Download About Topic Gateways

Topic Gateway series
Sustainability
Sustainability
Topic Gateway series no. 20
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Prepared by Helenne Doody and Technical Information Service
Revised February 2009
Topic Gateway series
Sustainability
About Topic Gateways
Topic Gateways are intended as a refresher or introduction to topics of interest
to CIMA members. They include a basic definition, a brief overview and a fuller
explanation of practical application. Finally they signpost some further resources
for detailed understanding and research.
Topic Gateways are available electronically to CIMA members only in the CPD
Centre on the CIMA website, along with a number of electronic resources.
About the Technical Information Service
CIMA supports its members and students with its Technical Information Service
(TIS) for their work and CPD needs.
Our information specialists and accounting specialists work closely together to
identify or create authoritative resources to help members resolve their work
related information needs. Additionally, our accounting specialists can help CIMA
members and students with the interpretation of guidance on financial reporting,
financial management and performance management, as defined in the CIMA
Official Terminology 2005 edition.
CIMA members and students should sign into My CIMA to access these services
and resources.
The Chartered Institute
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United Kingdom
T. +44 (0)20 8849 2259
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Sustainability
Definition
In recent decades there has been growing concern at the problems resulting
from the impact that human activity has on the world. This includes issues such
as biodiversity, water scarcity, resource depletion, climate change, excess
packaging and waste, over population, and poverty. These concerns are often
linked to the term ‘sustainability’.
There is no universally binding definition of sustainability, although the definition
given in the Brundtland 1987 WCED report is commonly adopted. Brundtland
defined sustainability as:
‘Meeting the needs of the present generation without compromising the ability
of future generations to meet their needs.’
Sustainable development is the process through which organisations aim to
achieve sustainability. In relation to sustainable development, the Brundtland
report states:
‘Sustainable development is not a fixed state of harmony, but rather a process of
change in which the exploitation of resources, the direction of investments, the
orientation of technological development, and institutional change are made
consistent with future as well as present needs.’
For businesses, sustainable development means adopting strategies and activities
that meet the needs of the organisation and its stakeholders today, while
simultaneously considering wider implications, such as resource use, energy
efficiency and other long term issues.
It requires a company to think beyond financial success. Sustainability is about
balancing economic profitability with environmental performance and social well
being. These combined elements are commonly referred to as the ‘triple bottom
line’.
The term Corporate Social Responsibility (CSR) is often used interchangeably with
sustainability. However, it should be seen as a complementary term, used to help
organisations define their responsibilities and to understand how sustainability
issues can be integrated into strategy and operations. This is reflected in the
definition of CSR in the Green Paper of the European Union, which defines CSR
as:
‘A concept whereby companies integrate social and environmental concerns in
their business operations and in their interaction with their stakeholders on a
voluntary basis.’
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Some organisations are now using the term Corporate Responsibility (CR) rather
than CSR, to reflect better the fact that it covers environmental issues as well as
social concerns.
Sustainability, sustainable development, CSR and CR all point to the need for
organisations to behave ethically and contribute to social, environmental and
financial well being. Organisations must undertake activities that benefit not only
shareholders, but also other stakeholders affected by commercial operations.
Context
Sustainability issues are relevant across CIMA’s syllabus including:
•
Ethics (P3, P4, P9)
•
Governance, obligations and expectations of the manager (P5)
•
Information reporting (P7)
•
Implementation of strategic plans (P6)
•
Environmental costing (P1)
•
Corporate Social Responsibility (P4)
•
Environmental and social accounting and reporting (P8)
•
Risks to corporate reputation from environmental/social performance (P3)
•
Stakeholder management (P6)
Application
Sustainability requires co-ordinated action on a global basis, with governments,
business and society all working together. This topic gateway focuses on the
relevance of sustainability to business, the importance of taking a strategic
approach and tools that can be applied to help achieve this.
Sustainability, strategy and the management accountant
Sustainability in the accounting profession has often focused on reporting
organisations’ wider social, environmental and economic impact, and providing
assurance over those reports. Although reporting plays an important role,
strategy should be the starting point rather than reporting. The challenge is to
ensure that sustainability risks and opportunities are addressed first when
determining strategy, followed by performance management. Reporting should
be about progress towards implementing and achieving a strategy in which
sustainability is fully integrated.
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Recently, the need to make the link between sustainability performance and
corporate strategy has received greater emphasis. For example, Professor Marc
Epstein’s recent book, Making Sustainability Work, not only presents best
practice in managing and measuring corporate social, environmental and
economic impacts, but also includes guidance on developing a corporate
sustainable strategy.
