measured, subjective and accordingly mere tools for various governments to say, we achieved X or Y, effectively give me your height in wibbles but nobody has a definition of a wibble.

If across national governments there is no objective climate accounting and measurement what chance measurement at individual company level has any rigour?

My daughter for her Sustainable Development MA dissertation examined COP21 measurement, feedback and rigour, I recall the conclusion was (in academic polite speak) that there frankly is no real ability to compare one government with another against their self declared targets and of course the art of politics is morphing/has morphed into saying wonderful things about how x or y advances z with no empirical evidence that this is the case, the total politics of spin.

Thanks (1)
Replying to DJKL:
Ellington
By Peter Ellington
26th Mar 2023 08:07

Yes, consistency of measurement is an issue, but accountants and accounting need to act now to take a part in addressing climate changes. Inconsistencies in measures is not a reason to not act, when society faces such a challenge. See the latest IPCC Synthesis Report which sets out how serious the situation is.

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