Future proofed decision making - Integrating environmental and social factors into business decisions
In his annual address to the Prince’s Accounting for Sustainability Project (A4S) forum at St James’s Palace in London last week he said “we have been pursuing economic growth as if it was an isolated goal” and in doing so “have done alarming damage to nearly every element of the natural world you care to think of.”
“We are living off the Earth’s natural capital rather than the income derived from that capital and, unfortunately, there is no global chief financial officer to keep us in check” he added.
“We tend to reward those who use most of the free resources from Nature and who pollute our environment, when we should be rewarding the organisations that protect our dwindling natural resources or seek to reduce atmospheric pollution,” he said.
According to the Prince, the finance and accounting community is in the “perfect position to innovate in order to gather better and more comprehensive information about the way organisations operate so that you can use this to help future-proof our economy. This will, in turn, result in improved risk management for organisations and society as a whole.”
These comments were made with the release of new research undertaken by Accounting for Sustainability to understand better how organizational decision making could be improved to more properly reflect environmental and social values.
While acknowledging that the translation of environmental and social values into the language of business and accountancy is rapidly evolving, determining what kind of information drives the greatest change in behaviour remains unclear.
To this end, the research also sought to assess attitudes of key decision makers - Board members and senior management - to different types of environmental and social information.
The research findings reflect opinions gathered from interviews and discussions with Board members and senior managers of large companies and public sector organizations.
The A4S report - “Future proofed decision making: Integrating environmental and social factors into strategy, finance and operations” details the findings of the research.
1. There is a growing recognition of the changing business landscape and a potential need for changes to decision making processes and strategic objectives to reflect new risks and opportunities.
2. The business case for the inclusion of environmental and social factors at Board level is not yet clear, particularly for many CFOs, due to uncertainty around the relevance of these issues to their organization.
3. Environmental and social information is often assumed to have been formally considered by the CSR / Sustainability team (with sometimes limited impact on the wider business) before decisions reach Board level. Information is typically presented as traditional sustainability data e.g. tonnes of carbon - with little alignment to strategic objectives or financial information.
4. Scepticism over the quality and robustness of many types of environmental and social data is preventing more widespread use.
5. A belief among respondents that expressing many environmental and social factors in financial terms can be counter-productive as data can be viewed as unreliable, spurious or unethical.
6. A perception that action can be left to successors who will understand these issues more fully.
What will drive change?
A4S identified the following levers for positive change:
1. Demonstrate the business case - Better articulate the commercial rationale for incorporating social and environmental factors into decision making to help ensure that organizations are aware of the risks to mitigate and the opportunities to grasp over the short, medium and long term.
2. Speak the right language - Develop narratives that are aligned with the needs and ‘language’ of business. These need to be focussed at a sector and organizational level and grounded in commercial understanding.
3. Develop more robust information - Work with existing collaborations to develop commonly agreed methodologies to value environmental and social inputs and impacts in financial terms that link to strategic objectives and wider financials, either directly or via reputational impact. Work with others to develop a wider set of tools that enable future risk, opportunity and uncertainty to be incorporated into decision making processes.
4. Bridge the knowledge gap - Recognize and address the need for skills expansion at Board level and within the finance and accounting community.
5. Create an enabling environment - Align business incentives with national and global goals and frameworks.