The Prince of Wales’ Accounting for Sustainability project also recommends
clarity between sustainability and strategy. The project emphasises the
importance of taking a strategic approach to sustainability and advocates a
Connected Reporting Framework that clearly links sustainability issues to the
organisation’s overall strategy. The following diagram summarises the strategic
approach to embedding sustainability proposed as part of the Accounting for
Sustainability project:
Source: http://www.sustainabilityatwork.org.uk/strategy/
As many management accountants are in senior positions within organisations,
they will be able to influence strategic direction. Others are in roles where they
provide the business intelligence needed for strategic and operational decision
making. Therefore, sustainability should be on the agenda for management
accountants.
Why integrate sustainability within strategy?
Business survival
Some people believe that the primary purpose of business is to serve its
shareholders by increasing profit, and that they need not be concerned with
‘moral’ issues such as sustainability. However, businesses that do not make
strategic changes in light of sustainability are risking failure, and that will be
contrary to shareholder interests.
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The consequences of unsustainable ways of living are starting to become
apparent and changes that will affect business are already taking place.
Consumer tastes are shifting, and many customers and employees now favour
companies with a reputation for corporate responsibility and sustainability.
Environmentally friendly policies may soon become a licence to operate rather a
potential basis for differentiation.
Energy costs are rising as finite resources become depleted and people need to
prepare for changes that stem from limited oil supplies and a low carbon
economy. Three pieces of new legislation were introduced in the UK during
2008. The Climate Change Act, the Energy Act and the Planning Act are all
aimed at ensuring that legislation underpins the government’s energy and
climate change strategy. In addition, the Carbon Reduction Commitment comes
into force in the UK in October 2009. Carbon trading schemes are also being
introduced in many other countries, including the US and Australia. More
information on carbon trading can be found in the Carbon Trading topic
gateway.
Other regulation is also putting a greater emphasis on sustainability. For example,
the Companies Act 2006 requires that organisations address sustainability issues.
Within the Act, the directors’ duties state that company directors must act in a
way most likely to promote the success of the company for the benefit of its
members as a whole. In so doing, they must have regard to the impact of the
company’s operations on the community and on the environment (s172). For
quoted companies, the business review should include information on
environmental matters (s417).
It may be some time before environmental and social externalities and risks are
fully internalised as actual costs to businesses through regulation, taxation or
carbon trading schemes. However, these changes already represent risks that
need to be considered by business. It is likely that organisations will have to
change their business models fundamentally, whether through a desire to help
achieve sustainability or in response to regulatory, consumer and societal needs.
Opportunity
Alongside the risks and the costs of change, there are new opportunities arising
from a greater focus on sustainability. For example, organisations in many sectors
can increase their profits by designing new products that meet changing
corporate and consumer demands or developing technologies for reducing
emissions. Companies with clean technologies may seize new markets or market
share and there have been many studies recently that demonstrate the financial
benefits of being market leaders in this area (Ceres, 2008).
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A small number of organisations are taking advantage of these opportunities.
They are embedding sustainability within their strategy now rather than waiting
for government or consumer pressure to force change on them. These
organisations are generally reaping the financial and reputational rewards of
being ‘ahead of the curve’ and include companies such as Tesco, Shell, Wal-Mart,
United Utilities, GE and Toyota.
Through integrating sustainability into strategy and allowing it to act as a driver
for performance and value creation, shareholders should be rewarded not only
with a business that has survived, but one that has thrived. So making strategic
changes around sustainability is about good business rather than a moral
obligation driven by good ethical values. However, many of the organisations
that are leading the way in this area do have strong values based cultures.
The investor’s influence
The link between sustainability and profitability has led to investor interest and
Socially Responsible Investing (SRI) is gaining greater focus. Recent years have
seen the introduction of indices such as the Dow Jones Sustainability index, the
FTSE4Good index and Accountability’s ranking of the global 100.
Tools for taking a strategic approach to sustainability
While sustainability is not a new concept, approaches to sustainable development
are still evolving. Standard models and measurement criteria have not yet been
developed and creating a framework to support sustainable development may be
a significant undertaking.
CIMA proposes the CIMA/IFAC enterprise governance framework and the CIMA
Strategic Scorecard™ as models that can be applied for helping organisations
incorporate sustainability issues into their strategy. For more information on these
models, please visit the respective topic gateways.
Enterprise governance
In relation to sustainability, many organisations are looking only at the
conformance components of the enterprise governance framework. They are
reporting on and gaining assurance over historic activities in order to comply with
regulations, risk management and customer expectations. For organisations to
realise both the risks and the opportunities that sustainability presents, both
conformance and performance aspects should be considered.
