Sustainability: an Accounting
perspective
Professor Richard Petty
President & Chairman of the Board
CPA Australia
Sustainability and balancing economic, social and
environmental concerns
What does sustainability mean for business and for accountants?
The following quotations help set the context.
Sustainability and balancing economic, social and
environmental concerns
“Senior executives are acutely aware of how serious today’s reputational
risk is. Most recognise the perception that some companies in certain
sectors (particularly financial services) have violated their social contract
with consumers, shareholders, regulators and taxpayers. They also
know that this perception seems to have spilled over to business more
broadly.”
‘Rebuilding corporate reputations’ The McKinsey Quarterly, June 2009
Sustainability and balancing economic, social and
environmental concerns
“As companies cut costs to get through the current global economic
slowdown, there is often a temptation to abandon recent forays into
sustainability. Yet a new A.T. Kearney analysis finds that companies
committed to corporate sustainability practices are achieving aboveaverage performance in the financial markets during this slowdown.”
‘”Green Winners – The performance of sustainability focused companies during
the financial crisis’ ATKearney 2009
Sustainability and balancing economic, social and
environmental concerns
“Today we are in the midst of a rapid global transformation with
increased demand on corporations to perform not only financially but to
be good corporate citizens”
And further;
“In a world of changing expectations, companies must account for the
way they impact the communities and environments where the operate.”
KPMG International Survey of Corporate Responsibility reporting 2008
Sustainability and balancing economic, social and
environmental concerns
We have reached a critical turning point in our understanding of how the
numerous instruments and institutions through which commerce is
conducted should operate.
If we ignore changing expectations on the role of business and
corporations, we do so at our collective peril.
What are the lessons for business and accounting as we
emerge from the global financial crisis?
The lessons are numerous, though the following are highlighted:
1. Sustainability / corporate social responsibility practices should not be viewed as
a cost burden, but rather a vital source competitive advantage.
2. Understanding the nature of wealth and the pursuit of its maximisation is
changing, particularly in the context of the increased range of stakeholders
concerned with the reach and performance of corporations.
3. Whilst sustainability reporting remains a valid aspect of corporate reputation and
brand management, increased focus will be on the embedding of sustainability
practices into business strategy and operations.
4. There is a greater realisation that financial reporting does not capture the full
dimension of corporate performance and worth.
The shaping of accounting practice into the future
These changes in the global economic environment have direct consequences for
how accountants are educated and also in terms of how they operate within their
organisations.
 How will existing skills be adapted and new skills developed to measure, manage
and drive performance in relation to both the financial and non-financial dimensions
of business behaviour?
 The skills required are neither taught or achieved through the use of tick-the-box
checklists and standardised tools.
The shaping of accounting practice into the future
CPA Australia, as a leading professional body, requires that the following
skills be developed as part of the graduate and continuing professional
education programs.
 Technical skills – tax, financial planning, forensic accounting, financial
accounting, audit & assurance, insolvency, management accounting,
finance/financial risk management and corporate governance.
 Leadership skills – strategy, change management and innovation.
 Personal effectiveness skills – results, ethical behaviour and interpersonal skill.
 Business skills – technology, regulatory environment and project management.
Accountants must configure an interaction of skills – this is illustrated from the
emergence of sustainability reporting.
Sustainability reporting
The Amsterdam based Global Reporting Initiative (GRI) describes
sustainability reporting as:
“ - - - the practice of measuring, disclosing and being accountable for
organisational performance while working towards the goal of
sustainable development. A sustainability report provides a balanced
and reasonable representation of the sustainability performance of the
reporting organisation, including both positive and negative
contributions.”
The GRI’s sustainability reporting framework has emerged as the
globally recognised de facto standard for non-financial reporting.
Benefits of sustainability reporting
The benefits of sustainability reporting:
 Demonstrating transparency
 Creating financial value
 Enhancing reputation
 Achieving continuous improvement
 Improving regulatory compliance
 Strengthening risk awareness and management
 Encouraging innovation
 Enhancing management systems and decision making
 Raising awareness, motivating and aligning staff, and attracting talent
 Attracting long term capital and favourable financing conditions
 Maintaining licence to operate
 Establishing competitive positioning and market differentiation.
Source: World Business Council for Sustainable Development (WBSCD) and the United Nations’
Environment Program (UNEP) ‘business case’ for sustainability reporting.
Sustainability reporting and the role of
accountants
Given these widely accepted benefits of sustainability reporting and the adoption
of such reporting amongst leading global and Australian companies, CPA
Australia commissioned a soon to published research project titled “The Role of
Accountants and Accounting in Improving Sustainability Management and
Reporting”.
Sustainability reporting and the role of
accountants
Some preliminary conclusions from the research project:
 The content of reports does not necessarily fully reflect the internal
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behaviours
There is a lack of clarity around ownership and related management
responsibility for particular parts of the report
There is a lack of cohesion in preparation - lots of ‘stand-alone’ ad hoc
systems
There is a lack of clarity around the rationale for reporting
There is uncertainty as to who does drive, and who should drive, the
reporting agenda
The benefits of reporting are not clearly articulated
Sustainability reporting and the role of
accountants
Some preliminary conclusions from the research project on accounting systems
and sustainability data:
 Overwhelmingly driven by financial reporting requirements
 Many systems have capacity to capture information beyond financial data
but are underutilised and there is a general reluctance to recognise events
that are not financial
 Limited cross-referencing in accounting systems to other major sources of
data eg. HR system, environmental management
 Typically non-financial systems are developed in parallel to accounting
systems
Sustainability reporting and the role of
accountants
This ‘snap-shot’ of sustainability reporting points to how accountants skills can
be drawn upon to improve its quality:
 Financial accounting technical skills are vital to ensuring that non-financial
disclosures assist in providing a comprehensive reflection of performance.
