How accountants can save the world -- maybe

 

Will accountants save the world? That was one of the most provocative questions to come out of the Rio+20 conference on sustainable development last week.

While it will take some time to get an answer to that question, the fact that it's being asked demonstrates the level of concrete involvement in sustainability issues by the business community, which was more involved -- and more engaged -- than at any United Nations conference in history. And at least at the city and organization levels, cross-sector collaboration was evident, declarations rampant and commitment to concrete action well underway.

Especially in the finance sector, where arguably the most opportunity exists, I heard a lot that gave me reason to hope. During my time in Rio, I talked to bankers, accountants, business leaders and academics — all of whom spoke passionately about the need to value and appropriately account for nature.

Here are five efforts that stood out as examples of the role that just about every stakeholder in the financial markets system -- bankers, investors, insurers, corporations, accountants, top executives, stock exchanges, or financial analysts -- can play:

1. Natural Capital Declaration (NCD)’s 39 banks, investors and insurers (see Principles for Sustainable Insurance) joining forces with more than 50 countries -- including the UK, Philippines and South Africa, as well as corporations, including Unilever, Dow Chemical and Puma -- to make a collective call for natural capital valuation. A strong start, but one issue is that the larger financial institutions are not yet involved. Leaders of NCD say that this is mostly due to the fact that they are concerned about where the data will come from and the lack of accounting standards (see point 2 below for a potential solution) required for integrated reporting. (This did make it into the 47^th paragraph of the official Rio+20 outcome document).  A similarly collaborative effort led by the Corporate Eco Forum and The Nature Conservancy involves more than 20 companies that are developing a methodology to assign a value to the world’s forests, freshwater and marine systems.
2. World Business Council for Sustainable Development's new project that aspires to integrate corporate impact on ecosystems and biodiversity into accounting systems. When WBCSD’s President Peter Bakker emphatically asserted that “accountants will save the world,” he was ready to put his business coalition to the task of innovating in the area of sustainable business reporting -- the next step on from WBCSD’s Guide to Corporate Ecosystem Valuation. Stay tuned for more on this project; rumor has it that already 50 companies are signed up.
3. A renewed emphasis on corporate governance, with a focus on executive compensation for sustainability performance. A growing number of companies like Intel, Alcoa and Campbell's Soup have been lauded for paying top executives for sustainability performance. One example: According to Thomas Nagy, who leads sustainability at Novozymes, the company pays 25% of the annual bonus based on short-term financial measures, 25% on long-term financial measures, 25% on short-term sustainability measures and 25% on long-term sustainability measures.
4. A coalition of stock exchanges representing more than 4,500 companies that is banding together to promote long-term, sustainable investment in their markets. It was announced at the Sustainable Stock Exchanges (SSE) 2012 Global Dialogues, and despite being a relatively tiny group of the total global market capitalization, this commitment made by NASDAQ OMX, BM&FBOVESPA, the Johannesburg Stock Exchange (JSE), the Istanbul Stock Exchange (ISE) and the Egyptian Exchange (EGX) is already being amplified. As George Kell, Executive Director of the UN Global Compact, said in the official press release, "We take this opportunity to call on all stock exchanges around the world to join these leading exchanges in making this potentially transformative commitment."
5. Continued opportunities to educate financial analysts. According to Erika Karp, Managing Director of Investment Research and Head of Global Sector Research at UBS, if analysts are not “systematically integrating environmental, social and governance issues into their reports, they should be fired!” Karp and others at Rio made the call to push analysts to ask the “right” questions as part of analyst calls — for instance, those that acknowledge crisis themes (think water scarcity as it relates to an investment in an apparel company). When I sought Karp’s best thinking on how to get analysts to think this way, she emphasized the importance of educating them to raise their level of understanding (Karp reminded us, “Most people don’t know how much water it takes for creating a pair of jeans”), and then facilitating collaborations that result in more well rounded investment reports.

It is collaborations and commitments like these from the private sector that can give us hope, even while the political outcomes can be summed up as “largely a cold cup of tea.”

As Neil Hawkins, Vice President of Sustainability and Environment, Health & Safety for The Dow Chemical Company recently emphasized to me, “In order to accelerate progress on valuing nature’s services, we must approach it from all stakeholder perspectives – but the time has passed for everyone to get on the same page.  Now it is up to the most forward-thinking companies and institutions to lead the way.”

A lot of work lies ahead for all of the stakeholders. I’m not suggesting that it’s going to be easy placing a value on water, accounting for it in a financial statement and potentially creating a trading market for it — especially when we cannot yet agree on who owns it. But with some of the world’s best minds coming together and collaborating from all corners of the financial market system, companies, cities and countries will advance their understanding of the true value of our natural resources.

And with that understanding, we will surely get closer to the future we want.