Professional Accountants in Business, At the Heart of Sustainability, IFAC

Overview

The recognition governments and many organizations have given to sustainability and sustainable developments are changing business culture and society. The global challenge is to ensure that organizations' sustainable development practices (a) reverse the previous erosion of natural resources, and (b) improve their environmental, social, and economic performance. This requires radical changes in the way we do business and the way we live our lives. Although many organizations aspire to being responsible, few could claim to be truly sustainable.

This web-based tool targets professional accountants working in commerce, industry, the public sector, education, and the not-for-profit sector who the International Federation of Accountants strongly believes can influence the way organizations integrate sustainability into their objectives, strategies, management, and definitions of success. Professional accountants in all types of organization have a significant role in:

• Challenging conventional assumptions of doing business;

• Redefining success;

• Establishing appropriate performance targets;

• Encouraging and rewarding the right behaviors; and

• Ensuring that information flows to support decisions and to monitor and report performance go beyond the traditional ways of thinking about economic success. Being sustainable requires an organization to take full account of its impact on the planet and its people.

The role of professional accountants has therefore expanded beyond that of preparers or assurers of financial and sustainability reports. Professional accountants need to adapt to a world in which sustainability is the key to long-term business performance, and need to understand how, in their diverse roles in organizations, they play a significant role. Sustainability has many connotations, depending on an individual's viewpoint. It means much more to organizations than better reporting on environmental, social, or economic performance. In clearly defining the different facets of sustainability, the IFAC Sustainability Framework can help professional accountants grasp all the important aspects of sustainability that they may encounter, directly or indirectly, and that will be important to their organizations.

Sustainability has three important dimensions for all organizations: (a) economic viability, (b) social responsibility, and (c) environmental responsibility. Although trade-offs can occur between these dimensions, generally being socially responsible (towards employees, communities, and other stakeholders), and environmentally responsible, lead to enhanced trust, and therefore makes good business sense. Social and environmental responsibility cannot, however, stand in isolation from economic viability. Profitability and growth create jobs and wealth; organizations must therefore continue to provide products and services that people want. While pursuing a commercial imperative, organizations must also deal with social and environmental issues as part of ensuring that they generate added value for an organization and its stakeholders. An example of what sustainability practically means for an organization is at box 1.

Understanding the sustainability landscape is the first step in being able to demonstrate how to use this greater awareness to benefit their employers and the public interest. Accountants' professional background and orientation equip them with the necessary qualities to support their contribution - namely, wide business understanding, numeracy and knowledge of measurement, and objectivity and integrity. Applying these competences to sustainability issues can help organizations to embrace sustainable development, and to incorporate it into strategic planning and execution. This will allow organizations to simultaneously deliver improved business performance and to contribute to a better world.

Professional accountants around the world will also find themselves in varying situations. Some countries have governments, non-governmental organizations (NGOs), and other stakeholders, who enthusiastically support the rising prominence of sustainability and corporate responsibility. In such places, many organizations typically have a longer history of undertaking sustainability initiatives, although their implementation might not always match the rhetoric.

In some parts of the globe, such as in parts of Africa and Asia, the emphasis on and priorities for sustainability initiatives may differ because many emerging and high growth economies are focused on building infrastructure and securing the necessary resources to support economic growth and widespread economic development. Therefore, it does not necessarily follow that the approach western organizations take to sustainability and corporate responsibility will be at the same level, or applied in the same way, in other parts of the world. Yet after a period of globalization in which labor productivity has helped the rise of high growth economies, such economies will be increasingly challenged to use resources (energy, raw materials and water) more efficiently. Consumers, NGOs, and international organizations such as the Organization for Economic Co-operation and Development (OECD) and the United Nations, are helping to ensure that regardless of where organizations are based, it is clear that sustainability issues have to be embraced if they are to gain acceptance and enhance their reputation. Most large multinational organizations have already started to ensure that their standards of behavior extend throughout their supply chain, with mixed success. It is now increasingly difficult, if not impossible, for any organization to avoid embracing sustainability at least in a minimum way, by understanding the link between financial performance and sustainable development.

The IFAC Sustainability Framework will also help IFAC to determine how it can most usefully support professional accountants with further guidance, and we welcome feedback from professional accountants and others on the way this Framework presents (a) the field of sustainability, and (b) the particular role of professional accountants in facilitating and supporting sustainability and sustainable development.

Using the Framework

The IFAC Sustainability Framework consolidates all of the important aspects of sustainability for organizations wishing to deliver long-term sustainable value to their stakeholders.

So many information sources cover various aspects of sustainability and sustainable development that it has created information overload. Accountants therefore find it very difficult to get a coherent view of all the various perspectives of this topic that organizations embracing sustainable development must understand.

The Framework addresses four perspectives in bringing together all the critical areas required to successfully manage a sustainable organization. These perspectives are: business strategy, internal management, financial investors, and other stakeholders. Organizations that have successfully embraced sustainable development to add value to the organization and its stakeholders have usually taken action on all four perspectives.

Different groups of professional accountants might have more interest in specific areas of the Framework. For example, professional accountants working at senior management levels might be more focused on the business strategy perspective, although all accountants should understand that the success of all other activities depends on action and performance at a strategic level. Professional accountants working in performance management-related roles (including planning, budgeting, performance measurement, and roles such as business/financial analyst) may direct their attention to the internal management perspective, and those preparing business and financial reports, or involved in providing audit and assurance, might find the investors' and other stakeholder perspectives of most use.

The Framework provides many examples of good practice, so that professional accountants can easily seek more detailed information on areas of particular interest. These are mostly hyperlinked and will be updated over time.

The four perspectives are summarized below:

Part A: Business strategy perspective - Taking a strategic approach

The Framework emphasizes the importance of adopting a strategic approach, so that sustainable development is a part of strategic discussions, objectives, goals, and targets, and is integrated with governance and accountability arrangements and risk management. Ensuring that sustainable development is featured at a strategic level, supported by leadership and envisioning, is the only way to ensure its integration into all parts of the operational plan-do-check-act management cycle. Only by taking a business strategy approach can organizations make sustainable development a part of doing business, as opposed to an add-on luxury that encourages rhetoric rather than sustainable business models and practices.

Part B: Internal management perspective - Making it happen

The internal management part of the Framework focuses on all those areas covering performance and change management that help an organization to deliver on its strategy and specific sustainable development objectives and targets. In many organizations, (a) enhancing performance evaluation and measurement, (b) changing behaviors, and (c) introducing sustainability and environmental accounting as an extension of existing accounting/information systems to accommodate organizational plans for sustainable development, can be a challenge for organizations, and can take time to achieve. Therefore, this perspective also includes advice on how organizations can achieve relatively simple quick wins to improve energy efficiency and reduce waste, that can help them improve environmental performance while reducing their costs, all in a relatively short time frame.

Part C: Financial investors' perspective - Telling the story to investors

Organizations that are well developed in the internal management perspective are usually in the best position to deliver high-quality information about their sustainability and corporate responsibility performance to investors. The Framework offers advice on both incorporating environmental and other sustainability issues into financial statements in a way that supports an organization's stewardship role and enhanced reporting to investors in financial reporting, including narrative reporting using management commentary.

Part D: Other stakeholders' perspective - Wider transparency

The final perspective considers an evolving part of sustainable development that builds on the development of stakeholder relationships (covered in the business strategy perspective) to improve transparency and non-financial reporting against a broader set of expectations. Such reporting commonly takes the form of separate sustainability or Corporate Social Responsibility (CSR) reports that may be based on de facto standards, such as those from the Global Reporting Initiative (GRI). This perspective also includes sustainability assurance, to help to improve credibility and trust.

The need for a pragmatic view

Many sustainability issues cut across all the perspectives defined by the Framework, and to a large extent the perspectives are interconnected. For example, in dealing with carbon emissions, professional accountants should understand (a) its strategic importance for the organization, (b) the internal management and measurement perspective, (b) the external reporting of carbon emissions, and (c) the engagement with wider stakeholders in considering an organization's long-term carbon footprint.

The distinction between an investors' perspective and a wider stakeholders' perspective is not designed to portray that those issues covered in the other stakeholder perspective (such as the climate change reporting, determination of materiality and external review and assurance) are not relevant to investors. These areas will be of interest to many investors but may not be mainstream for all. Therefore, the financial investor perspective includes issues and areas of primary importance to investors but in considering the reporting needs of investors and other stakeholders, professional accountants should consider the issues covered in both parts C (Financial Investors) and D (Other Stakeholders) of the Framework.

Establishing the role of professional accountants and the finance function

The Framework will provide professional accountants with an opportunity to consider themselves as knowledgeable change agents. Professional accountants are in a good position to help organizations interpret sustainability issues in a relevant way for their organizations, and to integrate those issues into the way they do business. Corinne Proske, Corporate Social Responsibility Manager for the National Australia Bank, usefully captured the opportunity in IFAC's 2006 interview-based paper, Professional Accountants in Business, At the Heart of Sustainability:

Sustainability is at the heart of what Proske does. "It is the basis of my role. I see myself as a change agent for sustainability in the organization. The strength of my accounting skills enables me to talk to the business in their language." She is the bridge between the two cultures and identifies herself as "a translator...Sustainability becomes a powerful tool. It is embedded in everything I do. For example, today I have been working with the community on a micro-finance program. It is a partnership about providing loans to low-earning people who the bank would normally decline. It is about low esteem. It is going back to how to interpret sustainability and make it relevant to the business we are in. And in this example, it is providing credit."

It is also important to consider where the responsibility for sustainability performance management (including risk management) and reporting sits in an organization. Many organizations position the finance function to take the lead in sustainability performance management because:

• Sustainability management involves managing risk, measuring and managing performance, and reporting performance internally and externally through various voluntary and compulsory initiatives. This plays to the strengths of professional accountants working in finance functions;
• External reporting of sustainability information requires relevant, accurate and complete data that may be externally assured. Professional accountants understand the need for quality data and robust systems to capture, maintain and report performance;
• Non-financial systems (including those capturing sustainability performance data and other information) often have poor controls compared to financial systems. Professional accountants can help assess and improve these controls and systems.
• The finance function is usually best placed to influence behavior through incorporating sustainability considerations into business cases, capital expenditure decisions, cost allocation and integration with remuneration and strategy.

There are various ways to establish roles and responsibilities to ensure sustainability is integrated into normal business activity. It is also important to ensure that sustainability opportunities and risks are integrated into an organization's way of managing overall risk, in which the participation of different parts of an organization will need to be facilitated. An example approach to fostering a partnership between the finance team and risk managers is Qantas. At Qantas the Chief Risk Officer is a key sponsor of sustainability, and the finance team within the Risk and Assurance business segment is responsible for delivery.

click on one of the perspectives