As the public sector takes sustainability more seriously, accountants have a growing role to play
Environmental awareness goes back a long way. Edward I of England, for example, forbade coal burning when Parliament was in session. But accounting and reporting of environmental and sustainability issues are more recent developments. These grew out of corporate social reporting, which focused initially on social responsibility in the 1970s before shifting to environmental concerns by the 1990s.
CIPFA’s 2006 sustainability framework was an important addition to the emerging discourse. However, the bulk of developments in sustainability reporting have so far been in the private and third sectors, as the potential for the public sector to drive change in this field has only recently been fully recognised and appreciated.
As awareness of climate change has grown, the public sector has taken several initiatives on sustainability measurement, recording and reporting, some of which point to an increasing role for accountancy. Examples include: the introduction of carbon budgets; the Carbon Reduction Commitment scheme; targets and measures for sustainable procurement; national indicators on environmental sustainability; and the recently released Financial Reporting Manual Exposure Draft on sustainability reporting.
Of the above, the carbon reduction scheme and the exposure draft will soon introduce many of us to two relatively new but increasingly important spheres of rapidly evolving accounting: carbon accounting and sustainability reporting.
Carbon emissions trading schemes are giving rise to new areas of expertise in regard to allowances trading and emissions data collection, recording and reporting. The Carbon Reduction Commitment scheme, which begins in April 2010, will require many public sector organisations to collect data and report on CO2 emissions. It will also involve organisations and their accountants in trading and accounting for carbon allowances.
The first three years of this cap and trade scheme provide a relatively gentle introduction, with allowances at a fixed price and no limit on purchases. Then the scheme will start in earnest, with allowances sold by auction and a limit on the total number available. It is expected to result in the creation of a secondary market, with organisations buying and selling allowances.
This adds up to a new area of expertise for many accountants, which they would be wise to embrace early on. In all likelihood, carbon accounting will grow in importance as pressure grows for the cost of carbon emissions to be recognised and incorporated into planning, decision-making and reporting.
Interest in sustainability reporting is also growing, as environmental activities need to be accountable and accounted for. The value of public sector sustainability reporting rests on providing structured, clear and reliable information on an organisation’s contribution to sustainable development. This needs to incorporate tangible measures aimed at identifying good housekeeping in estate management, green procurement, waste management, energy and transport; as well as reporting on policies and programmes for wider action on sustainable development.
The Financial Reporting Manual Exposure Draft is a very important step along the road of developing this more robust form of sustainability reporting. Particular strengths in its approach include an initial focus on a few main environmental indicators, and valuable links between non-financial and financial performance.
These two new areas of accounting are very likely to grow in importance as the issues surrounding environmental impact and climate change continue to gain legitimacy and increasingly affect the way we live and work.
Accountancy, it seems, has an increasingly important role to play in supporting a sustainable future.
John Maddocks is the technical manager for sustainability and the third sector at CIPFA. The CIPFA 2009 sustainability conference takes place in London on September 24. To attend, book on the events page at www.cipfa.org.uk/shop or contact the events team on 020 7543 5628 or [email protected] for further information.
For information on the CRC, see:
www.defra.gov.uk/environment/climatechange/uk/business/crc/pdf/crc-userguide-090312.pdf
For the sustainability reporting exposure draft, see:
www.financial-reporting.gov.uk/open_to_comment.htm
