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Promote resiliency and sustainability with the 6 capitals

By Barry C. Melancon, CPA, CGMA CEO, Association of International Certified Professional Accountants President and CEO, American Institute of CPAs

Resiliency and sustainability are on many of our minds. How do we maintain productivity during the global pandemic? How do we move the company forwards once lockdown restrictions are lifted? How do we rebuild better than before?   

To survive and thrive, leaders should not limit their focus to the financial return on capital. Building an integrated approach to business operations allows companies to balance resources and think holistically about strategies. With an integrated focus on strategic development, business operations and value creation, companies can reduce duplication of efforts and create greater cohesion and efficiency across the organisation. 

Sustainable development requires concerted efforts to build an inclusive and resilient future for people and the planet. 

Accountants are essential 

Accountants encourage corporate sustainability by reducing fiscal risks and offering strategic input for resource allocation. But the global risks we are seeing today are not solely financial or even geopolitical.  

The World Economic Forum’s Global Risks Report 2020 identifies the top two categories of risks as environmental and technological. According to the World Economic Forum, climate change is affecting the economy more rapidly than expected, and many of the current systems for financial management and risk mitigation supported short termism and are now outdated. 

With these challenges  exacerbated by the outbreak of the coronavirus  accountants have a unique and powerful opportunity to help businesses and society evolve to become resilient. The accounting profession’s role in this risk mitigation is not about taking sides, but to demonstrate the commitment to making companies and communities sustainable 

The 6 capitals of an integrated approach  

Sustainability begins by using integrated thinking to create and implement a value-rich and principles-based approach to business operations. Integrated thinking is an inclusive process of decision making, management and reporting, based on the interdependencies of a range of factors that affect an organisation's ability to create value over time.  

Convene a group of stakeholders and decision makers to focus on the six capitals — financial capital; manufacturing capital; human capital; social and relationship capital; intellectual capital; and natural capital. Create an integrated approach for a productive and socially-conscious allocation of capital, helping businesses plan for the future.  

Broadening the focus from financial capital to the six capitals leads to an increase in productivity and profit, and an improvement of the quality of information available to the providers of financial capital. Additionally, an integrated approach leads to integrated reporting that drives a competitive advantage and promotes a longer-term investor base.  

The cents and sense of sustainability 

The public and investors are continuously demanding more transparency and accountability from leadersInvestors want fulsome information about how companies mitigate climate-related risks and adapt their corporate strategy to promote sustainability. And customers are increasingly drawn to retailers and service providers that are committed to ethical practices.  

In August 2019, the Business Roundtable, a non-profit association of chief executive officers from high-ranking U.S. companies articulated the purpose of a corporation. Signed by 181 CEOs, the statement is a commitment to lead companies for the benefit of all stakeholders — customers, employees, suppliers, communities, and shareholders. 

The global economy is dependent on ethical business operations, and accountants are essential to implementing solutions to the current crisis and building the economy back.  

In February 2020, along with 12 other accounting body chief executives and Accounting for Sustainability (A4S)I signed a call to action statement in response to climate change. The statement highlights the vital role professional accountants play and should commit to when making sense of sustainability. 

  • Provide sound advice and services as organizations, capital markets, and governments develop and implement plans for sustainability mitigation and adaptation. 

  • Use and implement existing and developing reporting frameworks such as those from the International Integrated Reporting Council and the Task Force on Climate-related Financial Disclosures. 

  • Contribute to the efforts of the organizations to integrate sustainability risk into organizational strategy, finance, operations, and communications. 

  • Support sustainable decision making within the organizations by allocating budgets and resources, and by developing high quality and timely information and insights through measurement and disclosure, built on robust and transparent accounting systems. 

The accounting profession has long focused on assessing and managing financial risks. However, the global risks we are seeing today, in particular environment-related risks, are pushing our profession to expand its remit. As core members of almost every business, government, and non-governmental organisation, accountants are ideally positioned to help organisations assess and manage these new risks. Accountants have an important role to play in improving an organisation’s integrated thinking and decision-making capabilities to promote responsible business practices. 

Strive to create a positive impact on society and move the company beyond profit and into sustainabilityView your company from a multi-capital lens, and with an integrated approach, consider the environment a stakeholder.