Green issues: play your part

Accountancy Age devoted much of its 5 July edition to the role of
accountants in ‘preserving the environment’. Anyone reading it might be forgiven
for thinking that, at long last, the profession was waking up to something which
has been troubling some of us for a long, long time. I said as much to the
editor a few days later and told him about a book I wrote, published in 1995,
called The Corporate Environment with a target audience of accountants, auditors
and finance directors. It didn’t have quite the impact that JK Rowling has
achieved. In fact it didn’t have much impact at all. Someone said I was ahead of
my time and I expect I was – which is a pity.

I was prompted to write my book by several things that concerned me in the
late 1980s. One of these was the impact of the oil spill in Alaska from the
Exxon Valdez on the Exxon Corporation itself and, in particular, on the damage
done to the company’s reputation. I was also interested in the way it was
reported in the accounts and the actions that a group of activist shareholders
took to draw attention to what had happened.

I was also shocked by a TV series on environmental disasters of the 1970s and
1980s. One disaster I remember particularly clearly was the shrinking of the
Aral Sea as a result of Russian irrigation projects and its pollution from heavy
industry. What had happened appalled me. Climate change wasn’t something that
was on the agenda then, although the hole in the ozone layer and blind seals in
Tierra del Fuego did get talked about.

I then spent several years thinking and researching ways in which the
accounting profession could help. I was delighted when I was asked to write a
book on the subject. But I’ve been less delighted by the way the profession has
responded so far.

The challenge from the Prince of Wales in 2005 for better ways of accounting
for ‘sustainability’ and the interest now being shown by Accountancy Age are to
be welcomed but are in danger of being too little and too late. We should be
helping set the agenda not responding to one set elsewhere.

But all is not lost and so I’d like to repeat (briefly) my 1995 conclusions.
Both then and now accountants can contribute in three main areas: accounting,
audit reporting and taxation.

By accounting I mean the collecting and reporting of accurate, hard-edged
financial and non-financial data on the environmental impact on certain clearly
defined corporate activities in a balanced and understandable way. Whilst
narrative reporting is to be welcomed many of the woolly generalisations in most
corporate social responsibility reports are not what I have in mind.

Hard facts

Simple things like hard facts on, for example, packaging and related costs,
power consumption and waste production as well as (now-fashionable) carbon
emissions are examples of what I believe is needed. The profession needs to help
define the measurement techniques and reporting standards required and ensure
that all larger organisations, both public and private sector, report them. We
should start with simple things and make sure we don’t hit small businesses too
hard. Statutory backing would help but it’s only relatively recently that
auditing and accounting standards have been set outside the profession so what’s
stopping us developing our own if no one else will?

It is in the field of auditing that I think our profession can make the
biggest difference – although the financial auditing profession does not seem to
have responded in the way I envisaged some 15 years ago. I remain firmly of the
view that the training, standards and skills of the financial auditor can be
readily adapted to reviewing a wide range of environmental issues. Using experts
to handle complex scientific and technical issues is clearly necessary. But a
rigorous check on the standards of that work and, most importantly, the fair and
balanced reporting of what is found so as to give a ‘true and fair view’ to
shareholders and the wider community must be something our profession can
deliver. The quality framework is there too in the form of ISO 14001.

I’m also convinced that we have a lot to contribute in developing tax
policies that are simple to operate and effective although I’m less convinced
that the political will is there to do what I have in mind. Landfill levies are
now in place and plans are developing for various forms of road pricing but
there are no immediate signs that other kinds of environmental taxation are in
prospect.

There is, of course, considerable public resistance to these kinds of tax
charges. I’m convinced that the reason is that they are seen as just another
form of tax with the revenues raised going to the Treasury never to be seen
again. I cannot understand why some form of hypothecation cannot be used
beginning with road pricing. Some of the money raised could be invested in road
improvements (not more roads, but better ones), on research into alternative
forms of engine and, in particular, into really effective public transport
alternatives.

I also looked at various forms of ‘green’ investment vehicle in my book and
considered the case for various forms of ethical screening. These ideas were
being debated in the 1990s but really seem to have caught on now. The
opportunities to make money out of the technologies needed to reduce the impact
of global warming in particular have really multiplied recently. Whether it’s
making wind turbines, building plants to process bio-fuels or developing more
fuel efficient means of power, new businesses doing these things are springing
up everywhere. A bandwagon is clearly rolling.

But if I were to try and set the agenda on ‘preserving the environment’ for
the accounting profession for the next 20 years I would probably stick with the
same concepts I promoted in the 1990s.

Accountants are trained to handle complex information and to bring the
highest standards of integrity to its production and to its presentation. There
is a need for such information to be put into the public domain with a credible
audit opinion attached to it on the ‘truth and fairness’ with which it is
presented. It’s not easy to do this but that’s why it’s needed. Hard facts
rather than public scares are needed to inform business, politicians and the
public. That’s what accountants are there for.

John Collier is a chartered accountant and former
secretary general of the ICAEW