The Accountant – Issue 3 of 2021 (MIA Publication)
The world has been facing a pandemic for almost two years now. A crisis that has affected public health, food security and alternated employment worldwide. Two years later, we have almost fully adapted to this new norm, finding a balance between teleworking and our personal lives. The world had to instantly adapt because there was no other choice. Fortunately, there are options to change the future.
The Covid-19 pandemic was just a teaser of what the future holds if we disregard environmental problems in the coming crucial years and continue operating business as usual. The Intergovernmental Panel on Climate Change 2021 report raises the alarm about human activity driving global warming and Antonio Guterres (Secretary-General of the UN) further described this report as 'code red for humanity'.
In 2021, Earth Overshoot Day fell on 29th July, meaning that humanity has exhausted nature’s budget for the year by that date and for the remaining months we are accumulating carbon dioxide in the atmosphere and over-exploiting resources. There is an indefinite list of environmental impacts caused by human activities; however, these are not within the scope of this article. The purpose of this article is twofold:
- Increase awareness on the direct relationship between the economic world and the natural environment, and;
- Suggest ways how to achieve a long-term sustainable economy in the local scenario.
A 2030 agenda for sustainable development is currently in place, known as the Sustainable Development Goals (SDGs). The SDGs were developed by the UN, and the EU is currently committed to implement these in all EU countries. The 17 SDGs are divided in a list of 169 targets and 232 unique indicators to track progress, amongst which are those relating to environmental footprint. Based on scientific data, we have only nine years left from now to prevent irreversible damage on climate change.
The financial world constantly utilises performance indicators in order to closely monitor and judge performance according to set targets and benchmarks. In the same way, the Global Reporting Initiatives (GRI) issue standards covering a wide range of sustainability reporting topics helping companies to be more transparent and accountable for their impacts. In this manner, Environmental Performance (EP) can be monitored and reported on frequently through adequate use of Environment Performance Indicators (EPI). EPIs may be categorised either according to the type of resource being used or according to the ecological footprint, meaning the type of emission being produced such as emissions to:
- land and impact on biodiversity.
A case in point are CO2 emissions to air, which by resorting to GRI 305 one can opt to monitor relevant EPIs such as closely monitoring yearly consumption bills or the required energy per product. Designing EPIs with a reporting objective in mind allows information to be easily collected repeatedly from routine activities. Additionally, there are Internet of Things (IoT) devices available that are relatively inexpensive and easy to integrate that can identify patterns and trends.
The long-term monitoring of EPIs is mainly dependent on the feasibility of utilising current Management Accounting Systems (MAS). Hence, environmental issues should be targeted differently applying existing practices to capture, lock and report on environment-related data periodically without the need for heavy investment in other MAS. Environmental reporting guides organisational efforts on long-term goals and assesses the company holistically allowing for higher efficiency to take place.
Nonetheless, companies’ response towards environmental issues depends on the attitude of the top management. Environmental issues need to be championed by the right person at a board level whilst allowing for two-way communication to come through. At the same time, companies need to set up a green agenda, establish a dedicated team, and enforce policies that encourage the right behaviour while providing adequate training to all employees to seriously contribute towards an improved EP. Accountants are directly committed to the public interest and their role is vital to achieving a better holistic company assessment, focusing on both financial and non-financial data. Another issue is the huge lack of awareness on the current environment and climate-related problems, which explains why internal environmental initiatives are either not taken seriously or handled by the public relations department.
Government action, funding and support are important to nurture the right attitude towards EP. The laissez-faire approach by local firms illustrates poor communication channels with the competent environmental authorities and a lack of national environmental regulations.
- Communication with business can be facilitated by either:
- introducing a specific platform;
- schedule frequent meetings discussing current affairs in this area such as available EU funds or practical tools for integration;
- invite key speakers in the field of sustainability.
- Similarly, initiatives could be introduced to enforce environmental regulations such as:
- setting up monetary rewards for companies;
- encouraging environmental audits;
- Introducing a green tag benefit with products, meaning government focuses efforts on creating a form of local competition in order to simultaneously instigate consumers.
It is feasible to apply current reporting methods for EP purposes, however nationwide environment prioritisation is compulsory to raise awareness about the effects of consumption.
Clearly, the climate crisis is on our doorstep, we need to act now!
Nicole Sacco is a 2020 Master in Accountancy graduate, currently working at Deloitte Malta within the audit department.