Sustainability and the role of the accountant

BUSINESS WITH CONFIDENCE icaew.com© ICAEW 2014

Sustainability and the role of the accountant

Francesca Sharp, Sustainability Executive, ICAEW

BUSINESS WITH CONFIDENCE icaew.com

Agenda

1.What is Sustainability and why is it important?

2.What is the role of business?

3.What drives businesses to be sustainable?

4.What role do accountants play in sustainability?

5.What has ICAEW been doing?


1. What is sustainability and why is it important to us all?


Definitions – what is sustainability

Sustainability: development that meets the needs of the present without compromising the ability of future generations to meet their own needs (The Brundtland Report)

Sustainable development: the process by which sustainability is achieved and maintained

Sustainable business: a sustainable business is one that adopts business strategies and activities that meet the needs of the enterprise and its stakeholders today while protecting, sustaining and enhancing the human and natural resources that will be needed in the future


Why is sustainability important: Costing the Earth

All figures are 2010.

Sources: Costanza et al, World Bank, Earth Policy Institute, There is a debate regarding the total economic value of ecosystem services


2. What’s the role of Business?


The social responsibility of business is to increase profits.

- Milton Freedman, New York Times, 1970


It may be in the long-run interest of a corporation that is a major employer in a small community to devote resources to providing amenities to that community or to improving its government. That may make it easier to attract desirable employees, it may reduce the wage bill, or lessen losses from pilferage and sabotage, or have other worthwhile effects.

- Milton Freedman, New York Times, 1970


3. What drives businesses to be sustainable?


Premium will increasingly be

defined in terms of sustainability

and environmental compatibility

- Dr. Norbert Reithofer, Chairman, BMW board


Businesses need to think about the

way they can use their resources

differently and their impact on natural

capital. We are not talking about

abandoning capitalism – we are talking

about redefining the way business is

done so that it has a viable future.

Ian Cheshire, Group Chief Executive,

Kingfisher


People always think that to do

the right thing costs you more.

That is not true at all. It can

actually ignite innovation and

lower your costs.

Paul Polman, CEO, Unilever

http://www.unilever.co.uk/


Corporate social responsibility

is not just about managing,

reducing and avoiding risk, it is

about creating opportunities,

improving performance, making

money and leaving the risks far

behind.”

Sunny Misser, CEO, AccountAbility

http://www.unilever.co.uk/


How do markets work to drive sustainability?


Market Activities

http://www.coca-cola.co.uk/

http://ec.europa.eu/clima/news/index_en.htm

http://www.tesco.com/

http://www.tesco.com/


Corporate Strategy

Supply Chain Pressure


Corporate Strategies

Unilever•Proactively committed to a bold sustainability strategy, reaching the following targets by 2020:

– Halve their greenhouse gas emissions, water usage and waste

– Source 100% of agricultural raw materials, sustainably

– Link more than 500,000 smallholder farmers and small-scale distributors into supply chain.

Benefits•Drives consumer preference

•Wins with customers (i.e. retailers, with sustainability agendas of their own)

•Fuels sustainable innovation

•Grows markets (developing countries, with domestic sustainability challenges)

•Generates cost benefits (energy/waste reduction = save £)

Source: Sustainable Living Plan Report, November 2010


Supply ChainsMcDonald’s

• The McDonald’s supply chain is a complex web of direct and indirect suppliers.

• Whilst the company isn’t necessarily known for its sustainability credentials in

other areas of its business it is in supply chain.

• High standards for quality, safety, efficiency and sustainability are laid down for

supplier, which are extended to their suppliers’ suppliers and so on.

• Overall, McDonald’s and its suppliers are collectively focused on three areas of

responsibility: ethics, environment, and economics.

• To guide the creation and oversight of issues related to sustainability, an

additional global governance structure was created in 2007 called the

Sustainable Supply Steering Committee (SSSC).

• The SSSC is responsible for guiding McDonald’s toward its vision for sustainable

supply by identifying global priorities and ensuring progress in ways that

complement local priorities and efforts. In addition, each of its global product

leaders takes the lead to include product-specific sustainability initiatives in their

strategies.

• Because of its size and power McDonald’s is able to put pressure on suppliers to

adopt more sustainable practice

Source: www.otterbrewery.com & NBA 2010

http://www.otterbrewery.com/


Stakeholder Engagement

Voluntary Codes


Stakeholder Engagement

Coca-Cola•Built a bottling plant in India in 2006

•It heavily drained the aquifer and negatively affected the ecosystem

•Affected the health of its own employees and local people

•Effectively lost its licence to operate, sales fell off and share value declined

•Coca-Cola learned hugely from this exercise and when the company entered the Chinese market they worked with local communities on water usage, sharing with them their lessons in efficiency.

