Knowledge Base

Emerging issues in Sustainability & Role of Cost Management Accountants

The focus on sustainability has emerged as a result of significant concerns about the unintended social, environmental, and economic consequences of rapid population growth, economic growth and consumption of our natural resources. Sustainable business is a non-traditional business strategy that concurrently builds profits and economic stability, restores the health of natural systems, and promotes prosperous and healthy communities.

Sustainability is based on a simple principle: Everything that we need for our survival and well-being depends, either directly or indirectly, on our natural environment. Sustainability creates and maintains the conditions under which humans and nature can co-exist in productive harmony, that permit fulfilling the social, economic and other requirements of present and future generations.

Sustainability includes the four interconnected domains:

  • ecology
  • economics
  • politics and culture becoming sustainable involves a
  • conscious and continuing effort to build long term value for stakeholders by contributing to a sustainable society.

It’s about taking what we need to live now, without jeopardizing the potential for people in the future to meet their needs. Sustainable business practices aren’t just good for the planet. They’re good for the bottom line, driving innovation and greater insight into customer wants and needs and leaders from around the world are gaining real competitive advantage through it. Sustainability is more than mere window-dressing. By adopting sustainable practices, companies can gain competitive edge, increase their market share, and boost shareholder value.

Sustainability has long been on the agenda at many companies, but for decades their environmental, social, and governance activities have been disconnected from core strategy. Most still take a fragmented, reactive approach—launching ad hoc initiatives to enhance their “green” credentials, to comply with regulations, or to deal with emergencies—rather than treating sustainability as an issue with a direct impact on business results

Sustainability – Getting Started 

In spite of the genuine challenges of building sustainable organizations due to the inherent unstructured and abstract concerns for sustainability, companies must realize that the benefits far outweigh the efforts and the stumbling blocks. Following is a suggestive approach for bringing about focus on sustainability:

  • Top management must constitute a sustainability committee with cross functional representation
  • Clearly communicate that the committee shall own the process of making the business more sustainable
  • Drive focus on Innovation, learning, trust and stakeholders engagement
  • Lay down action plans for progressively enhancing economic, social and environmental sustainability
  • Look at the journey of other companies in the process of building sustainable organization and sift learning there from.

Emerging Issues in Sustainability Accounting & Reporting

Internationally, there is an intensifying trend towards business providing economic, environment and social information into the public domain through Sustainability Reports. It has been globally recognized that sustainability reporting leads to enhanced business performance through communication of information with stakeholders like customers, suppliers, employees, financial institutions, regulators and communities on a company’s economic, environmental as well as social management and performance. The emerging trends or issues in sustainability are:

  • Integrated reporting
  • Importance of HR Resource optimization
  • Emergence of CFO
  • Awareness of executives about the latest developments

Integrated Reporting is the reporting of both financial and non-financial information, including sustainability information, in an integrated way, as contrasted with the current prevailing practice of issuing separate financial and sustainability reports. Integrated reporting causes us to think beyond compliance and financial reporting to deeply examine all the ways in which we deliver sustainable value, and is a highly practical way of redefining how business is done.

As an internal auditor, Cost Management Accountants (CMA) also play a crucial role in integrated reporting. The IR Framework requires that organizations address risk management and governance areas, here the CMAs can help to prepare an effective implementation of the IR Framework by meeting requirements in the Standards related to risk management and governance.

Corporate reporting will continue to evolve with the changing business environment and stakeholder expectations. Adding integrated reporting to management’s agenda and to board strategy sessions may help companies determine how to meet these evolving expectations. The integrated reporting concepts shall provide companies a useful framework when considering how to best disclose environmental, social, and governance matters that they have decided to report. Companies may also improve their access to capital and achieve strategic business benefits from integrated thinking.

Integrated Reporting provides huge opportunity for the professionals to assume leadership, demonstrate their ability to facilitate Integrated Reporting and consistently drive the message – Integrated Reporting is no longer a matter of choice. The stakeholders will in future increasingly demand information on Social and environmental aspects of business and companies which rise to the challenge of providing information required by various stakeholders shall be rewarded with higher valuations and enhanced corporate image.

Role of CMA in building Sustainable Business

Sustainability is essentially an exercise that measures the value that a business creates by leveraging Strategy, Organizational Structure and Governance in Social, Economic and Environmental context. CMAs possess the ability to measure efficiency and effectiveness of Men, Money, Machines, Material and Management on the dimensions of Cost, Time, Quality, Environment and Societal impact including the ability to evaluate the contribution of different forms of Capital.

CMAs possess expertise in furthering sustainability as it is essentially an integration of sustainability enhancement tools that they are already familiar with such as Strategy Maps, Balance Score-Card, Total Impact Measurement and Management (TIMM), Customer Profitability, Activity Based Costing, Driver Based Budgeting, Social and environmental impact assessment and accounting, Value Management, Benchmarking, and Life Cycle Costing. CMAs have been using these tools for developing and   delivering Performance Appraisal Report.

CMAs can provide the necessary leadership and guidance helping a company to migrate to becoming a sustainable organization through:

  • Facilitating creation of an appropriate organizational environment including performance measures and metrics keeping  the aspect of sustainability in focus
  • Evaluating organizational performance and practices across business segments in the context of Social, Economic and Environmental aspects
  • Contributing to formulation of organizational structure and strategy that focuses on triple P – People, Profits and Planet and its linkage with governance and performance
  • Developing  an appropriate system of social and environmental risk identification, assessment, monitoring, mitigation and control
  • Evaluating and appraising Economic, Social andEnvironmental value proposition through costing, revenue, profitability, non-financial and non- quantitative analysis.

Sustainability provides huge professional opportunity for the CMAs. The Challenge for CMAs is to assume leadership, demonstrate their ability to facilitate sustainability and consistently drive the message – Sustainability is no longer a matter of choice. The stakeholders will in future increasingly expect and demand that businesses rise to the challenge of sustainability and shall reward companies following sustainable practices with higher valuations and enhanced corporate image leading to their continued and progressive growth.

The choice for companies today is not if, but how they should manage their sustainability activities. Companies can choose to see this agenda as a necessary evil — a matter of compliance or a risk to be managed while they get on with the business of business — or they can think of it as a novel way to open up new business opportunities while creating value for society.