Organisations today face the question of how to adapt their strategies, business models, and practices to respond to social and environmental challenges while creating financial success and value for their shareholders.
Yet, just 13% of companies are confident they have the necessary skills to meet these challenges and compete in a sustainable economy, according to data from the Institute of Environmental Management and Assessment.
A new CGMA report, Redressing the Balance: How Management Accountants Drive Sustainable Business Strategies, argues that many companies are missing out on valuable insight and analysis by failing to take advantage of the management accounting skillset. This includes making the business case for sustainability and analysing and reporting on the impact of environmental and social factors on business performance.
A survey of 1,000 CGMA designation holders, detailed in the report, revealed the extent to which management accountants are currently involved in sustainability issues.
Sixty-seven per cent of respondents agreed that integrating environmental and social factors into organisational decisions brings significant financial and commercial benefits.
Furthermore, 60% of those polled believe that it is their responsibility as a management accountant to include relevant environmental and social factors in the information and analysis they provide to decision-makers. However, just 45% of respondents currently do so. Lack of demand from decision-makers was the main reason respondents gave for not including this information. Systems and processes that do not support the inclusion of these data was another common obstacle.
The survey found that the more senior the respondent was, the more likely he or she was to include this type of information. For instance, 52% of the CFOs, CEOs, and directors surveyed said they reported on sustainability issues for decision-making purposes.
Of those who do include sustainability information, 84% said they use it to support strategic decision-making, and 76% use it in risk-management decisions. However, there is an opportunity for management accountants to integrate these data and insights into supply-chain and procurement decisions, where they are currently used by just 47% of respondents. This would help organisations to examine how risk factors such as natural resource depletion and social inequality might impact on current operational issues such as productivity or pricing, as well as future strategies.
One of the key barriers to be identified in the survey, cited by 60% of those polled, was a lack of demand from decision-makers for this kind of information. However, there are signs that this is beginning to change, with more than two-thirds predicting that demand in their organisation for environmental and social data will increase over the next two years.
The report suggests a number of ways management accountants can guide their organisations towards sustainable business success:
- Identify the environmental and social trends that will impact on the company’s ability to create value over time.
- Link sustainable business challenges to the company’s strategy, business model, performance outlook, and licence to operate.
- Explain the impact of these sustainability issues in robust business terms, including how and when they could affect the business.
- Develop KPIs that support strategic and sustainable goals.
- Apply management accounting tools and techniques, such as scenario planning of natural resource availability, lifecycle costing, and carbon foot-printing, to help integrate sustainability matters into the decision-making process.
- Produce reports that include data on sustainability impacts in order to inform budgeting and pricing decisions, investment appraisals, and strategic planning.
- Develop a reporting strategy that integrates sustainability issues to ensure that relevant financial and non-financial information is disclosed. The International Integrated Reporting Framework created by the International Integrated Reporting Council is one example.
—Samantha White (firstname.lastname@example.org) is a CGMA Magazine senior editor.