IMGCAP(1)]Sustainability, eco-friendly business models, and the continuing integration of environmental matters into business operations is a hot topic of conversation and debate in business media.
One high-profile example of sustainability in business is General Electric, which launched an entire business division in 2009, titled Ecomagination, to capitalize on this growing megatrend. Since its implementation, the division has generated billions in savings for the multinational and continues to serve as an innovation hub for the organization at large.
While environmental disasters and environmentally-sensitive business models such as fracking continue to dominate the conversation related to sustainability and environmentally friendly business practices, there is a much broader debate occurring. The benefits of sustainable business practices include reduced energy costs, higher usage of recycled materials, and reuse of scrap materials from in-house projects and processes.
Against this framework, and the increasing engagement of environmentally oriented regulators and NGOs, it is clear that the business case for sustainability is growing. To become a viable business conversation, however, sustainability requires buy-in and legitimacy in the form of standard evaluative tools and business assessment. In essence, sustainability must evolve to be treated like any other strategically important initiative.
CPAs, and accounting professionals overall, are educated and trained to evaluate, rank and quantify organizational data, and these traits serve as the building blocks of our profession. Linking these already existing strengths and capabilities to the field of sustainable business models is a logical next step.
Organizations, under pressure internally and externally to simultaneously improve financial performance and remain eco-friendly, must be able to quantitatively evaluate different available options. Capital, although freely available to organizations in the historically low-interest environment that currently exists, must be deployed carefully by management teams. As increasing actions from activist investors clearly demonstrate, organizations are under pressure and scrutiny for the decisions undertaken as well as those not implemented.
Sustainability, the “triple-bottom-line” and other environmentally oriented terms and ideas can be implemented with labels such as “strategic,” “long-term” and “investments,” which can be used to obscure the lack of available data on the end results of such ideas. This lack of transparency and objectivity can hamstring the initiative as well as the management teams attempting to introduce and evaluate these ideas.
The Challenge
How do organizations objectively evaluate and report on sustainability and other environmentally oriented initiatives?
The Opportunity
CPAs, well regarded as guardians of financial information, can apply their existing skills to the development of metrics and reporting for sustainability initiatives.
CPAs are already well regarded as gatekeepers of financial and quantitative information, and this role is continuing to evolve along with the economy as a whole. As management teams strive to increase efficiencies and results, while simultaneously keeping costs low, an opportunity emerges. More and more accounting work is becoming a blend of accounting, finance, IT and treasury, and such a work schedule requires that accounting professionals evolve.
The ability to create and communicate business solutions that encompass several functional areas, while maintaining proper controls over the processes involved, is a result of the fluidity that now characterizes the work of many accountants. Business itself, as well as the marketplace, have evolved and continue to do so. Sustainability and the demands related to it are simply one of the current manifestations of this decade-long trend. A key benefit that the involvement of accountants can have is to assist with the transformation of sustainability from the realm of corporate social responsibility and firmly into the conversation of business decisions alongside capital projects and IT investments.
Sustainability and nontraditional reporting methodologies in general require the development of comprehensive frameworks in order for management to make the right decisions. In addition to the creation of metrics and frameworks that assist with the qualitative decision-making process, organizations also must be able to evaluate the success (or failure) of these programs.
Finance and accounting offer a common language that enables organizations and managers from completely different industries to communicate and compare information. Accountants, by virtue of their education, training and continued work with other functional areas, are uniquely positioned to bring insights from across the business to help develop the standards and metrics necessary to enhance the business case for sustainability. The development of these items helps both the tracking and monitoring of such projects and assists with the creation of a defendable business case.
Let’s take a look at a few steps and ideas that can assist this process:
1. Think of sustainability like any other capital project, i.e., these initiatives will take time to bear fruit and show results.
2. Build a business case for the initiative. What does this concept add to the business? How can the organization relay the initiative to consumers and regulators to maximize the business benefit?
3. What resources are needed for a task, such as setting up a budget for the project? This helps management evaluate the initiative like any other large project, which further moves sustainability into the mainstream.
4. If best practices or a regulatory body exist, that information should be leveraged to help create standards. Sources such as the Sustainability Accounting Standards Board are excellent examples of the proliferation of sustainability accounting standards.
5. Using the information from the above four areas, assemble metrics to examine and analyze exactly what the organization is looking for from this project—utility savings, decreased CO2 emissions, higher percentage of used or recycled materials, or conversion of transportation vehicles to eco-friendlier options such as ethanol or natural gas.
To sum up, the accounting profession and accountants should take both the technical knowledge obtained via training and continuing education, as well as real-world experience from working with different functional areas, to create standards and metrics capable of tracking the business performance of sustainability initiatives. Obviously, the specific metrics and evaluative tools deployed will differ from industry to industry, and even from company to company. That said, the potential for accountants to play a pivotal role in the development and implementation of sustainability and environmentally related reporting and assurance standards is clear.
Sustainability can be good for the environment, good for business, and good for the profession.
Sean Stein Smith, MBA, CPA, CMA, CGMA, is senior accountant in environmental services at United Water in Harrington Park, N.J., and an adjunct faculty member at Fairleigh Dickinson University.
