An integrated approach to reporting equips SMEs with a better understanding of their own organisation and what’s driving long-term success. It shows how they can better navigate the opportunities and threats that the future environment may bring. Taking a holistic approach to an organisation or business in the context of its external environment, integrated thinking enables it to see how doing good can actually create value in pounds and pennies in the immediate future as well as long term. Dissecting and reporting such information enables business owners to clearly see how these values link to their business performance, something which accountants are already plugged into.
Better quality information creates value
Integrating sustainability within organisational strategy and an enhanced awareness of risks, such as climate change and biodiversity loss, can lead SMEs to make better-informed decisions. Processes such as integrated thinking remain relevant for all organisations to obtain higher quality information and therefore create real value. It is developed through the continued consideration of the interdependencies between an organisation’s various capitals (financial, manufactured, natural, human, social and relationship, and intellectual) and how this influences the creation, maintenance, and erosion of value over the short, medium, and long term. Integrated thinking is an innovative approach to operations, consisting of increased flexibility and the breaking down of silos. This holistic approach to operations aims to improve the flow of information throughout an organisation, minimising duplication and other inefficiencies.
SMEs are perhaps more sceptical of the case for capturing environmental information, viewing it as an unnecessary consumption of time and money. However, for many SMEs, the potential benefits of environmental information include improved financial performance and avoidance of costs that would have been incurred in dealing with the future outcomes of unassessed environmental risks. Some clients may be directly exposed to environmental risks if their operations are dependent on water supply, the growth of crops, the availability of scarce resources and so forth. If there are no direct and obvious risks in the client’s manufacturing or service provision, it is almost certain that somewhere in their supply chain, there is an environmental risk at play. Though identifying, measuring, monitoring, and accounting for these risks may at first seem unnecessary, it is a critical activity to assess the continued viability of organisations of all sizes.
Sustainability and ESG are driving prospects
Climate change has shown that environmental sustainability issues are fundamental to an organisation’s survival, as they become increasingly accountable not just for their finances but for the sustainability of their operations. This is not just simply to ensure compliance but increasingly it is driving tomorrow’s prospects as well as those over the next decade and beyond. Consumer demand for environmental sustainability is likely to outstrip government mandated action but both should, and will, drive business adoption of sustainable practices.
Environmental, social and governance (ESG) issues are also now key concerns – and a major attraction – for global investors, as their sights are fixed on sustainability and climate change. As a major part of that focus, businesses will be required to measure and reduce their greenhouse gas emissions. As there aren’t yet any defined standards for ESG – although there are global standards under development – this offers a widespread growth opportunity for auditing.
Accountants have a significant opportunity to manage that sustainability, as they are well-placed to deliver high quality integrated reporting assurance, given their assurance skillset, experience in financial audit and professional scepticism and judgement. Their professional training and experience provide both an understanding of organisations of all types and sizes, and an ability to apply judgement and problem solving in complex situations. Integrated reporting assurance is a critical element of the future role of accountants, enabling a career pathway to apply their professional expertise beyond financial information in corporate reports to other information that is related to enterprise value creation, ultimately improving confidence in business resilience and sustainability. With appropriate knowledge of sustainability, the ethics, skills, and judgement of qualified accountants perfectly position them to integrate ESG advisory services within their offerings. Indeed, as sustainability efforts evolve, so the accountancy sector is primed to innovate through offering multiple eco-conscious services to help their clients measure the degree to which they are operating sustainably.
Knowing the clientele is fundamental
With so many options for integrated reporting, the best place for accountants to start is to assess their current and desired clientele. For example, resource-intensive clients, such as a manufacturer, could benefit from implementing circular economics principles to reduce wastage and maximise value. By contrast, a local micro-brewery would perhaps benefit more from disclosing climate risks posed by the increased threat of drought, causing potential water and barley shortages.
As the tide continues to shift, it is becoming abundantly clear that non-financial reporting is no longer peripheral, but a valuable predictor of long-term financial performance and an investment in the future.
As businesses of all sizes will be subject to increasing regulation, with the need to promote as well as prove its ESG performance, this creates an unlimited opportunity for small practitioners to innovate and capitalise on this cultural change, set to be an industry game changer.