Highlighting the problem

In recent weeks environmental issues have sprung back on to the political and accounting agendas.

Last November the much-heralded Stern Report on climate change effectively accused our profession of peddling an inappropriate accounting model and thus being complicit in the world’s biggest-ever market failure.

The seven-year saga of UK company law reform also drew to an end, leaving optimists believing companies will increasingly disclose social and environmental issues, while December’s pre-Budget report introduced measures to curb our enthusiasm for ‘Chelsea tractors’ and cheap air tickets.

In the same month, Prince Charles launched his ‘Accounting for Sustainability’ project (Acc4S), which aims to identify new ways of accounting for and allocating resources which price in the damaging, but currently un-costed, negative impacts of corporate activity while preserving an efficient market mechanism.

Some may argue that our profession is being set an impossible challenge in this respect. But we are not facing it alone. Big business, the financial services industry and large non-governmental groups were part of the ‘Acc4S’ launch and will work with representatives from our profession to identify initiatives which will not only ‘get the prices right’ but also contribute to overall wealth creation.

Getting the prices right, by means of internalising the cost of carbon, is becoming less difficult as carbon trading markets develop. But extending the Acc4S exercise to encompass the negative social consequences of corporate activity raises huge definitional and valuation issues.

There are other problems too – like getting corporate boards and their financial market stakeholders to accept that reduced profits and lower rates of return might be an appropriate way to reflect inefficient use of resources.

The ‘Acc4S’ initiative has a projected life of about one year and lifted off on a groundswell of goodwill and evident cross-party support for its ambitions.

The profession has a lot to contribute but must be ready to acknowledge that, belatedly in Stern’s view, the time for a major paradigm shift may have arrived.

ACCA, CIPFA and ICAEW are all represented on the steering group of the Prince of Wales ‘Accounting of Sustainability’ project.

Roger Adams is executive director technical at ACCA