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  • Writer's pictureCPAA

Being a step ahead on sustainability



Accountancy is an ever evolving profession, as is demonstrated by the breadth of advisory services most practitioners offer. The role has always had finance at its core, but with a more holistic set of skills to support a range of needs and challenges clients face. As sustainability demands more attention, are we going to need more specialist knowledge in this area? If so, as we move forward, will we need to redefine the accountant and what we do?


As sustainability rises up social and governmental agendas, Alison Hale from the CPAA looks at whether this is soon to factor into reporting requirements, what sustainability means for accountants, and how to seize the opportunities it presents.


 

Non-financial reporting


Recently, The Department for Business and Trade launched a call for evidence for the ‘Smarter Regulation Non-financial Reporting Review’ asking businesses to voluntarily respond to a survey as part of a review of corporate reporting. The Government is working with the Financial Reporting Council to assess the non-financial reporting requirements UK companies need to comply with.


Much like the ongoing consultation on HMRC’s powers, there seem to be governmental reviews around what they should be entitled to ask for and what they really need from businesses. Change is in the air, with a potential requirement for all businesses to report non-financial information. We anticipate that over the coming years there will be increased pressure on companies to report more detail on a wider range of subjects.


As the current call for evidence highlights, more reporting on sustainability and environmental issues is likely to become the norm. In addition to regulatory requirements, there is also a societal desire for increased transparency; non-financial information can also be important to other audiences – including consumers, communities, employees or investors – who increasingly want companies to be accountable and proactive about environmental and ethical issues.


While non-financial reporting isn’t new for larger businesses, smaller businesses have been exempt from providing information on things like environmental impact. As we have witnessed with MTD, requirements eventually trickle down to smaller firms. Non-financial reporting would certainly add to the compliance baggage they face – although where more is asked of businesses, more is needed from accountants. For practitioners, this is worth considering now to be ahead of the game and not behind the curve.


 

Sustainability and accountancy


‘Green accounting’ is not a new concept, and is likely to become less niche and more mainstream as time goes on. The purpose of green accounting is to help businesses understand the relationship between environmental and financial goals and balance the two – meeting the financial aims of businesses while mitigating environmental costs.


It isn’t just a case of advising clients to drive less and recycle more, but helping to build ethical and resilient businesses that are sustainable in the long term. Sustainability is about much more than ‘being green’ and spans a spectrum of issues. Environmental sustainability is the safeguarding of essential resources, the natural world and climate. Financial sustainability ensures transactions and distribution of wealth is fair and ethical. Social sustainability is looking after people, collaborating and caring for each other.


For businesses to be truly sustainable, they should consider all areas: environmental, financial and social sustainability. And there is a great business case for doing so; stakeholders increasingly expect businesses to take responsibility for sustainability-related matters and step up. Plus, embracing sustainability can improve financial performance; those who adopt greener technologies run more efficiently, value people more and embrace better working practices.


There are numerous sectors that are being and will be impacted by sustainability issues. As an example, the ban on the sale of new petrol and diesel cars and vans from 2030 will have major implications for the automotive industry – including suppliers, garages, petrol stations, and a host of trades – yet on the flip side, it offers opportunities for those who can support the supply, installation and upkeep of electric vehicles. Similar examples exist within all sectors where green regulations demand change.


The 2023 UN Climate Change Conference – COP 28 – will convene in Dubai later this year and this is often the trigger for green pledges that prompt regulatory change. This may take the form of taxes on damaging or finite commodities; a clamp down on businesses using lots of power, water or precious materials; increased pressure to reuse and recycle; or all of the above! The chance is there for forward-thinking businesses to act ahead of regulations to seize the opportunities of a sustainable economy.


The climate crisis and social shift towards favouring sustainability means that anything providing sustainable solutions will be favoured. From plant-based food to ethically produced clothes, new opportunities and markets exist for innovators. We know that accountants’ roles are increasingly forward-facing to forecast business changes and opportunities – so being aware of how the business landscape is changing with sustainability as the driver, is crucial.


 


New era for the accountant?


We should not underestimate the pace of change – businesses have to move with the times and consequently so do accountants. In understanding sustainability, practitioners can advise clients accordingly, which will not only help futureproof those businesses, but accountancy practices too.


Global warming and climate control measures are front page news, and as major topical and social issues go, they simply won’t abate. Global governments will have no option but to bring businesses into line to slow the escalation of global warming, over consumption and excessive emissions. Tools to enable this will be taxes and tariffs, regulations and restrictions, and changes to business processes and practices. It is not a leap to see how accountants are well positioned to steer and support here.


Practically speaking, what does it mean for practices? Do we need to retrain? Do we need to hire younger people that are more aware of environmental issues? Should the topic be built into the examination system? These are questions that we as a profession will no doubt need to consider – and there is much to be said for building this into your own business planning sooner rather than later.


As the ‘Smarter Regulation Non-financial Reporting Review’ implies, all signs point towards sustainability needing to be measured and reported – if not now, then eventually. Businesses can only make meaningful changes with solid advice and accurate information, so sustainability data needs to be collected and interpreted. Accountants have the ability to support here – measuring, reporting and advising are all within the professional skill set. In navigating non-financial reporting, there is scope for the role of the accountant to evolve and grow within a more sustainable future.



 


Sustainability steps:


  • Client communication: good knowledge of your clients means you will know which sectors or businesses might be particularly impacted by sustainability measures, increasing environmental regulations, or surging costs of materials – and these are the ones who will most benefit from guidance. However, conversations around sustainability benefits all businesses and should factor into client communications across the board.

  • Green audit: asses where money is spent within your practice and question whether it’s the most sustainable choice out there (i.e. green energy providers, suppliers that pay a living wage, products that are recycled and/or recyclable). Consider future costs (i.e. whether products and services will increase as climate pressures escalate) and how to mitigate this. Running a green audit applies to clients too.

  • Education: training and support is going to be key to both understanding why working in a sustainable way is important to businesses and world around us, and the practical application of this knowledge to benefit clients’ businesses and finances.

  • Hiring: sustainability is only going to be a more pressing concern as time goes on, so seek out those with an understand and passion for it. What might be specialist knowledge now will inevitably need to be widespread knowledge as time goes on, so make sure your practice has the skills and understanding.

  • Hybrid working: hastened by the pandemic, flexible working became a thing businesses quickly adopted, and most have retained an element of this by adopting more hybrid working practices. Fewer commuters means a reduction in cars on the road and less emissions. Most employees want more flexibility, so reducing the need to travel is a win win for people and planet.

  • Go digital: with cloud technology as good as it is, there isn’t the need for tech-filled server rooms that pump out heat and guzzle energy, nor do people need to travel to meet when video calls exist, nor is there the same need for paperwork to be posted or couriered back and forth. Paperless offices might not be the norm for all businesses yet, but that is the direction to head in.

  • Cut consumption: buy less, reuse more, repair and recycle are all good mantras. Also be aware of energy consumption – something we’re all more conscious of given the high costs of gas and electric – and reduce heat and air con, use smart technology and energy saving measures. Be as conscious of it in work as you are at home.

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