by Anthony G. Hopwood
Visibility has the potential to be a real inducer of change. When things enter the public eye, they can become much more difficult to ignore. Yes, in the short term, hypocrisy can provide a cover – carry on saying one thing while doing another. But in the longer term accountants have become accustomed to thinking that information is more likely to win out, playing, as it can, a role in creating pressures to change the underlying circumstances.
Nowhere could this be more relevant today than in the environmental area. Recognizing that there is now a well established scientific consensus that global warming and the associated climate changes constitute the major challenges of the coming century, it is an area where action is imperative.
Of course a great deal could be done if there was a will to act. A lot is known about how to moderate the environmental consequences of our actions. But at present that will is very weakly developed. People talk but action is much rarer, be that from major national leaders, corporate executives or ordinary consumers. Even where there is action, it usually remains quite superficial. Retailers are starting to address issues of sourcing and packaging but they still want us to repeatedly follow the dictates of fashion rather than being sensitive to the scarce resources being used.
So an imperative to act needs to be created and making the environmental consequences of our actions more visible has the potential to be a not insignificant way of trying to do this. Accounting in particular and information more generally already are involved in this and are likely to become ever more so, albeit that the role of calculation is one that already is contested and is likely to remain so. Emissions trading in newly established carbon markets already is resulting in debates about their accounting implications. Within the enterprise new forms of calculation are likely to be called upon to mediate between environmental expectations and financial pressures. Moreover, although the frequent association that existing modes of corporate environmental reporting have had with social reporting has often resulted in their marginalisation on the corporate agenda, that should not deny the potential that exists to cast a new light on the wider consequences of business activities. Environmental reporting might be able to help us not only to identify the sluggish movers and the hypocrites, but also provide an incentive for all to create a pattern of change and improvement across time.
In the United Kingdom the Prince of Wales initiated a project to do just this – The Prince of Wales’s Project on Accounting for Sustainability. Launched in late 2006 (see www.accountingforsustainability.org), the project reported at the end of 2007 proposing both a workable format for regular environmental reporting and thoughts on how to instil sustainability concerns into the very fabric of organizations. Already attracting corporate and governmental attention in the United Kingdom because of the focussed and readily understandable nature of its recommendations, the formats proposed are in the process of being implemented by the likes of Aviva, BT, EDF Energy and HSBC, and at a global level interest has been expressed by the World Bank.
The Accounting for Sustainability Project placed a lot of attention on the need for environmental reporting to become part of mainstream corporate information provision rather than being something that can be conveniently isolated on the side. The project sought to emphasise that environmental considerations and their reflection in corporate information systems should not be regarded as an optional add-on. Increasingly they must be regarded as part of the core. One important way that the project sought to realise this aim was to propose what it termed a “Connected Reporting Framework”. That is to say, the primary focus must be on providing information that gives an insight into the interconnected nature of all aspects of corporate decision making and its consequences. As environmental considerations become more important with regulation, shifting expectations and the creation of new markets, environmental and financial considerations will become more and more intertwined. Environmental factors will increasingly impact on the bottom line – profit – and forward looking reporting should show that. Similar considerations also apply to the environmental and economic impacts of both upstream and downstream business partners, something of growing significance at a time when corporations can seek to off-load the dirtier parts of their operation on to other parts of the supply chain – usually in other countries.
The Connected Reporting Framework therefore provides a way of anticipating an emerging corporate world where the active management of the whole supply chain is even more important, where environmental decision making can impact significantly on costs and profits, and where questions of sustainability have to enter into the strategic positioning of the firm.
The framework focuses on five key environmental indicators, although it also recognizes that other information can and should be provided when it has a material impact. The five key indicators are polluting emissions, energy use, water use, waste, and the significant use of other finite resources. Alongside these it proposes that corporations should also provide an explanation of how sustainability considerations are connected to the overall strategy of the firm, and targets and benchmarks to aid appraisals and comparisons. While the reporting of all these factors remains difficult and often problematic, the report was based on the view that enough knowledge already exists to start to give some useful insights. Moreover, it was thought that such use was likely to stimulate more interest in improving the means for their measurement.
Taken as a whole, the Connected Reporting Framework sought to provide a more comprehensive but nevertheless workable way of building environmental considerations into the way we view and consider corporate achievements. And it looks ahead – although not too far ahead - to the days when the management of the corporate environmental profile will be seen as part of the regular mainstream operations of all firms.
All those associated with the project were aware that they were working in an area where there remained a need for a lot more serious experimentation and research. To this end the Prince’s Accounting for Sustainability Forum has been established to continue the developments launched in the report. Moreover, although the report sought to provide a reasonable and workable basis for corporate action in the here and now, there also was the hope that its publication would stimulate the academic community to delve further into the numerous important issues that remain unresolved.
Anthony G. Hopwood
Anthony Hopwood acted as a Senior Advisor for The Prince of Wales’s Project on Accounting for Sustainability.