Source: www. googguide.com

http://www.coca-cola.co.uk/

http://www.google.co.uk/url?sa=i&rct=j&q=&source=images&cd=&cad=rja&docid=iUjufHLVzHXYlM&tbnid=p93STdL2Gdy_uM:&ved=0CAUQjRw&url=http://www.nestle-waters-powwow.co.uk/&ei=xi23UfunDYGV0QX1rYC4Bw&bvm=bv.47534661,d.ZG4&psig=AFQjCNGPWmp8Nnzlu04ymwocBRvkiELOwQ&ust=1371045682794483


Voluntary Codes

Supermarket Industry in the UK •In 2006, the UK supermarket industry collectively targeted tohalve the use of plastic carrier bags by 2009

•In order to promote the use of reusable carrier bags:

– M&S started charging 5p for each plastic bag

– Tesco introduced a Green Club cards points scheme

– Waitrose started selling ‘Bags for Life’ for 10p

– Sainsbury gave away over 15 million ‘Bags for Life’

Benefits•After one company commits to reducing waste, competitors follow

•Creates competitive pressure to cooperate

Source: The Independent

Source : The Independent)

http://www.independent.co.uk/environment/green-living/supermarkets-lose-heart-in-green-war-on-plastic-carrier-bags-2058840.html


Rating and Benchmarking


Rating & Benchmarking

PUMA• Puma’s environmental profit and loss account: new

way to rate and benchmark companies.

• Forward looking – whilst arguably not the case yet but hopefully it will encourage more companies to head in that direction & then allow these companies to be compared.

• This will enable investors and other stakeholders to see what environmental impact the companies they deal with have


Taxes and Subsidies

Tradable Permits

Requirements and

Prohibitions


Taxes and Subsidies

Green Car Subsidies•In 2009 Lord Madelson, (Business Secretary) and Geoff Hoon (Transport Secretary) announced a new subsidy for electric cars

•Consumer subsidies of £2000 - £5000 for every hybrid or electric car purchased

Benefits•Provides incentives for consumer adoption of low emission cars

•Stimulates economic growth of the clean tech industry in the UK

Sources: www.FT.com


Tradable Permits

European Union Emissions Trading SchemeLaunched in 2005 it is the first large emissions trading scheme in the world, and remains the biggest

It was launched in combat climate change and is a major pillar of EU climate policy.

As of January 2013, the EU ETS covers more than 11,000 factories, power stations

The installations regulated by the EU ETS are collectively responsible for close to half of the EU's emissions of CO2 and 40% of its total greenhouse gas emissions

Benefits•Introduces effective market mechanisms to promote sustainability

•Creates new markets for “allowances”

•Requires cooperation among high impact public and private stakeholders

Source: www.decc.gov.uk

http://ec.europa.eu/clima/news/index_en.htm


Requirements and Prohibitions

Community Interest Companies•Community interest companies (CIC) are a new type of limited company designed specifically for those wishing to operate for the benefit of the community rather than for the benefit of the owners of the company.

•Designed for “social enterprises” that want to use their profits and assets for the public good

Benefits•Tax benefits

•Unique legal identity for “social enterprises”

•Rewards companies that are making positive social and environmental impact

Source: www.cicregulator.gov.uk/

http://www.cicregulator.gov.uk/


4. What role do accountants play in sustainability?


The role of accountants is to capture, report and communicate

accurate and reliable decision-useful information and to assure

that information so that people can trust it.

Information and Reporting

Assurance process



Can Accountants Save the World?


Inspiring innovation and debate

about the future of the profession


5. What has ICAEW been doing?


Thought leadership programme


Convening the debate: asking the right questions



http://www.unep.org/


Natural Capital Coalition

1. Valuing Natural Capital in Business: Towards a Harmonized

Framework - This outlines the Protocol project, provides a high

level summary of the stock take and a proposed straw man/draft

outline for the Natural Capital Protocol as a starting point.

2. Valuing Natural Capital in Business: Taking Stock- Existing

Initiatives and Applications – This is a more detailed compilation

summarising existing initiatives to provide a baseline on the

existing landscape. This is intended to be a useful resource to

demystify the growing volume of initiatives in this space.

www.naturalcapitalcoalition.org

http://www.teebforbusiness.org/


Outside insights: other people’s views


Turning questions into answers: guidance


Qualifications


Representation

http://www.accountingforsustainability.org/output/page1.asp

http://princescharities.org/


ICAEW Sustainability Policy

As a professional membership organisation, we represent a common voice for our members and the profession. We believe that the successful business of the future will be a sustainable business.

As a profession we support economic development and prosperity and as an organisation our vision is to have a net positive impact on the economy, society and environment.

We will achieve this by:

• The way we work, embedding sustainability in everything that we do;

• Making sustainability the cornerstone of our reputation and influencing others to adopt the same goal

• Ensuring that sustainability is at the heart of our qualifications, our capacity building activities and the continuing professional development of our staff and members.


ICAEW Community of Interest


Get in touch

www.icaew.com/sustainability

www.icaew.com/bsp

www.thefinancelab.org

www.auditfutures.org

[email protected]

A world leader of the accountancy and finance profession