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Sustainability should be incorporated into strategy and then act as a driver for
improving performance. To create sustainable value for both shareholders and
other stakeholders, organisations need to take a long term view of risks and
opportunities and then adapt their strategy accordingly, balancing long term
value with short term costs.
CIMA Strategic Scorecard™
The CIMA Strategic Scorecard™ can be used as a model to ensure that
management and boards are asking the right questions about sustainability and
positioning the organisation’s strategy accordingly. Ideally, sustainability issues
should be included within the strategic risk box in the organisation’s overall
strategic scorecard.
However, as the strategic scorecard is a relatively new strategic risk for
organisations, it may be helpful initially to set up a separate scorecard. This
would allow the organisation to establish the strategic position and strategic
options in relation to its position on sustainability. In due course sustainability
would be expected to be fully integrated into the organisation’s strategy and not
need its own scorecard.
The performance aspect includes opportunities to save costs, increase competitive
advantage and meet customers’ requirements as they become more
environmentally and socially aware. Business can also be proactive in working
with government to influence policy, so that this is in line with the organisation’s
long term strategy, rather than taking the conformance approach of waiting for
regulation to be imposed upon them. Engaging in policy discussions not only
allows the organisation to have a greater influence, but also shows stakeholders
that the organisation is serious about sustainability.
Conclusion
Sustainability is gaining support within the global business community. Many
business leaders are starting to realise that integrating sustainable development
practices into their organisation is not a barrier to profitability but actually
provides competitive advantage. It is important to integrate sustainability into
strategy, not only for environmental and social good, but in order to compete in
the long run.
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Sustainability is relevant to both the conformance and performance aspects of
enterprise governance. It is about getting the balance right and taking a longterm view on income and costs, risks, opportunities and intangibles in the
interests of the business’s long run economic survival for the benefit of all its
stakeholders.
References
The Brundtland-1987 WCED Report
Our common future: report of the World Commission on Environment and
Development, UN World Commission on Environmental Development, 1987
Available from: www.un-documents.net/wced-ocf.htm
[Accessed 9 February 2009]
Accounting for Sustainability
Sustainability at Work aims to help organisations embed sustainability
throughout their activities. The site is part of The Prince of Wales' Accounting for
Sustainability project.
Available from: www.sustainabilityatwork.org.uk
[Accessed 9 February 2009]
Managing the risk and opportunity of climate change: a practical toolkit for
investors, Ceres, April 2008
Available from: http://digbig.com/4yftp
[Accessed 9 February 2009]
Further Information
Articles
CIMA members can obtain articles on this topic from the Business Source
Corporate® database, which can be found in the CIMA Professional
Development section of the CIMA website.
Adams, C. and Frost, G. CSR Reporting, Financial Management, June 2006, pp
34-36 Available from: www.cimaglobal.com/financialmanagement
[Accessed 9 February 2009]
Doody, H. All change. Published in the June 2008 edition of Excellence in
Leadership on Responsible Business
Available from: http://digbig.com/4yftq
[Accessed 9 February 2009]
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Prickett, R. Green growth. Financial Management, November 2008, pp 28-31
Available from: www.cimaglobal.com/financialmanagement
[Accessed 9 February 2009]
Prickett, R. Fahrenheit 2013. Financial Management, July/August 2008, pp 34-37
Available from: www.cimaglobal.com/financialmanagement
[Accessed 9 February 2009]
Prickett, R. Power politics. Financial Management, July/August 2008, pp 24-26
Available from: www.cimaglobal.com/financialmanagement
[Accessed 9 February 2009]
Soderstrom, N.S. Accounting for sustainability. Accounting Review, September
2008, Volume 83, Issue 5, pp 1383-1384
Accounting for sustainability org.uk Accounting. January 2008, Volume 141,
Issue 1373, p. 32
Climate change leaps up corporate agenda. CIMA Insight, May 2008
Available from: www.cimaglobal.com/insight
[Accessed 9 February 2009]
Books
Berens, C. and Doody, H. “Accounting for climate change” in Jolly, A. (eds).
(2008). Managing climate risk. London: Thorogood
Epstein, M.J. (2008). Making sustainability work: best practices in managing and
measuring corporate social, environmental, and economic impacts. Greenleaf
Publishing: Sheffield
Esty, D. and Winston, A. (2009). Green to gold: how smart companies use
environmental strategy to innovate, create value and build competitive
advantage. Hoboken, NJ: Wiley
Laszlo, C. (2008). Sustainable value: how the world’s leading companies are
doing well by doing good. Greenleaf Publishing: Sheffield
Schaltegger, S. et al. (2008). Environmental management accounting for cleaner
production. Dordrecht: Springer Science and Business Media. (Eco-efficiency in
Industry and Science Series)
Schaltegger, S., Bennett, M. and Burritt, R. (eds.) (2006). Sustainability
accounting and reporting. Dordrecht; [London]: Springer. (Eco-efficiency in
Industry and Science Series)
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Unerman, J., O’Dwyer, B. and Bebbington, J. (eds.) (2007). Sustainability,
accounting and accountability. London: Routledge
Envirowise: increase your profits with environmental management accounting.
