Accounting for sustainability

During a time of global financial upheaval, corporate social responsibility (CSR) efforts could go the same way as the economy: out the window. Through the Accounting Sustainability Project, Great Britain’s Prince Charles is working to prevent that from happening. More than 150 national accounting bodies from around the world, including two U.S.-based organizations—Miami University's Center for Business Excellence in Oxford, Ohio, and the New York City-based International Federation of Accountants (IFAC)—are working to create a generally accepted accounting framework for sustainability measures.

“If sustainability efforts in organizations worldwide are going to catch hold, they need to evolve beyond where they are now,” says Dan Heitger, associate professor and co-director at Miami University's Center for Business Excellence. The Center was named in March by the American Institute of Certified Public Accountants to represent the U.S. accounting body on the prince’s panel.

“The real missing link is that they don't tie to accounting and financial metrics,” Heitger says.

A survey conducted in December 2008 by Booz and Co. found that 40 percent of corporate leaders expect “green” and other CSR initiatives to slow significantly because of the recession. This is just the kind of short-term thinking that the Accounting for Sustainability Project is working to dispel.

Moving toward more sustainable business operations often comes with financial benefits that outweigh the original costs, making them simple to justify to boards and stockholders, but not always. CSR efforts that come with increased price tags and no clear financial payoff—such as a pharmaceutical company providing free medication to African nations—leave corporate leaders with no way to justify long-term sustainability efforts.

In the effort to bring the certainty of accounting to triple-bottom-line efforts and reporting, the IFAC—which boasts 157 member associations in 122 countries—in February 2009 released a sustainability accounting framework. It is an attempt to take a holistic approach to sustainability accounting, says Stathis Gould, IFAC's senior manager in charge of professional accounts and businesses.

He says accountants at all levels can and should help their organizations become aware of the full range of risks and potential benefits associated with sustainability efforts so they can be managed effectively.

This concept is key to Brian Ballou, a professor and co-director with Heitger at the Center for Business Excellence.

“Sustainability initiatives do create value,” he says. “It's more than reputation. It improves revenues in the long haul, creates more loyal employees and creates stronger governance. They have a lot of indirect effects.”