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Friday, September 10, 2010

Accounting for Sustainability: Practical Insights

Accounting for Sustainability: Practical Insights

Edited by Anthony Hopwood, Jeffrey Unerman and Jessica Fries

Published by Earthscan, 2010 (paperback) ISBN 978-1-849-71067-1

This review first appeared on on 10th September 2010


Perhaps the most critical challenge facing business and society generally is to tackle climate change and live within our ecological limits while continuing to enjoy economic prosperity. Key to addressing this challenge is the need for all organizations, public and private, to embed sustainability into their "DNA." Although sustainability accounting has developed in recent years, relatively few organizations have comprehensive systems and procedures to ensure that sustainability considerations are taken into account fully and consistently in decision-making and reporting. This book presents examples of how organizations have used accounting for sustainability tools and principles to embed sustainability into their DNA and includes examples of processes that have been followed to enable sustainability issues to be taken into account clearly and consistently in strategic and day-to-day decision-making and case studies from a range of companies.


Integrated reporting. Connected thinking. Total accountability. Embedding sustainable practices. The business case for sustainability. Interconnectedness. Measure what matters. The jargon abounds. The practice does not. Accounting for Sustainability is an attempt to encourage the practice, adding a little more jargon, by proposing a "Connected Reporting Framework" and showing examples of how this has been applied in several organizations including Sainsbury's, EDF Energy, BT, HSBC, Aviva, Novo Nordisk and two non-business organizations, the West Sussex County Council and the Environment Agency.

This book is the outcome of five years of the Accounting for Sustainability (A4S) project started by HRH Prince Charles and supported by a range of sponsors, mostly the big accounting firms. Prince Charles says: "… we cannot have capitalism without capital and … the ultimate source of all economic capital is Nature's capital." The A4S project's challenge is described as ensuring "that sustainability information is included in mainstream reporting and is strategically important so that it forms part of the decision-making process of the business. This differs from much of the current corporate responsibility reporting which is not connected with the business and its strategic thinking." The key to this is integration of business processes and the analysis of how ESG factors influence what businesses do and how this impacts the bottom line in the form of an investment with an ROI or a new business opportunity. By calculating the financial impact of such CSR and sustainability programs, they cannot logically be excluded from financial reporting. This is a move away from sustainability “because it is the right thing to do” and a move towards sustainability as a business case, pure and simple.

The Connected Reporting Framework, "which was developed primarily with the needs of long-term investors and executive management in mind," according to the book, offers a tool for businesses to think holistically about their strategic material issues, establish goals and targets and financial evaluation of social and environmental impacts of business strategy and report in a "Connected Performance" report. Not all of the eight organizations showcased in the book have actually reached the final step of connecting ESG performance with financial performance in a quantified way, though most have had a positive experience through applying the "connected" thinking approach.

The book, after an initial introduction to the rationale for the A4S project and a detailed description of the framework, provides case studies written by a range of (mainly) accounting and finance academics, following interviews and interactions with the companies who have tried to work with the Connected Reporting framework. The quality and length of the case studies differ, and the detail provided varies - though all are characterized by a range of quotes and frank, personal perspectives from interviewees and a plain language approach to this jargon-infested subject matter. Rather than trying to sell the framework, the writers seem to try to reflect authentically where each company is on this A4S journey. Sainsbury's, for example, "is cautiously pleased with the A4S decision-making tool." HBSC has adopted the principles in its sustainability reporting, and Aviva has adopted them both in Sustainability and Annual Reporting. At EDF "adoption of the CRF has been a useful intellectual exercise" and influenced internal reporting processes and quantified benefits or other outcomes in external reporting. Novo Nordisk is included as an example of an integrated reporter, though Novo Nordisk does not use the Connected Reporting framework and "non-financial indicators are not currently financialized or connected to financial outcomes." Novo Nordisk uses a Balanced Scorecard methodology.

The case study that I found most impressive was BT, the global telecommunications company, who published a first Environment Report in 1992. The study of the sustainability evolution at BT shows how the Business Case for CSR was developed, the business benefits BT expects from its sustainability programs, the drive to assess materiality and the application of a more quantitative assessment of BT's sustainability performance in financial terms. "In 2009, BT included in its Annual Report for the first time a summary table of the 'Non-financial corporate responsibility KPI's' as a high level connected reporting summary of the most material sustainability issues." This was also included in the BT Sustainability Review. The table, also reproduced in the book, is excellent, and shows both direct and indirect company impacts, most of which are translated into a money figure. Accountants will clearly love this, as will investors and analysts, and indeed, it does remove some of the fogginess we find in many Sustainability Reports around sustainability initiatives. I suspect this rigor will have to be the way forward for most companies, though we should not be tempted to think that every single sustainability initiative can be quantified so precisely and that, if it cannot, it should not be undertaken. If the Connected Reporting framework supports a more strategic, analytical approach to sustainability, then it welcomes an approach for many businesses, albeit one that demands strong internal alignment and discipline.

All in all, Accounting for Sustainability provides a good overview of the challenges and dilemmas companies face as they evolve their sustainability thinking. My surprise was that the case studies served more to share thoughts and experiences rather than to provide absolute proof that A4S and CFR are the only ways to go. The result is more of a discussion and less of a recommendation, leaving some gaps in the actual degree to which the framework actually lives up to expectations. However, in the eight organizations profiled, there seems to be a consensus that the use of this tool did support clearer thinking, planning and communicating around sustainability objectives. These frameworks clearly have a place in the ongoing debate about the future of (integrated) reporting, and therefore, this book is a useful addition to the body of emerging knowledge in this space.

elaine cohen, CSR consultant, Sustainabilty Reporter, HR Professional, Ice Cream Addict. Contact me via  on Twitter or via my website

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