 Sustainability reporting puts information into the public domain and as such
should be subject to the same qualitative rigor of materiality, comparability,
accuracy and completeness as is traditionally applied to financial disclosure.
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Sustainability reporting is clearly acknowledged as not so much an end in itself,
but rather part of a process of business improvement. Accountant’s leadership
skills will be critical to the embedding of sustainability through such means as
development of KPIs and sensitivity analysis.
Sustainability reporting and the role of
accountants – the assurance dimension
 The GRI in its Sustainability Reporting Guidelines recommends the use of
external assurance for sustainability reports in addition to any internal resources
such as internal controls and internal audit. The accounting profession clearly
endorses this approach in recognition that an external independent assessment
of the disclosures in vital to risk management and process improvement.
 In virtually all jurisdictions, sustainability reporting continues as a form of
voluntary disclosure. As such, independent assurance is not obligatory though
highly desirable. Assurance nonetheless comes at an often significant cost.
Sustainability reporting and the role of
accountants – the assurance dimension
There are frameworks for assurance. The most prominent of these is that
produced by AccountAbility, a UK based non-for profit organisation directed at
promoting methods, measures and standards of organisational accountability
and corporate responsibility.
There are three components to the AccountAbilty series, these are interrelated
and one can only be fully understood in the context of the other. The suite of
standards consist of:
1. AA1000 AccountAbility Principles Standard (2008)
2. AA1000 Assurance Standard (2008)
3. AA1000 Stakeholder Engagement Standard (2005)
Sustainability reporting and the role of
accountants – the assurance dimension
These developments in the assurance of sustainability reports have a number of
implications for accountants, the companies who engage these services and
readers of reports:
 The need to review and assess the veracity of non-traditional sources of
corporate information.
 An increased emphasis on assessing the behavioural attributes of corporate
performance, particularly in the domains of ethics and governance.
 Shifting emphasis from the assessment of historical data to future oriented
disclosures, particularly as they relate to the assessment and management
of risk.
 All of the above point to changing boundaries and expectations as to the
function of professional accountants engaged in the provision of assurance
of non-financial disclosures.
The sources of momentum for further
development - DEWHA
In Australia, the Commonwealth Department of the Environment, Water,
Heritage and the Arts (DEWHA) commenced in April 2009 a project “Living
Sustainably – The Australian Government’s National Action Plan for Education
for Sustainability”. Amongst a raft of initiatives and actions, the programme
involves:
 The Australian Government working with appropriate partners to promote
sustainability into professional learning qualifications, and
 The Australian government working with peak industry bodies, professional
associations, and non-government organisations to develop and deliver
workplace learning, professional development, mentoring for sustainability,
and sharing best practice.
The sources of momentum for further
development - UNGC
 Perhaps the most prominent articulation of the principles of corporate citizenship
in the world economy is the United Nations Global Compact (UNGC).
 Based on the moral authority and convening power of the United Nations, the
UNGC operates with 10 Principles under the headings of Human Rights, Labour,
Environment and Anti-corruptions, and involves private and public sector
signatories annually attesting to their support and implementation of the
Principles.
 Ascribing to the UNGC Principles is, of course, voluntary but has significant
moral authority enhanced by the reputation of the globally significant companies
who are signatories.
The sources of momentum for further
development - UNGC
 HUMAN RIGHTS
Principle 1 Business should support and respect the protection of internationally
proclaimed human rights; and
Principle 2 make sure they are not complicit in human rights abuses.
 LABOUR
Principle 3 Business should uphold the freedom of association and the effective
recognition of the rights of collective bargaining;
Principle 4 the elimination of all forms of forced and compulsory labour;
Principle 5 the effective abolition of child labour; and
Principle 6 the elimination of discrimination in respect of employment and
occupation.
The sources of momentum for further
development - UNGC
 ENVIRONMENT
Principle 7 Businesses are asked to support a precautionary approach to
environmental challenges;
Principle 8 undertake initiatives to promote greater environmental
responsibility; and
Principle 9 encourage the development and diffusion of environmentally friendly
technologies.
 ANTI-CORRUPTION
Principle 10 Businesses should work against corruption in all forms, including
extortion and bribery.
The sources of momentum for further
development
 The challenge for business is to determine, and be able to measure, how best
the Principles are translated into business practices.
 One of the means by which these challenges are being addressed is through the
establishment of National Networks of signatories which will foster shared
learning and provide a forum for business leadership.
 Significantly, UNGC National Networks have recently been established in both
Australia and Malaysia.
 In recent months CPA Australia has become a signatory to the UNGC joining
such leading Australian companies as BHP Billiton, Fosters, Westpac,
Woolworths, Drake International and the Commonwealth Bank.
In conclusion
The accounting profession, along with all other major professions, are
confronted with both challenges and opportunities to respond positively
to major shifts in our understanding of the function of global institutions
and the instruments through which commerce is transacted.
We should be confident that the steps which the accounting profession
has taken are firmly in the right direction and can be a source of
guidance for others.