Can accountants save the world? The Prince’s Accounting for Sustainability Project (A4S) has chosen a bold topic for its debut session at the World Congress of Accountants in Australia this month, the theme of which is “global challenges, global leaders”. A4S’s executive chairman, chartered accountant Jessica Fries, explains: “The risks from environmental, social and economic crises are clear to see – not just for our planet and society, but also the future resilience of the global economy.
Finance leadership and innovation are essential to the changes needed to tackle these risks, and to create the businesses of tomorrow.” It’s not the first time economia readers have been urged to contemplate how their leadership might help change the world. Peter Bakker, president and CEO of the World Business Council for Sustainable Development, told attendees at a United Nations conference in Rio de Janeiro in 2013: “Accountants will save the world.” Writing in the Harvard Business Review later he added: “I meant it. To get all businesses involved in solving the world’s toughest problems, we must change the accounting rules.”
Endless growth is limited by the Earth’s resources and comes at a huge price to the planet and to human wellbeing, wrote Jane Gleeson-White in Six Capitals or Can Accountants Save the Planet?. It’s time to switch the focus to capitals other than wealth.
His Royal Highness the Prince of Wales established A4S in 2004 “to help ensure that we are not battling to meet 21st century challenges with, at best, 20th century decision-making and reporting systems”. Looking back, he was a pioneer, says Fries from her office at Clarence House, where at one point during our interview we can hear the Queen’s Guard military band outside.
“The Prince of Wales has been thinking about, talking about, and driving action on steps everyone can take to understand and tackle social and environmental issues so that society can sustain itself for the future. He was one of the first to put a spotlight on some of these issues – climate change, water scarcity, depletion of natural resources, inequality and demographic change – and is well versed in, and passionate about, the role accountants and the finance profession have in shaping the solutions.”
Speaking at the A4S Summit in 2016, the Prince of Wales put it in a nutshell: “It is not necessarily a choice between making money on the one hand and ‘doing the right thing’ on the other. On the contrary, once it is recognised that ‘business as usual’ is unsustainable, it follows naturally that those organisations which start to develop resilient business models will be the ones that succeed.
Leading from the top
Fries has worked for the Prince of Wales for a decade now – a long time for what was supposed to be a 12 to 18-month secondment from PwC, where she worked with clients in the oil and gas sector after studying economics at the University of Cambridge and the London School of Economics. But the project had been building momentum and was moving, organically, into what felt like a second phase of important work. Further leadership was required.
“A4S started as a reasonably short project, looking at a few key questions,” explains Fries. “But some of the key stakeholders, including Michael Izza at ICAEW, had a discussion with His Royal Highness about moving the conversation towards reporting, which became a major focus when I came on board in 2008 as director, and led to the establishment of the Accounting Bodies Network and the International Integrated Reporting Council.”
This particular focus on reporting was the result of the A4S team thinking there might be a silo mentality between the sustainability reporting community and the financial reporting community when in fact the two were interconnected. If they could bring stakeholders from those two spheres together, recalls Fries, perhaps they could transform financial decision-making and help create a more holistic form of reporting where business value wasn’t just considered in financial terms.
Having the Prince of Wales as a figurehead naturally piqued interest, she says, but the support of the large global accounting firms, institutes and bodies via the ABN was invaluable and provided leverage for A4S to scale up. “The Prince of Wales has a unique ability to bring people from very diverse places together, and to help to forge new conversations,” says Fries. The overall result was that players from the global reporting space really started to engage, collaborate and share best practice on how to create sustainable but, crucially, commercially viable business models.
Fries remains a member of the Council of the IIRC (Richard Howitt is the current CEO) and says integrated reporting continues to have “a huge impact”. “A lot of my time is spent engaging with businesses and the investor community in different parts of the world and over the last 10 years integrated reporting has gained traction as a concept. In India, Japan, Brazil, the UK, Australia… there’s a huge amount of progress. And it’s not all big economies, there are conversations in, for example, Mauritius and Sri Lanka too.”
In 2012 A4S reached another turning point. Reflecting on what they had managed to achieve, they put a question to the stakeholders: is it time to wrap the project up? “The message we got back very clearly was ‘no’,” recalls Fries. “Reporting is fundamental but unless it is founded on an integrated approach, an integrated strategy within an organisation, you haven’t got anything to report.”
More work was required to encourage the finance community, including the capital markets community, to focus on how to embed social and environmental risk and opportunity into decision-making. So, using the sort of holistic approach it demands from others, A4S morphed again. “That led to the establishment of our CFO leadership network, which launched in 2013. We’ve produced guidance material that takes CFOs of companies and other types of organisation through how to build environmental and social issues into the heart of the strategic process.
Understanding risk, capital investment, budgeting, all the nuts and bolts of finance, which are fundamental to the kind of outcomes that are achieved.” You’ll have noticed Fries places as much emphasis on social as she does environmental sustainability. What does that mean? “It’s very important to have that holistic approach,” she explains. “If you ignore your employees or your customers or your communities then you’re really not going to be leveraging your key assets.
Or creating a broader positive impact,” she adds. “You’re increasingly seeing a focus on understanding and wanting to measure and enhance some of those positive impacts and mitigate any negative ones.” In the environmental space, adds Fries, many more people have recognised that “in certain areas there are some very finite limits. It might be an area like climate change, and our rapidly diminishing carbon budget, and trying to think about how you shift, how you transition, to a net zero world, which is fairly radical.”
Could it be too radical for some of the smaller businesses and organisations, which don’t have the deep pockets of a Unilever or a pension fund? It’s easy to talk about risk, says Fries, but equally important to think about the opportunity and innovation in a circular economy and finding solutions to the world’s problems. “The Business and Sustainable Development Commission analysed the opportunities that might exist around the UN’s Sustainable Development Goals and identified $12trn of market opportunities,” she says. “The scale is huge.”
In fact, she adds, many smaller organisations tend to create long-term sustainable value as a matter of course because it’s basic good business practice. She explains: “Having a joined-up holistic approach is in many cases just the natural thing to do – things like managing resources efficiently. Small businesses are often rooted in their local community, so naturally they look after their employees and think about how they work with their community. Everyone has a vital role to play.”
Fries has seen this for herself through the Finance for the Future awards, which A4S runs in partnership with ICAEW and, more recently, Deloitte. She says innovation and ideas come from a spectrum of businesses and organisations, large to small, and often “around areas like climate change, where there’s a real urgency and need to act”.
Focus on the future
Shortly after WCOA, which Fries sees as an opportunity to celebrate the ABN’s 10th anniversary and also look at what the next 10 years might hold, it’s the Prince of Wales’s 70th birthday. Excited by these milestones, her team is nevertheless aware that there is still work to be done. She says it’s “very hard” to draw a direct link between the failure of corporate reporting and the financial crisis, because that event had a range of different drivers.
“That said, I do think organisations that really embrace the kind of thinking that underpins integrated reporting (recognising dependence on things like social, human and natural capital, as well as financial capital) are more resilient, really thinking ahead and looking at the risks and opportunities faced, and positioning themselves for the future.” The approach that management is adopting should be questioned, she says, as well as the sustainability of the business model, “which is at the heart of integrated reporting.
It’s never going to be the whole answer but it’s an important part of the solution.” As the Prince of Wales said at the A4S finance leaders’ summit in July 2018: “It can be all too easy to forget the basic truth that no economy can thrive indefinitely without a stable society and a healthy, natural base to sustain it. All financial capital ultimately relies entirely on the natural and of course social capital assets that underpin its existence and enable it to grow. We seem to have forgotten this somewhat ‘inconvenient truth’ and will pay dearly for it unless we change our ways."