Envirowise Good Practice Guide GG374. This guide can be ordered from:
http://digbig.com/4yftr
[Accessed 9 February 2009]
(2007). Harvard Business Review on green business strategy. Boston, MA:
Harvard Business School Press. (Harvard Business Review Paperback Series)
CIMA Reports
Adams, C. and Frost, G. Accounting for ethical, social, environmental and
economic issues: towards and integrated approach. CIMA Research Executive
Summary, (PDF 61Kb), September 2006
Available from: www.cimaglobal.com/researchexecsummaries
[Accessed 9 February 2009]
Bebbington, J. Accounting for sustainable development performance. Research
Executive Summaries, (PDF 66Kb), December 2006
Available from: www.cimaglobal.com/researchexecsummaries
[Accessed 9 February 2009]
McAulay, L, Hill, M. and Wilkinson, A. Emissions trading and the management
accountant. CIMA Research Report, September 2006, PDF 99Kb.
Available from: www.cimaglobal.com/researchexecutivereports
[Accessed 9 February 2009]
Starovic, D. and Brady, A. OFR and sustainability roundtable: examining the
impact of the OFR on sustainable development and corporate reporting. CIMA
Technical Report, (PDF 103Kb), June 2005
Available from: www.cimaglobal.com/technicalreports
[Accessed 9 February 2009]
CIMA ‘et al’. Green veneer or green revolution? CIMA Executive Report, (PDF
1606Kb), December 2008
Available from: www.cimaglobal.com/executivereports
[Accessed 9 February 2009]
Climate change. CIMA Discussion Paper, (PDF 217Kb), CIMA, March 2008
Available from: www.cimaglobal.com/discussionpapers
[Accessed 9 February 2009]
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Topic Gateways
The following topic gateways are related to the topic of sustainability and can be
found at: www.cimaglobal.com/resources
[Accessed 11 February 2009]
Carbon trading
CIMA Strategic Scorecard™
Enterprise Governance
Websites
Accounting for Sustainability
Sustainability at Work aims to help organisations embed sustainability
throughout their activities. The site is part of The Prince of Wales' Accounting for
Sustainability project.
Available from: www.sustainabilityatwork.org.uk and
www.accountingforsustainability.org
[Accessed 9 February 2009]
Centre for Social and Environmental Accounting Research (CSEAR)
A networking institution which gathers and disseminates information about the
practice and theory of social and environmental accounting and reporting.
Available from: http://digbig.com/4ygka
[Accessed 9 February 2009]
The Environment Agency – Business and industry section
Identifies some of the key sources of information that will assist businesses in
building a business case and implementing environmental accounting. Available
from: www.environment-agency.gov.uk
[Accessed 9 February 2009]
The Environmental Management Accounting International website
Focuses on the application of environmental accounting for internal
organisational decisions. It is hosted by EMARIC (Environmental Management
Accounting Research and Information Centre).
Available from: www.emawebsite.org
[Accessed 9 February 2009]
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Global Reporting Initiative
The GRI promotes and develops and standardised approach for
organizations to report on their sustainability performance.
Available from: www.globalreporting.org
[Accessed 13 February 2009]
IFAC Sustainability Framework
Targets professional accountants working in all sectors who the
International Federation of Accountants strongly believes can influence
the way organisations integrate sustainability into their objectives,
strategies, management, and definitions of success. Available from:
http://digbig.com/4ygjy
[Accessed 9 February 2009]
Managing the risk and opportunity of climate change: a practical toolkit
for investors Ceres, April 2008
Available from: http://digbig.com/4yftp
[Accessed 9 February 2009]
National Strategy on Sustainable Development
A white paper on sustainable development for the UK, ‘A better quality
of life’, May 1999. Available from: http://digbig.com/4ygjx
[Accessed 13 February 2009]
UN Department for Social and Economic Affairs
The United Nations division for sustainable development facilitates
continuous dialogue and action in global partnerships, focusing on key
sustainable development issues. Available from: www.un.org/esa/dsd
[Accessed 13 February 2009]
Copyright ©CIMA 2006
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