Financial management & accounting
Why is this activity important to embedding sustainability in our organisation?
Financial management is about ensuring funds are available when needed and that they are obtained and used in the most efficient and effective way. Financial management tools can help an organisation to achieve its goals in a way that makes best use of the resources it has. Sustainable financial management emphasises the achievement of goals and use of resources over the long term, with full consideration given to social and environmental outcomes.
Sustainability accounting should contribute information to support sustainable financial management, and also:
- contribute to governance systems to promote sustainable outcomes across an organisation; and
- provide detailed information about the sustainability of an organisation to users within and outside of the organisation. This activity area is concerned with internally focused sustainability accounting activities, such as budgeting and resourcing, and management accounting. Externally orientated sustainability accounting activities are examined in the Report & evaluate module.
Project valuation (via such techniques as net present value) is discussed under appraisal and evaluation techniques.
How can sustainability be taken into account in financial management and accounting?
The first step for any organisation wishing to use its financial management to achieve more sustainable outcomes is for its finance staff to start thinking about what sustainability accounting might actually mean.
Sustainability accounting is a nascent field. Consequently, the phrase “sustainability accounting” does not refer to a single, commonly understood practice, but to a number of diverse approaches.
The term ‘sustainability accounting' encompasses a range of new accounting and reporting tools and approaches which are part of a transition towards a different kind of organisational decision-making focused not just on economic rationality, but consistent with ecological and social sustainability.
Association of Chartered Certified Accountants
Often what is referred to as sustainable accounting is not a form of financial accounting, but rather:
- the public reporting of data on an organisation’s carbon emissions, energy use, impact on the local economy etc. (sometimes called physical, environmental or social accounting);
- the use of such data as part of an environmental or sustainability management system;
- the reporting of initiatives which demonstrate that an organisation is taking its social and environmental impacts into account in its decisions (such as in Corporate Social Responsibility reporting);
- the reporting of such initiatives together with an organisation’s financial accounts (such as in Triple Bottom Line reporting); or
- the reporting of information within key indicator criteria, reflecting progress towards the sustainability of an organisation.
In addition to these approaches, there are attempts to make sustainability accounting a true form of financial accounting. This would be achieved by representing in monetary terms the external costs and benefits (i.e. costs not borne by the organisation itself such as pollution, and benefits such as social amenity) of an organisation’s activities and integrating them into its accounts. This is often known as ‘full-cost accounting’.
Finally, ‘carbon accounting’ is an increasingly important area, not least for organisations party to emissions trading schemes.
A summary of how the relationship between sustainability and accounting can be conceptualised was produced in Part 1 of the Accounting for Sustainability group’s 2006 report. It reviews the relevant academic literature and concludes that the role of accountants in the drive to achieve sustainability is ‘to increase transparency of business activities, particularly in the realm of social and environmental impacts.’ Aspects of sustainability accounting are explored in more detail in a 2007 publication, 'Sustainability accounting and accountability', edited by Unerman, Bebbington and O’Dwyer.