Growing Your Income

Bob From Accounting Saves The Day

Finance and accounting professionals may not be the most exciting people. Indeed, the clichéd Bob from Accounting is known to be a dry, bland character who crunches numbers all day and has no life. He has no cape and does not appear to have a superpower, other than possibly making excel macros that could blow up a laptop.

In contrast, the role for 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 annually 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 in saving our planet and society

This is nothing new to followers of sustainable investing. For this to work, however, corporations, governments, universities, and other entities must account for and report on how their operations positively and negatively impact our environment and society. Otherwise, investors and stakeholders cannot have the visibility needed to ensure optimal societal and environmental returns.

Who within an organization can perform this duty? The ones who possess this superpower are the ones – the CFO
and his or her finance and accounting team – who have historically accounted for every transaction within the organization, have followed the source and use of every dollar and can monetize the impact of each operational activity. But this group also needs to be able to identify and quantify risks and determine appropriate mitigation and hedging strategies, even as our ability to identify climate and social-based risks evolve. They have the duty to produce the disclosures and reports that are scrutinized by savvy investors and rating agencies who are trained to vet every syllable of every word of said disclosures and reports released by the organization.

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

The real challenge for this group is expanding from traditional accounting for financial risks and returns and expanding to non-monetary (or difficult to monetize) impacts and results.

How do the CFO and Bob from Accounting put on their capes and save the world? There are three fundamental things that must happen. First, the carpet between the Chief Sustainability Officer’s (CSO) desk and the CFO’s office must become worn down, as the two should be constantly in touch and in sync. The two must work hand in hand – the CSO setting the sustainability direction of the organization and the CFO helping to account for and assure achievement of those goals. Second, the CFO needs to have the rules of the road established so those rules can be followed. For example, if the CFO is going to identify and report on social risks, then do we not need to agree on what social risks are? Do we consider the ability of workers to unionize? How about the disparity of income between the entry-level worker and the CEO? How do we approach the organization’s impact on the community – like a Department of Transportation’s decision to construct 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, finance transformations deploy powerful enterprise resource planning systems and other accounting and financial platforms so the organization can account for every single dollar. That same principle is necessary when considering a transformation to account along ESG metrics.

Are these teams up to the challenge? That remains to be seen. Increasingly, CFOs have communicated frustration with the moving targets around climate and ESG reporting standards. According to Accenture’s
CFO survey earlier this year, less than half of CFOs believe the metrics to perform sustainability-related reporting and disclosures are known and widely agreed-upon. The survey also confirmed that, more and more, capital raises will have an increasing reliance on the ability to report on sustainability impacts and efforts.

If we struggle to get consensus on standards, the strides in technology are hampered. If the technology advancements are hampered, the ability of organizations to easily account along ESG factors is slowed…

And Bob from Accounting and his CFO boss experience the frustration cited in the Accenture survey.

So how do we get there? Getting to a consensus to measure and report on ESG factors, in all sectors, will expedite standard definitions, which will speed technology advancements. The issue is that too many disregard ESG as a whole. We can debate which factors to prioritize, but I do not understand the argument to discontinue ESG altogether. Refusal to participate slows the maturation process, which slows standards definition, which slows innovation.

Consider the alternative. There is no debate that we need to have reliable reporting on the fiscal health of all entities – governments, corporations, foundations, universities – which has led to mature accounting standards and technology aligned to those standards.

Let us hope Bob from accounting gets what he needs to help save the day.