5 features of a sustainable accounting practice

Our financial systems are broad and influential. From banks to regulators, from asset managers to stock exchanges, all these groups can influence the sustainability transition.

Their influence will be to place the money and the balances and checks into the system for the real economy to respond to.

The rate at which the real economy responds to the measures put in place by these groups is reliant on finance professionals working in the real economy. Either professionals working in industry or those supporting their clients as their external accountants all have the capacity to influence the transition.

The UK accountancy profession plays a crucial enabling role in sustainability. 

The professional accountancy bodies of the UK and Republic of Ireland represent over half a million global members, with membership figures reaching 536,400 in 2017. At the end of 2017, 5,660 registered audit firms were active in the UK, according to the FRC. 

The impact and influence of accounting practices and finance professionals should not be underestimated and this article explores what we believe are the most important features of a sustainable accounting practice.

 1.  Sustainability advocates

Accounting practices are well positioned to be advocates of sustainability and the first step to becoming an advocate is to have a sustainability strategy for your practice. 

Through managing your risks, reaping the rewards of sustainability and educating your clients you protect your long-term value and that of your clients’.

Not only is this an important responsibility, but the role of an accountant provides a transformative opportunity to engage in and lead on upcoming changes in corporate reporting, and improve the quality of sustainability information. 

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2.  A commitment to achieving net zero

Real net-zero emissions is where the world needs to get around. It means greenhouse gas emissions through humankind’s activities will equal zero. 

In September 2019, the ‘Business Ambition for 1.5°C’ campaign was launched: a joint effort of the Science Based Target initiative (SBTi), the We Mean Business Coalition and UN Global Compact to help companies map their routes to net-zero:

 “The next decade is critical. By taking this pledge you are formalising your increased ambition and signalling your commitment to a zero emissions future to your peers, investors, policy makers, customers, suppliers, civil society organisations, and other stakeholders.” 

Businesses can declare ‘net-zero’ when either:

1) Their total gross greenhouse gas emissions are nil.

2) Their residual emissions – those that they haven’t managed to avoid whilst remaining on the 1.5C trajectory of abatement have been removed through physical sequestration – through direct removals of carbon from the atmosphere that is demonstrably audited by climate scientists as at the very least matching the quantity of residual emissions; these removals must have taken place by the net-zero target year. 

Areas more usual in an accounting practice which can be reviewed as part of their net zero commitment is energy, web/cloud hosting, your supply chain, staff restaurants, company car fleets, hotel and travel.

3.  Measuring social, environmental & financial value

There is no doubt that the measurement of social and environmental value will be of equal importance to financial value in the coming years.

It has long been argued that the point in which social, environmental and financial values overlap is the point at which you become sustainable. In other words having a robust financial, social and environmental strategy which considers carefully all its stakeholders will provide you with a financially sustainable business.

Currently, while businesses use Financial Reporting Standards or Generally Accepted Accounting Principles standards for financial reporting, there is no equivalent standard for non-financial reporting. 

As of today we have many reporting frameworks to choose from.

This should not stop accounting practices putting their best foot forward and aligning themselves to a framework which they believe works best for them. 

You can read the attached frameworks for standards for non-financial reporting which will provide you with a good overview of the options you have open to you and your stakeholder perception of these frameworks.

4.  Encouraging innovation through sustainable finance‍

Accounting practices should be really clear about their purpose and the leadership role that they can take within the market. 

They should take proactive steps to create momentum for change looking carefully at what their organisation can deliver to create the change that the world needs to see.

The level of finance in the markets to be used to invest in sustainable practices and developments and projects is significant.

Thinking more broadly about your organisation and what impacts it can truly have on the environment and society could well open up opportunities for sustainable investment.

With regards to accounting practices, we believe there is a real impact potential through impact business models that benefit, for example, underserved parts of the population.

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5. Managing sustainability risk 

Growing recognition of the risks posed by climate change has started to drive significant action by governments, companies and individuals. 

In a recent report, Ceres, a non-profit organisation working with investors and companies to find solutions to the biggest sustainability challenges, set out the various risks associated with failing to manage natural capital in the form of climate change. 

To become a truly sustainable accounting practice your first action really should be an assessment of the risks that your business faces. 

Material risks are those that you can influence or control and will have the highest significant impacts on your practice.

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At Profit Impact we believe those risks which mostly apply to accounting practices are reputational, regulatory, transition and human capital risk.

Throughout 2021, in partnership with the ACCA, I will be coming together with fellow accountants to explore and learn from each other how we can progress the sustainability transition within accounting practices.

 If you’d like to be notified of the dates when launched please let me know sarah@profit-impact.co.uk - your input would be very welcomed.