What is sustainability?
Sustainability has taken the center stage today. Everyone talking about climate change and social inequities, has led most of them steering the conversation towards sustainability. There is no universal definition, but according to United Nations, “the idea of meeting our needs without sacrificing the needs for the future generations”, tends to give a basic idea. It involves the responsible use of natural resources, social equity and economic viability to achieve long-term, environmental, social, and economic benefits. It can be divided into 3 major categories:
1. Environmental Sustainability: The responsible use of natural resources and the minimization of environmental impact. Reducing waste, conserving energy and water, protecting biodiversity, and reducing greenhouse gas emissions.
2. Social Sustainability: Promotion of social equity and the well being of individuals and communities. Ensuring everyone has access to basic needs such as food, shelter, education and healthcare.
3. Economic Sustainability: Development of a strong and resilient economy that provides long-term benefits for the society.
What is sustainability accounting?
Sustainability accounting is the practice of measuring, analyzing and reporting a company’s social, environmental and economic aspects. It is a tool that helps organizations to identify their risks and opportunities associated with sustainability and integrate them into their decision-making process.
Since the traditional model of accounting only focused on the financial performance, ignoring the wider impacts of business activities, sustainability accounting takes a broader view, considering the environment in which the organization is operating in. CEOs play an important role in articulating an organization's sustainability vision and clarifying questions related to this. The 2020 Annual Report of Blackrock made it to the front page of The New York Times, when CEO Larry Fink claimed that “climate crises will reshape finance”.
As professionals, we need to be one of the groups driving the change by helping organizations adapt to build a more sustainable future. In these times, Sustainability is not a nice-to-have for enterprises and businesses, it is quite simply a must-have. It also helps organizations to comply with regulatory requirements related to sustainability reporting. Many governments around the world, are introducing sustainability reporting regulations, requiring organizations to report on their performance, such as ESG (Environmental, Social and Governance) Reporting or SRI (Sustainable Responsible Investing).
Benefits of Sustainability Accounting
1. Risk Management and Opportunity Identification: By systematically measuring and analyzing sustainability metrics, organizations can identify potential risks and opportunities associated with sustainability issues. This allows them to make informed decisions, proactively address challenges, and capitalize on emerging trends in sustainability.
2. Enhanced Transparency and Accountability: Sustainability accounting promotes transparency by providing stakeholders with comprehensive and standardized information about an organization's sustainability performance. This fosters trust and accountability among investors, customers, employees, and the wider community.
3. Compliance with Regulations: Governments around the world are introducing sustainability reporting regulations, making sustainability accounting an essential requirement for organizations. By adopting sustainability accounting practices, companies can ensure compliance with regulatory frameworks, avoid penalties, and demonstrate their commitment to sustainable practices.
4. Access to Green Finance: Sustainability accounting plays a pivotal role in accessing green finance, which supports the transition to a low-carbon and sustainable economy. By providing accurate and reliable sustainability data, organizations can attract investments from socially responsible investors and gain access to financial instruments that support their sustainability goals.
The need for sustainability accounting
There is a huge potential here, whereby the accounting for the future plays a key role. As professionals, we can provide assistance to companies for ESG Information or Global Reporting Initiative, which takes a multi stakeholder approach. International Financial Reporting Standards(IFRS) is creating standards to support sustainability accounting. The current measurement systems are inconsistent and incomparable, we cannot currently have the reliability on the reporting by organizations in absence of regulations and consistent standards.
We need strong corporate standards that are enforceable, and professionals and accountants, that are trained not only with letter of the law, but how the change in accounting can help transform the world to a better, co-habitable place. We have a vital role to play in advancing sustainability accounting and helping organizations build a more sustainable world. Let us embrace this transformative approach to accounting and contribute to the collective effort of creating a greener and more equitable future for generations to come.
Comments