Bob from accounting saves the day

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Finance and accounting professionals may not be the most exciting people. Indeed, the cliche Accounting Bob is known for being a dry, bland character who crunches numbers all day and has no life. He doesn’t have a cape and doesn’t appear to have any superpowers, other than possibly doing Excel macros that could blow up a laptop.

In contrast, the role of investors – think of those aggressive Wall Street warriors – in averting the climate crisis has been well documented. The International Panel on Climate Change reported in 2018 that globally, $3.5 trillion is needed each year in climate-related investments to limit warming to 1.5 degrees centigrade. The IPCC and so many other think tanks have made it clear that those who move millions and billions of dollars have a clear role to play in saving our planet and our society.

This is nothing new for the followers of sustainable investing. However, for this to work, businesses, governments, universities and other entities need to be accountable and accountable for the positive and negative impact of their operations on our environment and society. Otherwise, investors and stakeholders cannot have the visibility needed to ensure optimal societal and environmental returns.

Who in an organization can do this job? Those who own it superpower are those – the CFO
CFO
and its finance and accounting team – who have historically represented all transaction within the organization, have tracked the source and use of every dollar, and can monetize the impact of every operational activity. But this group must also be able to identify and quantify risks and determine appropriate mitigation and hedging strategies, even as our ability to identify climate and social risks evolves. They have a duty to produce disclosures and reports which are reviewed by knowledgeable investors and rating agencies who are trained to check every syllable of every word of such disclosures and reports issued by the organization.

And that’s the role of the finance and accounting team (including Bob)! The CFO is the keystone for all of this to happen, as these disciplines have historically resided in the CFO’s office and along with finance and accounting.

The real challenge for this group is moving from the traditional recognition of financial risks and returns to non-monetary (or hard to monetize) impacts and outcomes.

How does the CFO and Accounting Bob put on their capes and save the world? There are three basic things that need to happen. First, the carpet between the office of the Chief Sustainability Officer (CSO) and the office of the CFO needs to wear down, as the two need to be in constant contact and in sync. The two must work hand-in-hand – with the CSO setting the direction of the organization on sustainability and the CFO helping to be accountable and ensure those goals are met. Second, the CFO must set the rules of the road so that those rules can be followed. For example, if the CFO needs to identify and report on social risks, don’t we need to agree on what social risks are? Do we consider the ability of workers to unionize? What about the income disparity between the entry-level worker and the CEO? How do we approach the impact of the organization on the community – such as a Department of Transportation’s decision to build a highway, which could divide an ethnic community? And finally, once the superhero team knows these rules of the road, he or she needs tools. In traditional financial reporting, financial transformations deploy powerful enterprise resource planning systems and other accounting and financial platforms so that the organization can account for every dollar. This same principle is necessary when considering a transformation to account for ESG metrics.

Are these teams up to the challenge? That remains to be seen. Increasingly, CFOs have expressed frustration with shifting targets around climate and ESG reporting standards. According to Accenture
ACN
According to a survey of CFOs conducted earlier this year, less than half of CFOs believe the steps needed to conduct sustainability reporting and disclosures are known and widely accepted. The survey also confirmed that, increasingly, capital raising will increasingly depend on the ability to report on sustainability impacts and efforts.

If we struggle to achieve consensus on standards, technological advances are hindered. If technological advances are impeded, the ability of organizations to easily take ESG factors into account is slowed…

And Accounting’s Bob and his CFO boss are feeling the frustration cited in the Accenture survey.

So how do you get there? Come to a consensus measure and report ESG factors, across all sectors, will accelerate standard definitions, which will accelerate technological advancements. The problem is that too many people don’t consider ESG in general. We can debate who factors to prioritize, but I don’t understand the argument for abandoning ESG altogether. Refusal to participate slows down the maturation process, which slows down standard setting, which slows down innovation.

Consider the alternative. There is no doubt that we must have reliable reports on the financial health of all entities – governments, companies, foundations, universities – which has led to mature accounting standards and technology aligned with these standards.

Hopefully Bob from accounting gets what he needs to help save the day.

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