Accountancy: the front line of sustainable investment

Accountants are expanding the financial information SRI investors use to make decisions with. Mike Scott speaks to Richard Spencer of the Institute of Chartered Accountants to discuss the profession’s latest initiatives

Accountants are not the first people you think of as being on the front line of bringing sustainability to the investment process, but their role is crucial, according to Richard Spencer, head of sustainability at the Institute of Chartered Accountants of England and Wales (ICAEW).

‘Investors make decisions based on the data available to them – at the moment that information is largely confined to financial issues,’ he says. ‘Does the financial report give them enough information? Not at the moment.

‘This is where Accounting for Sustainability and the International Integrated Reporting Committee (both of which ICAEW is involved in) come in. Investors who want to invest responsibly need good quality information, otherwise how do they ensure comparability?’

The IIRC is pushing for the integration of environmental, social and governance (ESG) issues into financial reports to reflect the fact that these issues can have a material impact on company performance. One only has to look at recent events in North Africa, the Middle East and Japan to see the importance of these issues to companies around the world, he points out.

But on top of traditional issues such as labour rights and corporate governance, a number of new concerns are emerging such as access to land, water, healthcare and education and the role of ecosystems and biodiversity.

There is increasing pressure for mandatory disclosure of ESG issues by companies, and as sustainability disclosures increase, and reporting frameworks and guidance mature, so the need for assurance services will increase, Spencer says.

All of this suggests that accountants need a new ‘toolkit’ to ensure companies and investors can make the right decisions based on trustworthy and relevant information, Spencer says. ‘The system will only adapt and become more resilient if there is a flow of information that enables people to learn. The intent is to change the way businesses make decisions – we have to make sure that markets work for everyone.’

This is not optional, Spencer asserts. ‘Companies have to relearn that business and society are not distinct – they are the same thing.’

The profession is evolving, he adds, ‘because the market is saying that it needs new types of information – accountants need to be in the debate’. The debate has become immeasurably more sophisticated over the last five years or so, he adds.

Partly, this is a function of the increasing amount and quality of information available, which has enabled sustainability issues to be increasingly quantified and monetised. ‘The flip side of saying that sustainability needs to be fully embedded in a business’s operations is that it must be able to demonstrate that it relates to financial performance,’ he continues, although he concedes that some issues are easier to quantify than others, with many social issues remaining inherently qualitative. Even here, though, the amount of good data available has increased, making decision-making easier.

One way the profession can respond is to look at its qualifications and how they can facilitate the integration of sustainability into business processes.