Stakeholders Invested in Sustainable Business Practices

CGMA Report Thirsty Planet Have you seen the CGMA Report “Thirsty Planet”? The report expertly underscores the need for businesses to consider social and environmental sustainability as a means to sustain business. Ensuring that natural resources, such as water, are safe and clean for future generations, communities and businesses to come should be a priority for businesses.

A sustainable enterprise has a clear strategy not only on how it will make money, but also on its social and environmental impact. An organization’s ability to create and preserve value for itself, its stakeholders and society at large, depends on the strength of its business model; the sustainability of the financial, social, economic and environmental systems within which it operates; as well as on the quality of its relationships with, and assessments and decisions by, its stakeholders. Businesses need to consider environmental and social impacts in order to have a genuinely sustainable business that makes money—not just because it is the right thing to do, but also because it makes good business sense.

There is increased pressure on organizations to improve transparency by providing disclosures that better enable stakeholders to see a company through the eyes of management, and better understand the sustainability of the company over the long-term. The benefits of increased transparency through more relevant reporting extend to public and private companies, not-for-profits and governmental entities alike.

To what extent are investors and others using environmental, social and governance information? Plenty. A recent survey conducted by the International Federation of Accountants revealed that ESG information is increasingly used by stakeholders to understand the long-term sustainability of a business. The study also notes research that shows that investors incorporating ESG into their investment process outperform their peers. New and existing customers are looking for evidence of sustainable behavior, and many companies are being asked to comply with supplier code of conduct reporting and verification requirements to maintain business with existing customers and/or to gain business with new customers.

CPAs can provide significant value for our employers and clients in addressing social and environmental, as well as economic factors. Sustainability data collection, controls and reporting are not always well-coordinated within organizations. CPAs, as trusted advisors, have the ability to provide sustainable business services—as either an expansion of the audit through assurance on sustainability reporting, or as a stand-alone assurance or advisory service.

What is the AICPA doing to provide you with help in better understanding this area? Here are several resources and initiatives:

The AICPA offers a sustainability resource center on AICPA.org.
The AICPA is working through the Auditing Standards Board and the Assurance Services Executive Committee to develop sustainability related practice guidance, tools and support.
Through the efforts of the Enhanced Business Reporting Consortium, the AICPA helped to develop a high-level framework and XBRL taxonomy for business reporting. The AICPA is building on this work by actively participating in the efforts of the International Integrated Reporting Council to develop a global framework for what is now widely known as Integrated Reporting (essentially equivalent to the AICPA’s definition of Enhanced Business Reporting). This framework complements the strong foundation of traditional financial reporting with disclosures that are critical to understanding how companies create value, including relevant value drivers, financial and non-financial performance measures, and qualitative information around strategy, plans, opportunities and risks. This broad framework includes sustainability disclosures covering environmental, social and corporate governance practices.
The AICPA also supports the efforts of the World Intellectual Capital Initiative to develop industry specific key performance indicators. EBRC is a member of the WICI Network.

How are you helping your organization or your clients prepare for a sustainable future?

While the majority of this blog post focuses on Sustainability in the Environmental, Social and Governance sense, you can see from the above list of bullets on AICPA resources and initiatives that our scope of focus for enhancing the relevance and transparency of corporate reporting encompasses ESG and much more. Watch for an upcoming blog post on integrated reporting, which will cover more on the efforts of IIRC and others to build a framework for better communicating the potential of companies to create and preserve value.

Susan S. Coffey, CPA, CGMA, Senior Vice President - Public Practice & Global Alliances, American Institute of CPAs.