BusinessCompany NewsHighlighting the problem

Highlighting the problem

Damaging corporate activity needs to be identified

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

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