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July 26, 2009

Crisis presents accountants with unique chance for sustainability role, but more awareness required

By Nicholas Moody

The financial crisis has given accountants a key chance to stake their claim as leaders in sustainability reporting but the profession needs to do a better job of advertising their unique credentials, according to one sustainability expert.

Sean Gilbert has recently taken over as the Global Reporting Initiative’s (GRI) representative for China, having previously worked as director of the sustainability reporting framework in Europe.

GRI is seen as one of the leaders in standard-setting for sustainability reporting, although the not-for-profit organisation has no formal accounting standard-setting mandate.

Gilbert’s new role at the focal point in China will see him establish GRI’s presence.

He will be responsible for GRI’s working relations with government, business and accountancy groups among others.

He said what distinguishes accounting firms from other consultants is the ability to audit. But he is not sure the general public understands the value that offers.

“I think the accounting profession is still the market leaders in many places but they’ve done a poor job of communicating their value and how they are different from a flashy boutique consultant,” he said.

GRI this month reported more than 1,000 organisations worldwide have issued sustainability reports in 2008 based on the GRI guidelines, including 64 percent of Germany’s DAX 30, 48 percent of France’s CAC 40, 22 percent of the UK’s FTSE 100 and 13 percent of the US’ S&P 500. Gilbert said there is now potentially a unique opportunity for sustainability reporting to gain traction and he has identified some key trends where accountants could have a role to play.

He currently observes two forces coming together: an increasing expectation that large corporate companies engage with sustainability management and the financial crisis showing the dangers of capital markets becoming divorced from their social context.

“So on the one hand you’ve got an expectation that a well-managed company means they manage well on everything and on the other you’ve got this fantastic example of what happens when you lose your ethical compass,” he said.

“The combination of these two creates a unique window both in terms of being able to elevate and expand the practice of reporting and on the other hand for that kind of reporting to play a role in informing people in terms of thinking about tools or being a tool to try to manage a new kind of economy.”

Gilbert said management accounting and financial accounting have diverged significantly from one another and the same should not be allowed to happen between sustainability reporting and environmental management accounting.

The future of reporting is likely to look very different too, said Gilbert, as non-financial information becomes integrated with regulatory filings.

He said there is a subtle assumption that financial reports should be the only thing analysts are interested in but investors increasingly want a holistic view of how companies are positioned into the future.

Technology will have a key role in changing the nature of business information reporting as people’s expectation of how and where they can access this information increases, Gilbert added. The use of XBRL is an example of one such technology, which he sees as being the backbone of business reporting in the future.

Accounting firms and professional bodies could also be doing more to help shift some of the thinking accounting standards boards have on sustainability reporting, said Gilbert.

At the moment the International Accounting Standards Board (IASB) has no formal standards related to sustainability reporting but Gilbert doesn’t see benefit in the IASB or other standard setters developing their own sustainability standards from scratch.

Instead Gilbert would like to see accounting groups recognise GRI standards as a suitable base when it comes to assurance – as they are similar to accounting standards in terms of rigour and depth – and use these guidelines to help evolve new accounting standard setter-backed sustainability guidelines.

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