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Written By: Caitlyn Meyers, CPA, FSA
What is Sustainability Accounting?
Sustainability accounting is the practice of collecting, analyzing, and reporting company information beyond what is traditionally reported in financial accounting.
These metrics shed insight on the universe of sustainability issues that can be categorized by:
– The Environment
– Social Capital
– Human Capital
– Business Model and Innovation
– Leadership and Governance
These five categories make up a more detailed version of what most people know as ESG. The goal of sustainability accounting is to report on a company’s health, not just in terms of finance, but also in terms of how they affect society.
Why is Sustainability Accounting Important?
For Companies:
The reasons why a company should invest in sustainability accounting are numerous. It is proven that this reporting generates value-creation in a company, mitigates risk, and benefits the triple-bottom line of People, Planet, and Profit in both small and large companies. Beyond these advantages, the Securities and Exchange Commission (SEC) has previously proposed a rule change that would require public companies to include certain climate-related disclosures in their registration statements and periodic reports. This rule requires reporting of Scope 1, Scope 2, and material Scope 3 emissions. Though this has not taken effect yet, many speculate it will be codified within the year. Companies are getting ahead of the game and implementing reporting strategies now, rather than being caught off guard later. Legislative pressure is building on the social pressure for businesses to keep up with industry-leaders in sustainability reporting.
For Individuals:
One may wonder why we personally should be concerned with a company’s required sustainability accounting. These reports are used by asset managers to create funds that are values-based, low-risk, and held to higher standards than other funds. This not only aligns with our morality but can also mitigate the risk in our investments. Beyond the personal advantages, pushing companies to be transparent will highlight the leaders and laggards in the world of sustainability. We can then thoughtfully direct our resources to support those who care about our people and our planet.
How Can Catalyst Partners Help You?
When diving into the world of sustainability accounting, you may get overwhelmed by the alphabet soup that is ESG. With frameworks from organizations like SASB, IIRC, GRI, etc. it’s hard to know where to start. Catalyst Partners can help you navigate the muddy waters of sustainability accounting today.
We can aid in:
– Selecting the appropriate framework
– Collecting data for specific metrics
– Analyzing that data for potential risks and opportunities
– Compiling the information in a comparable and industry-specific report
Conclusion
Pedro Henriques da Silva, Director of Shifting Trillions at the Sierra Club Foundation, remarks “It’s not about counting how much carbon is in the air or how much plastic is in the water, it’s really about addressing the economy that puts that stuff there.” Through accountability and transparency, sustainability accounting is a great first step in doing just that. We can use that information to intentionally delegate our dollars and amplify our voices to make a lasting change. Pedro concludes “It’s not just our planet’s health that we are fighting for, it’s our collective physical and financial health as well.”
