We are in a period where sustainability is very crucial to the world. With the covid 19 pandemic everyone is talking about how we should get ahead after this pandemic and we constantly hear the word, ‘new normal”. According to the experts, post-pandemic, we need to build back better, and sustainability will be the key to success.
The foremost definition of sustainability refers to: “Sustainable development is development that meets the needs of current generations without compromising the ability of future generations to meet their own needs.”
According to common definitions, there are three key dimensions of sustainability: the economic, the social and the environmental. As a result, sustainable development can be measured in terms of these three dimensions:
- The economic impact might be the effect on local employment and livelihoods by the organisations operations
- The social impact might include staff terms and conditions or projects in the community
- The environmental impact might include the quality of waste water discharged or greenhouse gas emissions from operations
Accounting for the financial aspects of an organisation’s performance is a statutory requirement. Accounting for sustainability is currently a voluntary activity. However, companies are increasingly reporting aspects of their social and environmental performance as it becomes a growing trend.
The sustainability accounts can be used to:
- Collect information on environmental and socially related expenditure and link them to financial benefits
- Show how environmental and social external costs can decline over time with commitment to sustainability
- Highlight the social and environmental risks associated with current financial performance and aid risk management
- Identify which stakeholder relationships present sustainability risks and benefits
- Encourage partnership between stakeholder organisations
Why Sustainability Accounting is important?
Some companies now publicly disclose everything from their use of clean technology to energy savings and water consumption, from their local habitat protection efforts to their involvement in local community issues. The objective of financial reporting is to “provide information about the reporting entity that is useful to existing and potential investors, lenders and other creditors in making decisions about providing resources to the entity”. There’s been increasing pressure for organisations to provide information beyond just the financial statements since non-financial information can also be important to users’ decisions. Organisations themselves benefit from focusing on sustainability issues. Businesses may also decide to redesign their products and processes to increase efficiency, reduce wastage and costs. After all sustainability accounting is a tool used by organisations to become more sustainable
According to IFAC, Accountants will save the world and that has been their vision for accounting for sustainability, Sustainability needs to be measured, reported and assured and all these areas fall under accountants. Accountants have an important role to play in helping companies embed sustainability into their corporate strategies, and are very well placed to do so