Sunday Brunch: What we call things really matters
Or why sustainability accounting is really important - even if it's a bit boring.
Accounting is the language of business - Warren Buffett
I appreciate that talking about accounting, even climate accounting, is a big risk. I know many sustainability professionals, especially those who are not accountants, are already starting to switch off, maybe checking your phone. Because accounting isn't important to you.
But it should be. Because as Warren Buffet says, accounting is the language of business, and it's business we want to change. So we need to learn their language. So please stick with me - climate accounting really matters. And to understand why it's important, you don't need to know any accounting.
What we call things, and the way we ask questions, really matters.
We talk about this a lot in the context of home heating & cooling. If you ask 'how do I replace my gas boiler'? you get a very different answer than if you ask (the better question) , 'how do I best heat and cool my home?'
And it's the same in accounting for sustainability. Historically, we have accounted for sustainability related spending as a cost. And that comes off a company profits.
But is that the right approach? If a company has a sustainability strategy that positions them for a profitable future, then that is an investment. In accounting terms that creates an asset. And that creates, rather than destroys financial value.
Something is stirring in the conservative world of accounting standards that could really make a difference to how companies treat their sustainability plans. Turning them from costs to assets. And, in turn this new approach means shareholders are better placed to hold the companies to account.
And the more of us that understand it, the more we can use this to accelerate change. What we call something matters.
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Accounting matters, even if it's boring
I want you to hold a question in your head - is a promise to reduce GHG emissions a cost or a benefit? Not to society, to the company.
Your answer matters a lot. We like benefits, we hate costs. And that is as true of accountants and investors as it is for everyone else. So we would normally want to invest more in a benefit, even if it's in the future, than we would want to spend on a cost.
Ok, now that question is fixed in your head, back to accounting. Even people I used to work with in the finance industry found accounting boring. And complicated.
But it matters. How we describe the financial detail of what a company does is important.
Accountants, or more strictly the accounting reporting bodies, have been working hard over the last few years to bring a whole range of sustainability issues into how companies report. Some of you may have read about the work of the International Accounting Standards Board to incorporate sustainability and climate information.
