Accounting for sustainability: future proof

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One ton of carbon dioxide is presently trading on European markets at about
£10. A hectare of rainforest stores about 500 tons and therefore has a potential
value of £5,000; but, as the New York Times recently pointed out, millions of
hectares of rainforest are being cut down to create agricultural land worth £100
a hectare.

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Why are we allowing people to be deprived of their natural habitats,
biodiversity to be diminished and climatic catastrophe to be hastened, and all
at a loss of £4,900 a hectare? There are no easy answers, but I am sure that
part of the blame, and more importantly of the solution, is down to us
accountants.

The Prince of Wales said in a speech at the Institute of Chartered
Accountants, to celebrate its 125th anniversary in 2005, that our knowledge of
the complexities of life and the consequences of our actions is now far greater,
but that the accountancy profession has yet to provide a mechanism to allow us
to assess and quantify these newly apparent complexities and consequences.

As His Royal Highness put it: ‘Your profession is one of the key pillars of
our economic stability and prosperity, but to ensure that our descendants can
experience something of that stability and prosperity there is a very real
urgency to adapt our accounting procedures to the critical challenge of
minimising the wasteful damage done to the fragile world around us through man’s
increasingly short-term perspective.’

He concluded by saying that unless a practical and robust system can be
developed to enable broader and longer-term factors to be taken into account
more effectively in accounting and decision making, the world will continue to
live off capital rather than income, and what we enjoy today will be at the
expense of our children and grandchildren.

Accountants, for good reasons, have generally been more comfortable dealing
with the readily quantifiable, and we have tended to handle the future with
reluctance and wearing rubber gloves; but we have now reached the point when
further costs and benefits need to be accounted for. Life has become more
complicated and as a result there are more effects and consequences that need to
be accounted for.

Surely, for example, the value of dwindling natural resources, and the cost
of increasing atmospheric pollution, should be included in the price of what we
buy and consume? At the moment these costs often do not appear in anyone’s
books. Apparently therefore the cost of draining a wetland, destroying a
rainforest or pumping tons of carbon into the atmosphere is zero. Almost all of
these costs, for which future generations will pay dearly, are given no value in
accounts.

These are the issues that The Prince’s Accounting for Sustainability Project
has been established to address. The project has daunting objectives, but it has
attracted considerable support and has already had sufficient impact for the
Institute of Chartered Accountants in England and Wales to make His Royal
Highness their first honorary member.

The project has two main elements: ‘embedding sustainability’ and ‘reporting
sustainability’. The business world knows

that sooner rather than later it has to get a grip on the inescapable
implications of sustainability. But at the moment companies and organisations
often lack the internal processes which would make sustainability a natural part
of strategy and day-to-day management.

They also often lack the reporting model which would ensure that
sustainability takes its place alongside other important information that
investors, employees and consumers want and need to see.

Governments and large companies have announced ambitious programmes to
address climate change and sustainability, and have established commissions and
committees to consider and report on these issues but to help realise these
objectives more needs to be done to provide day-to-day decision makers, whether
managers or consumers, with the tools and information to take sustainability
into account more consistently. People and managers are concerned about climate
change and sustainability but they lack the tools and information to get on and
tackle the challenge.

In order to address this we are working with organisations and companies in
four sectors: the public sector, food, finance and construction to learn about
what they are already doing to embed sustainability into decision making
processes, to compare this with what other companies and organisations are doing
and to come forward with a model or toolkit to ensure it is done more
comprehensively, clearly and consistently. Sustainability needs to become a
‘taken-for-granted’ element at the heart of business.

To encourage this objective the project is also investigating ways in which
sustainability issues might be reported more clearly and effectively. We are
again working with a range of companies, with accounting professional bodies and
with academics. Considerable progress has been made in recent years with
corporate social responsibility reporting and there have been important
developments, such as the Global Reporting Initiative and the Carbon Disclosure
Project; but the information provided is not always clear or user friendly for
both employees and investors; nor is it always verifiable, or comprehensive and
consistent between companies.

The project’s aim is to take the best of current reporting, adding to it
where required, and to come up with simpler ways of providing the reporting
framework from which employees, investors and others can obtain a clear,
meaningful and comparable indication of a company’s or Government agency’s
sustainability performance.

The project’s conclusions and recommendations are due to be reported this
December. We have over 40 people involved with the project’s work, around 10 of
whom are working on it full-time – all kindly funded by the organisations
supporting the project – and I very much hope that we can make a useful
contribution in this important area.

Sir Michael Peat is principal private secretary to the
Prince of Wales and the Duchess of Cornwall