An increasing number of businesses are reporting that environmental concerns are driving consumer behaviour.
From biodegradable food packaging becoming the norm, to the travel industry flagging some passenger resistance to long, and therefore large carbon footprint, flights, it may not be possible in future for businesses to carry on their normal activities regardless of the environmental impacts.
Business decisions should rely on hard data being available but hard data on environmental impact is difficult to come by. It is easy to count widgets but much more difficult to reckon the environmental impact of making the widgets in the first place.
Past experience also suggests that we can sometimes count the wrong things when assessing the environmental impacts of industry. A decade ago, diesel engine cars were mooted as the great environmental protector, and we even calculated motor tax by reference to the lower carbon dioxide emissions from such engines. Now the diesel engine is seen as a pollutant, and some large manufacturers are getting out of the diesel car market entirely.
If companies are to account realistically for the sustainability implications of their activities, current thinking suggests they must look at three distinct areas.
The first and perhaps the most obvious is the direct effect on the environment. This can be assessed by reckoning things like energy consumption, water usage and carbon emissions. These measures alone, however, will not give a full picture on sustainability, so the second area, social issues, must also be considered.
Social issues will include the company’s observance of human rights, diversity and workplace and market inclusiveness. These aspects of business activity are harder to put numbers on.
The last of the categories is perhaps the one which the accounting profession is already most comfortable with, which is the calculation of commercial impact. How is the company’s sustainability policy impacting on stakeholder value? Do the governance structures which are in place take account of the environmental impact of the commercial decisions taken by the directors of the business?
There is little point in applying standards in any of these areas if the standards are not generally accepted across the business world. At present, a stakeholder can look at a set of accounts, irrespective of where these were drawn up, and be reasonably satisfied that the accounting principles behind them are more or less consistent. Currently, that is not the case for any claims a company may make in relation to its environmental probity when presenting a set of accounts.
The users of accounts, and for that matter consumers generally, have an interest in this. There is all too often a temptation for businesses to use concern for the environment purely as a marketing ploy - so-called corporate “greenwashing”.
If you choose not to have towels laundered every day in a hotel when staying there, does that help the environment or merely the hotel’s profits? If you drive an electric car, are you satisfied that the emissions savings outweigh the environmental damage of extracting the minerals to manufacture the car’s batteries?
Efforts are underway by a number of international standard setters and accounting authorities to come up with some acceptable and reliable rules for measuring sustainability.
There is an old maxim that what gets measured, gets done.
Knowing how to measure sustainability will in itself make a real impact in addressing environmental concerns. It will help keep sustainability sustainable.
Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland.