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How can accountants channel Patagonia’s zeal for purpose?

Author: ICAEW Insights

Published: 19 Oct 2022

As the clothing brand strengthens its dedication to environmental causes, we look at what accountants could do to emulate its commitment.

Equal measures of excitement and curiosity rippled through the apparel trade on 15 September, when Patagonia founder Yvon Chouinard announced that he had given the brand away to a charitable trust to safeguard its environmental mission.

In an open letter, Chouinard explained: “Instead of ‘going public,’ you could say we’re ‘going purpose.’ Instead of extracting value from nature and transforming it into wealth for investors, we’ll use the wealth Patagonia creates to protect the source of all wealth.”

Under the terms of the giveaway, 100% of the company’s voting stock has transferred to the Patagonia Purpose Trust, created to protect the company’s values. Meanwhile, 100% of the non-voting stock now resides with the Holdfast Collective: a nonprofit devoted to fighting the environmental crisis and defending nature.

Chouinard wrote: “The funding will come from Patagonia: Each year, the money we make after reinvesting in the business will be distributed as a dividend to help fight the crisis.”

Patagonia’s move has given business leaders in every industry pause to consider what more they could do to help the planet. But how should such a keen emphasis on purpose work in the field of accountancy – where the product is not merchandise that must be ethically sourced, but insight and expertise?

Beyond the ‘why’

“We believe that almost any business can – and indeed should – transform itself to be purpose driven,” says James Edney, Business Development Director at Given, an agency that helps brands develop fully integrated purpose agendas. “The benefits you can unlock from doing so impact talent, productivity and, most importantly, growth.”

Edney points out that Patagonia wasn’t ‘born good’: launched in 1973, its ethical mission began 12 years later with annual giveaways of 1% in sales revenue to environmental causes. However, he says, the brand provides a great example of how leadership can drive a purpose agenda.

For any business, he says, the first step is to draw a distinction between your environmental or sustainability strategy and your broader purpose. He notes: “An ambitious and credible sustainability strategy is key to a purpose-driven business, but is distinct from your purpose – which is a complete management strategy that goes beyond your ‘why’ to consider the ‘what’ and the ‘how’. Sustainability is one important way to evidence your purpose in action, through the targets you set and choices you make about your impacts.”

In the course of its work, Given has identified five transformations that a business must make to be purpose driven, and to maintain a long-term sustainability strategy:

  1. Governance Align your structures and processes to drive purpose-driven decision making.
  1. Leadership Help your team leaders set a tone that will inspire staff to action.
  1. Colleague engagement Create conversations and share stories that will keep everyone engaged.
  1. Brand and innovation Prove your purpose authenticity to boost your brand’s success.
  1. Metrics and measurements Gauge how you are delivering on your purpose to verify your impact.

For any business that is embarking upon a purpose journey, the agency recommends five mantras that will remind the organisation not only to stay focused, but to recognise that the process is not meant to be easy:

  • It’s all your business Getting purpose right is everyone’s responsibility.
  • Embrace tough choices If it doesn’t feel uncomfortable, it’s not working.
  • There’s no quick fix Becoming purpose driven takes serious transformation.
  • Make purpose personal Everyone must be able to relate to a shared purpose.
  • Purpose is for life, not just for share price Revamp governance for long-term dividends.

In a poll of 2,000 UK employees to mark the release of its recent publication The Insider’s Guide to Purpose, Part 2: How to Transform Your Business, Given found that one in three large-firm staff would choose purpose over a higher salary when considering which company they want to work for.

Meaningful support

So, how does all that work in sector-specific terms – particularly in relation to how accountancy firms should conduct themselves within their business community?

“All of the largest accounting and audit firms are now working heavily in the environmental, social and governance (ESG) space and the field of climate expertise,” says Robert Clarke, Climate Finance Lawyer at environmental charity ClientEarth. “However, they need to make the link between new advisory opportunities and their core audit and accounting practices.”

He explains: “In order to decide which companies are genuinely committed to – and financially prepared for – the net-zero transition, investors need a clear picture of how the businesses they invest in are dealing with climate risk. It’s the job of accountants and auditors to ensure they get that picture.”

Clarke points out that, alongside proper recognition of climate and environmental risks and opportunities within companies’ financial statements, large groups of investors have called for ’Paris-aligned’ accounting and audit practices.

“This means checking that financial statements use critical assumptions and estimates aligned with a 2050 net-zero pathway. Or explaining how statements would be affected should such assumptions be used – typically through a sensitivity analysis – to show investors how the company’s financial health would be affected by transition.”

Clarke stresses that auditors should alert investors if Paris-aligned assumptions have not been used and, in their notes, test whether relevant assumptions have been adequately considered. At the same time, he notes: “Accountants and auditors wishing to meaningfully support the transition to a net-zero economy should use their influence to promote Paris-aligned accounting and audit with their clients, standard setters and regulators.

Unique skillset

The largest accountancy firms, Clarke says, have all signed up to the Net Zero Financial Service Providers Alliance – part of the Glasgow Finance Alliance to Net Zero – which is committed to aligning “all relevant services and products to achieve net zero greenhouse gas emissions by 2050 or sooner,scaling and mainstreaming Paris Agreement alignment into the core of [their] business”.

He adds: “The signatories must deliver against this commitment not just by developing new ESG or climate-business divisions, but by integrating the consideration of climate risk and Paris alignment into the heart of their accounting and audit practices.”

ICAEW Technical Manager, Financial Services, Dipak Vashi says: “Accountants and auditors have a unique skillset – namely around promoting the key needs of business in reporting, governance and assurance: skills that are vital for ensuring high-quality, Paris-aligned accounting is in place throughout the economy.”

As such, he adds: “Accountants have a key role to play to push this agenda, and should strive to showcase and promote the professional attributes that will ensure this occurs.”

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