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When Chartered Accountants Save the World

It’s time for chartered accountants to save the world

Author: ICAEW Insights

Published: 30 Apr 2021

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A sustainable future requires businesses to maximise more than profits and governments to look beyond rising GDP. Chartered accountants must understand their unique role in making this happen, argues Peter Bakker, CEO of the World Business Council for Sustainable Development.

In 2012, Peter Bakker told the Rio+20 UN conference that “accountants will save the world” from climate change. He was one of the first people to highlight how real change would come from reconfiguring the millions of decisions that managers in business, NGOs and the public sector make every day, all over the world. To do so, they need to understand not just the financial costs and benefits of those decisions but the environmental and social trade-offs too. He outlined his thinking in a Harvard Business Review article in 2013, and the idea took off. 

Speaking from his Geneva office in 2021, Bakker, who is President and CEO of the World Business Council for Sustainable Development, is clearly happy that his thinking is far more mainstream than it was nine years ago when he spoke in Rio. “Looking around the space, good progress has been made. For example, when that original article was written, the natural capital protocol had not yet been designed. It's now there. The social and human capital protocol had not yet been designed. It's now there. Nobody had even thought about TCFD [the Task Force on Climate-related Financial Disclosures].

“So, I think in terms of tools, awareness, and building a language that accountants can use to implement this in business, good progress has been made. But are accountants actually leading the way, as ‘saving the world’ suggests? No, we have not seen enough progress.”

Bakker warns that too many people in the accounting profession see sustainability issues and think non-financial information is best left to the sustainability department to prepare a sustainability report. He argues that not enough has been done to integrate sustainability into the profession.

“TCFD was put in place by central bankers – not by accountants or by academics, but another part of the financial system that began to realise that these big challenges we face are going to affect the risk profiles of business or economies and must be addressed.”

How to start saving the world

Bakker has a clear mandate for the world’s accountants: “People don’t see the statement that ‘accountants will save the world’ as so crazy as it might have been back in 2012. I would expect that by the time we're at COP26 [the next big UN climate conference in November], TCFD will move towards a mandatory framework in many countries around the world. IFRS is considering a Sustainability Standards Board, which is the first step towards integrating it into existing accounting rules. What we then need is accounting rules on how to report this type of stuff.”

He also thinks it’s vital that the accountancy profession starts to understand how these new accounting practices and standards will fundamentally change decision-making, and the role these standards must play in stewarding that change. 

“We still haven’t had the conversation looking at once you integrate this, how will it then change the decision-making in a company? If you apply true pricing, true costing – meaning integrated costing of externalities – how does that change decision-making? If you disclose this type of information to capital markets, how does it change the capital allocation of capital valuation models that shareholders have done?”

Answers to questions like these then, he says, should determine “how that changes what’s required of accountants in an integrated capitalism model, versus the one where only follow current financial rules”.

He also feels that it’s for the younger generation of chartered accountants in particular to lead the way. “If you’re anywhere between 25 and 40, you're relatively young into your career. You're well aware of the new expectations on business and the challenges that the globe is facing. You should use the energy that youth brings to really be part of shaping 'How should we change the rules?’ or ‘How can I be the first to understand the changing rules?' And then begin to really drive 'How does that change my profession?', 'What is my contribution to the organisation in which I am?' or 'How can I help my organisation make a more positive impact in the world that we all live in?’."

Stop trying to improve the combustion engine

He sums up all of this with an analogy of a car company he recently worked with that needs to make urgent changes. The car company currently employs “3000 engineers that are all working on optimising the internal combustion engine. These people know that, before the end of this decade, that is a dead-end street. We need to now explore completely new ways of propelling ourselves.” 

He thinks that accountants are in a similar position. The changes that require all organisations to think way beyond financial performance “are now unstoppable”. “They will happen,” he says. “Governance expectations will change. Capital Markets begin to now, admittedly, primarily around climate change, begin to ask real pointy questions of CFOs. So, the CFOs will need new information at their fingertips. Whether the accountants, as a profession, lead it or not it will happen.

“The role of an accountant is not just to provide numbers and hope that somebody does something as a result. You're providing information to get better decisions, whether it's inside the business on where to invest, or outside the business on how investors and other stakeholders should respond to it.”

If chartered accountants take this advice on board, not only will they save the world, they might also end up saving the profession from the now obvious fate of the combustion engine.

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