Last June, I raised a few eyebrows when I told attendees at the
United Nations Conference on Sustainable Development in Rio (aka Rio+20)
that "accountants would save the world." But I meant it. To get all
businesses involved in solving the world's toughest problems, we must
change the accounting rules.
Why accounting? During my time as CEO of TNT N.V. we created a partnership with the UN World Food Program
(WFP) — at that time the world's first between a for-profit and the UN
agency. A transport company like TNT is a typical beneficiary of
globalization. At the same time we live in a world where every six
seconds a child dies from hunger despite there being enough food in the
world to prevent it. So TNT brought its logistics skills and committed
its people's time to help the WFP reach the victims of droughts, famine,
and natural disaster. Our professional support made the WFP function
better. But we got returns on our investment as well: Our employees were
proud of the company and eager to participate; the disaster areas
provided some of the best training on how to solve complex dilemmas; and
of course the reputation of the company improved tremendously. There is
no doubt we benefited from this.
But we weren't capturing any of it in our financial reports. We were
building social capital, but we didn't have a way to tell our
shareholders — or be held accountable to keep doing it. Similarly, you
don't have to be an energy company or pulp and paper producer to focus
on those resources; all companies use water, energy, and paper. But few
are held accountable.
That's why we need to ensure that corporate reporting makes clear how
a company is making its money, not just how much money it has made. For
every robust, time-tested measure of return on financial capital, we
need another for social capital — the economic benefits that derive from
cooperation among groups, and yet another for natural capital — the
supply of natural ecosystems (think forests, oceans, mineral deposits)
that we turn into valuable goods or services future.
Make no mistake, I am a capitalist: Someone who puts capital to work,
and wants something back. But where we've lost the plot is that we only
demand — and manage — a return on financial capital. In order to
address current economic crises in a systematic way, we must begin to
demand a return on social and natural capital as well. That's where we
need to change the rules of the game.
It's true that since the advent of the Global Reporting Initiative in 2000
companies have begun to include evidence of sustainability in their
annual reports. But many corporate reports describe sustainability as a
"journey" with no explicit destination. Furthermore the non-financial
parts of reporting today are not rule-based, making it impossible to
compare performance across industries — and many times even within them.
The World Business Council for Sustainable Development
(WBCSD), where I am president, is taking steps to address this. We are a
membership organization consisting of over 200 companies worldwide —
including all of the Big Four accountants. We've started a program on
reporting and investment that will collaborate with The Prince's Accounting for Sustainability Project (as in Prince Charles) and the International Integrated Reporting Council
to make sustainable performance concrete, measurable, comparable, and
linked to scientific priorities. We will focus on both internal
sustainability reporting for improved risk and performance management,
as well as on external disclosure as a driver for more accurate
valuation of companies and improved allocation of capital market
investments. We will also convene a forum for CEOs and accountants to
discuss and develop large-scale solutions for finance and reporting and
are exploring the possibility of developing a world-class training
program for CFOs on sustainability.
If the world wants to address our many challenges — if business wants
to restore societies' trust — business must be more transparent and
acknowledge that the resources we exploit or conserve and the social
benefits we engender or lose, must be factored into a company's value
and thus into day-to-day management. This is not a matter of incremental
change, but a radical transformation. And it's the accountants who will
lead the way.
This post is based partly on a speech Peter Bakker gave at The Prince's Accounting for Sustainability Forum on December 13, 2012. A copy of the full speech, as well a video, can be accessed here.
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