By Nick Martindale Accountancy resources Long read: the accountant’s role in sustainability 16 Oct 2017 Over the last three decades, the issue of sustainability is one that has become increasingly prominent in business. Yet even today there is uncertainty over just what it means, and what organisations need to do to meet their objectives in this area. “It is a broad term and getting increasingly so,” says Adam Williamson, head of professional standards at AAT. “There was a time when people would look at sustainability and think about environmental issues but it’s far greater than that now. In many ways it’s about survivability; there is no point looking at short-term financial gain if the company does not have a long-term future.” There have been a number of waves behind the quest for sustainability, which have all added to the vagaries around its definition, says Mike Tuffrey, co-founder of sustainability consultancy Corporate Citizenship. “Certainly there was the environmental wave, whether that was pollution or worries that we’re running out of natural resources or, more recently, carbon emissions and climate change,” he says. “Then there was a social responsibility phase, around how we behave, and then latterly it has been about making money fairly, because there has been a massive loss of trust, certainly in big business.” He believes any attempt to look at sustainability should bring all these elements together, focusing on how “a company can go on creating value for its owners and those with a stake in the business in the long term, having regard to environmental limits, economic prosperity and social fairness”. The push for organisations of all sizes to do more to improve how they operate has been growing steadily, but this has increased further over the last few years. One factor is legislation, says Karen Higgins, senior manager, sustainability, at Grant Thornton UK LLP, including the Modern Slavery Act, the National Living Wage and the Energy Savings Opportunity Scheme, which are forcing companies to look at their internal processes and the way they are doing business. “These are a great way to make companies review their employment processes, how they treat their people and the impact they are having on the environment,” she says. “The Modern Slavery Act also asks companies to look at their supply chain, which, for many, will be the first time they have considered the impact these companies may be having.” Alongside legislation, investors and consumers have also been increasing their scrutiny of how businesses operate. Richard Karmel, partner and head of human rights services at Mazars, points to the letter written by Blackrock CEO Larry Fink to businesses his firm invests in, pointing out that those organisations which invest in environment, social and corporate governance tend to create greater returns over the long term. Consumers, too, are upping the ante. “Social media is facilitating the communication of environmental and human rights impacts so company’s reputations – whether guilty or not – are being tarnished,” he adds. As with most aspects of business, the area of sustainability is one in which accountants are also becoming increasingly involved, particularly in making clear the financial business case that accompanies such initiatives. Tuffrey cites the example of Unilever as an example of the economic argument; reduced bills in areas such as water, waste and energy have generated savings of €700m since 2008, while sales of its “sustainable living” brands grew more than 50% faster than the rest of the business in 2016, accounting for 60% of growth. “That’s a company that has really embraced the sustainability agenda and is seeing the business payback,” he says. “Finance directors who sit on the boards of companies that are thinking about this more broadly and long-term will be very alive to these discussions and to calls from certain investors.” Accountants have an important role to play in identifying targets and key performance indicators which can be used to measure progress over time and included in annual reports, and to help firms assess the economic arguments around different business decisions. This can include the use of a “shadow price of carbon”, adds Tuffrey, where metrics such as carbon emissions are given a value and factored into any purchasing decision. “It can mean that you take a decision on a different basis,” says Tuffrey. “Accountants come to the fore of those sorts of decision.” As well as helping to make the economic case, accountants can advise clients on how to start their journey towards becoming a more sustainable business, and reduce the risks associated with being perceived to not be acting responsibly. “The first measure is for business to understand where its sustainability risks lie and then communicate about them,” says Karmel. “Once stakeholders know that the business understands its sustainability issues it will give them more confidence that they are dealing with a responsible business. It is then that the business needs to put plans in place to address each issue and work out how best to embed them across the whole business.” Mazars is involved in such discussions with a number of clients, he adds, helping them identify risks and how to tackle them. There are some risks which accountants are particularly well placed to advise on, and should be doing anyway as part of their wider remit. Money-laundering is an obvious area, says Williamson. “They should be the ones leading the charge in terms of making sure that our own house is in order, and then being able to advise their clients on how to avoid the pitfalls involved in that,” he says. “It is a global phenomenon but the human aspect of it is often forgotten. It’s not low-level crime; it’s about modern slavery, and human and sex trafficking.” Accountancy firms are also increasingly taking steps to improve their own sustainability credentials, both to benefit from the cost savings but also to practise what they preach to clients. Many large organisations now have dedicated sustainability teams to look at this; Grant Thornton, for instance, runs a number of programmes designed to support the financial and entrepreneurial skills of young people in the UK, and also encourage entrepreneurs in the developing world, as well as taking steps to reduce its carbon footprint. But this is not solely the domain of the larger firms, even if they can afford to dedicate more resources to it. Research by Corporate Citizenship found small firms in general tend to do proportionately more in the way of sustainability than large businesses, although they often don’t have the policies or metrics in place to assess this. Williamson, meanwhile, believes smaller firms can be put off by a perception that taking steps to address sustainability may involve spending large amounts on glossy brochures or charity donations, but says such fears are misplaced. “This is about bringing all these elements into their decision-making, and by doing that they will automatically start to identify areas where they either giving value to sustainability or taking away from it. Companies of any size can start to engage with this process. They don’t need to be shouting it from the rooftops; it will simply become a day-to-day part of running their businesses.” Professional bodies such as AAT have a duty to help spread that message, he adds, so more firms realise they can get involved in such initiatives. One practice which has embraced sustainability is Bishop Fleming, which employs 300 staff across seven offices in the south-west. The firm decided to start looking at its own sustainability practices – focusing largely on the environmental elements – back in 2011, after it took over another business and, alongside this, found itself increasingly talking to clients about the potential savings they could make on energy bills. “We wanted to analyse what we were consuming as an organisation,” says Ewan McClymont, grant services director who also leads the firm’s sustainability efforts. “We found the things we were using a lot were paper, mileage and then gas and electricity.” The firm set about trying to reduce its consumption in these areas by 5% each year, which it has managed to do every year since. “We have managed to reduce our paper usage by 35%,” he says, partly as a result of a virtual document management system which means everything is now scanned as it comes into the building. Other measures include the use of low-energy Wyse boxes in place of traditional computer terminals, and videoconferencing, which has reduced the amount of miles – and time – staff incur travelling to its various offices or clients. Aside from making significant savings on its own internal costs, McClymont says the business has benefited in other ways, too. “When we’re competing for work, increasingly we’re asked what we’re doing on sustainability or renewable energy,” he says. “Customers are much more aware of that now. “The other thing we’ve found it’s really important for is staff recruitment. We’re always trying to find the best talent and we have to sell ourselves to people who we want to work for us. If you have a policy in place and can show that you’re actively trying to improve in these areas, then that’s one of many things which helps to form an impression of the culture and identity of the business.” With firms coming under pressure from customers, consumers, investors and employees, and the savings that businesses can incur in certain areas, there is little doubt that the issue of sustainability is likely to become more important in the future, or that accountants need to be aware of both the opportunities and challenges that come with this. “The over-arching professional and regulatory bodies are all pushing integrated reporting, which brings all these elements into play and requires people to be very open about what they have done in engaging with this, and that will have a trickle-down effect,” says Williamson. “If you want to compete in that market, whether it’s accountancy or other financial services, then you will have to do so on those terms. If you’re not part of that process then you won’t be running a resilient business and you have every chance of failing.” Nick Martindale is a freelance journalist, editor and copywriter. He regularly contributes to a wide range of national and business media, including The Telegraph, Raconteur supplements in The Times and HR magazine.