PUMA TOOK THE BRAVE STEP of producing the first environmental profit and loss account from a global organisation.
It not only put a price on its carbon usage but also represented the cost of future damage incurred from its emissions and water usage.
Could Puma's leap mean the accounting profession will have to hone its skills to audit and compile green data for all businesses in the future?
Accountants and auditors do not need to rush out in a panic to swot up on environmental auditing skills right away, however, they must be aware that this is a sign of things to come, according to Paul Druckman, former ICAEW president and ex-director for the Financial Reporting Council.
Although some accountants might have antipathy towards environmental information, believing there are more important financial issues to focus on, complacency could see them lose clients as investors call on businesses to provide quantifiable rigour around corporate social responsibility.
The argument for Puma's strategy and why auditors are likely to need to broaden their skills is compelling.
The environmental profit and loss account allowed Puma to gain a better understanding of its current and future risks in its business and supply chain through a transparent accounting-for-cost approach rather than a narrative.
According to Alan McGill, the PricewaterhouseCoopers environmental partner who worked on the Puma account, stakeholders now have a more accurate picture of the business' position, having identified where it uses resources so it can act now to minimise future damage and reduce its carbon footprint.
He argued: "Even if you don't agree with the carbon impact on business and are faced with hard-nosed investors who are only interested in returns, this gives you the information now.
"You can see which business is managed more effectively, which is being efficient with resources and which is driving the organisation forward."
Although Puma narrowly missed out on releasing the environmental account with its financial reports, the business claims future information will form part of the financial accounts, subject to the same scrutiny from investors as its other year-end figures.
Those questioning Puma's motives as a publicity stunt should be conscious of more concrete steps being taking in the regulatory environment.
Druckman is currently co-chairman of the International Integrated Reporting Council's (IIRC) working group. The IIRC comprises accounting's biggest hitters, such as the chairmen of all the Big Four, Charles McDonough (vice-president of the World Bank), and Leslie Seidman (chairman of the Financial Accounting Standards Board) among others.
His working group is tasked with finding a way to monetise environmental impacts and "integrate" them into financial reports. He said Puma's effort is a step in the right direction but it is an additional account rather than central to its report, which is the aspiration of the IIRC. The council hopes to release a framework on how to produce an integrated report later in the summer.
One aspect has raised some eyebrows, that PwC not only helped collate and organise the information but audit it as well. How environmental accounting services will fit alongside auditing is an issue to be clarified.
However, the report has shone a spotlight on the accountancy profession and its pivotal role in bringing environmental and financial reports together.
Sustainability is not just about mitigating risk, it is about opportunity. Integrated reporting on sustainability forces actions. And, whilst sustainability embedded into the DNA of an organisation gains the economic benefits of asset, and resource optimization to stave off cramped profits; embracing sustainability as a model, buttresses trust as well as the balance sheet, enabling a company’s ability to create competitive advantage and nurse income streams with better-controlled costs.
Indeed, throughout the great recession of 2007 – 2010, there has been a dislocation of trust between companies and the global communities they serve. Emerging from the recession – any company wanting to repair such dislocation has used sustainability as the model to achieve best results.
Market forced actions have been followed by the establishment of the International Integrated Reporting Committee (IIRC). The objective: to establish a global reporting framework for ESG (Environmental Social and Governance) information in a clear, concise, consistent and comparable manner. “Integrated Reporting demonstrates the linkages between an organisation’s strategy, governance and financial performance and the social, environmental and economic context within which it operates. By reinforcing these connections, Integrated Reporting can help business to take more sustainable decisions and enable investors and other stakeholders to understand how an organization is really performing.” IIRC.
Posted by: Christopher Gleadle, 06 Jun 2011 | 13:10
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