While the hype around COP26 could be seen as all noise and no action, there is a real opportunity to reflect and consider how we can do things better. This year, we’re asking whether it’s possible for profit and purpose to coexist as business objectives, and what role accountants can play in achieving this balance.
Historically, there has been a divide between the individual activists drawing attention to the climate crisis and the investors who “pledge” to tackle it. Now, we’re more than a year into what the UN has penned the “decade of delivery”, and a bridge is starting to build between investors and activists.
The participants involved in the climate change conversation have never been broader. In recent years, former Bank of England Governor Mark Carney has declared that companies who ignore climate change “will go bankrupt”, a sentiment echoed by JP Morgan’s Jamie Dimon who predicted that the only way for long term success will be to invest in communities. In the coming weeks, President Biden is also set to announce a number of initiatives that will shape the rest of his presidency: a new goal to cut U.S. greenhouse gas emissions.
In addition, the onset of Covid has meant many organisations have significantly reduced their carbon impact due to less travel, a trend that is set to continue.
From a brand perspective, customers have increasingly high expectations of companies to clearly articulate their purpose and values, as well as their approach towards tackling societal issues and crucially, to demonstrate those values in the way they do business. McKinsey recently reported that just 7 percent of Fortune 500 CEOs believe their companies should “mainly focus on making profits and not be distracted by social goals”.
Previously, investors and financiers divided their world into two distinct buckets, “normal investments” which were expected to drive returns, and “green investments” where expectation of returns were low. Now there is a new category which supersedes both – green investments that are also expected to yield strong financial results.
This is a pivotal shift, but it also triggers a number of questions. How do you measure success? Can you achieve both profit and purpose? How do you communicate your values and purpose accurately to stakeholders?
To achieve success, you need to be able to set objectives, measure accurately and then communicate this back to stakeholders. This is where, as chartered accountants, we have a key role to play. We work with a number of clients to ensure information disclosed to stakeholders is consistent with the financial statements and the underlying strategies – helping to accurately communicate corporate values and providing transparent information.
Can you achieve profit and purpose? Absolutely, but organisations need to shift their priorities to develop this paradigm, and to be truly competitive, there needs to be a genuine vision to look beyond the numbers first. The financial benefit will follow, but in the wise words of Goldman Sachs’ Tim Freshwater which are echoed by many, “if you ignore sustainability, you’re going to be worth less.”
Climate change is likely to have a profound impact on business and on us as individuals; it could lead to significant market corrections and changes in the coming years. Failure by businesses to respond to the risks has significant implications, such as disruption to supply chains, loss of asset values, and market dislocation. Britain’s largest businesses will be forced to disclose their climate-related risks and opportunities starting from April 2022. The new legislation will see over 1,300 of the largest UK-registered companies and financial institutions having to disclose climate-related financial information on a mandatory basis. This will include many of the UK’s largest traded companies, banks and insurers, as well as private companies with over 500 employees and £500 million in turnover. The government hopes that with this new requirement, investors and businesses will better understand the financial impacts of their exposure to climate change and price climate-related risks more accurately. Our role here is to help pre-empt the risk and make an assessment on the potential implications through the financial statements.
We are at a tipping point when it comes to tackling climate change, and there is no doubt that there is work to be done. We have been working passionately in this area for over 10 years now.
In 2010 we set up a Sustainability division to help our clients to reduce their carbon footprint. We believed at that time and even more resolutely now, that sustainable businesses are better businesses.
What is reassuring though, is that we have a role to play at the very heart of this. It’s an immense responsibility, but also one that we’ll gladly tackle head on.
Please get in touch if you have any questions about your specific circumstances.