Last week I was asked to part of a research conference advisory panel for the ICAEW, Europe’s largest accounting institute. To give feedback on their conference idea, I thought about accountants and what companies say they need to take the next step on sustainability. Here is my work-in-progress (aka ‘WIP’), which concludes we need to help the senior executives in leading companies be ambassadors with quantified evidence that reassures the next wave of adoptees.
It’s worth thinking in terms of two groups: the leaders who want to go further, and the potential next wave of companies who are realising they might need to act.
For the leaders the key challenge is how to deliver on their ambitions. Leading companies have set long-term goals (e.g. double financial revenue while not increasing environmental impact) plus have a high-level strategic case for action (e.g. “in order to grow in emerging markets, we must address constraints like access to water and poverty plus we need to signal to regulators and civil society that our success is good for their country”). This brings with it a host of execution problems that are pertinent to the finance function, like:
- how to make ambitious targets relevant to day-to-day decision-making in products and business units;
- how to nurture innovation of product, service and business models;
- how to monitor financial performance at micro-level (eg product, business unit);
- how to allocate financial capital between initiatives which have different financial returns and contribution to sustainability goals; and,
- how to measure progress towards sustainability targets (especially when those targets are societal outcomes like O2 UK’s “10 million people have easier, more sustainable lives”).
For the potential next wave the key challenge is why should they act. What is the strategic case for their company (not for society as a whole, or for a business in general)?
What they need is evidence from the leaders that sustainability pays. Currently there are anecdotal (often self-serving) stories but few credible numbers. They need assurance that they are not taking a big risk, that the costs of action are bounded and that the rewards are large enough to be worth trying.
What does this mean for accountants and change agents? Well, I can imagine a sort of conveyor belt, of experimentation becoming standard practice.
At one end the leading companies are coming up with novel techniques on capital allocation for sustainability and the other challenges. The pioneers might be copying a technique from somewhere else, or adjusting something that already exists. Eventually these techniques will be more tried-and-tested, and ready to pass on to the potential next wave.
But, right now what needs to be passed on to the next wave is what the leading companies were doing a few years ago: the strategic case for action. The difficulty here is the leaders were able to act based on qualitative evidence and prospective vision, while the next wave need quantitative evidence and historic performance. That’s one of the reasons the companies fall into these two camps. Put another way, I think that if a company was going to be convinced by a visionary argument they would have been convinced by now.
So, what the next wave need from the leading companies is not the original why. Instead, it is the subsequent performance – was it worth making the decision? So, it would be great to have senior executives from the leading companies going to their peers in other companies with the financial results of their sustainability activity.
But, for the most part, this is not happening. Why? I suspect that it’s because those leading companies haven’t been measuring the financial performance of sustainability very well. They didn’t need it to make the decision and they haven’t needed it to do the project management. Why should they bother to spend money doing financial analysis that is for others, potentially for competitors?
I can think of two business reasons to bother. First, to help the next wave adopt serious sustainability targets will help the leaders achieve theirs, by providing more potential collaborators and so on. Second, even the leaders will need to increase their level of investment going forward. Next time the big decision will so big they will probably need quantitative evidence and historic performance.
My conclusion? Let’s help the senior executives in leading companies to be ambassadors with the quantified evidence to reassure the next wave of adoptees.