How management accountants can drive sustainability
By Miti Ampoma
Many companies have ongoing initiatives to become more environmentally friendly or create shared value in local communities where they source materials or sell products.
Walmart and Nestlé are just two examples. In fiscal 2021, Walmart sourced 36% of the electricity its business consumed from renewable energy, and the US-based multinational retailer aims to achieve zero emissions of environmental pollutants in its global operations by 2040. The board of directors of Swiss-based multinational food company Nestlé in 2021 established a sustainability committee whose job it is to review the company’s plans and actions related to climate change, plastics and packaging, water management and responsible sourcing, human rights, and workforce diversity.
As the risks that businesses face worldwide from climate change increase and regulatory requirements tighten, environmental, social, and governance (ESG) factors are gaining importance. Growing demands for change from citizens and consumers are placing increasing pressures on businesses to act. Companies around the world are determined to identify and implement ESG metrics and comply to local disclosure requirement on reporting their progress on ESG initiatives .
A webinar organised by CIMA Hong Kong and the University of Manchester offered management accountants resources to manage ESG-related risks and opportunities and understand the key elements of climate-related financial disclosures, which the management accountants in Hong Kong and North Asia employ to pursue global sustainable development goals promoted by the United Nations.
Sustainability is frequently seen as a constraint, said Ruby O, director of ESG at a listed integrated resort in Macao and one of the presenters at the webinar. She said she’s often asked to make sense of how to reduce emissions with same or better product and services experiences, while these efforts tend to create inconveniences and expose the business to more regulatory requirements.
What’s often ignored, she added, “Even if we do nothing, there’s a cost of inaction.”
5 steps to tackle ESG
Sustainability is about meeting the needs of current generations without compromising the needs of future generations. It is about ensuring the balance between economic growth, environmental safe-keeping and social wellbeing.
The Sustainability Accounting Standards Board (SASB) identified ESG issues likely to materially impact financial performance by industry. The standards are available in 77 industries split across 11 sectors. Each standard includes specific disclosure requirements around areas deemed significant enough to determine an issue.
Climate change, for example, affects the factors of production on which economic activity is based, said Irelan Tam, FCMA, CGMA, immediate past chair of CIMA Hong Kong who was also a speaker at the webinar. Net-zero emissions transformation aims to address climate change by reducing the build-up of greenhouse gas emissions in the Earth’s atmosphere, as well as enable business transformation in the development of new product offerings.
Irelan, Ruby, and Aidan Goddard, FCMA, CGMA, CIMA Council member and formerly of Kärcher Investment China, the three CIMA webinar speakers, laid out the following five steps for businesses to take on and implement ESG initiatives:
- Identify and assess risks, such as extreme weather events, legal and regulatory requirements, technological innovation, and market changes. Assessing risks may involve estimating cost increases due to sustainable practice requirements, operational disruptions related to weather, supply chain interruptions, or a shift in consumer preferences.
- Set ESG priorities and integrate them into the business strategy. That may mean committing to go beyond what’s legally required, but it offers opportunities to create long-term and shared value.
Kärcher, for example, operates factories in the US, Mexico, Brazil, the European Union, and China. That enables the German-based producer of cleaning equipment to reduce supply chain times from factory to customer, lower the company’s carbon footprint, and work with suppliers in the communities where it manufactures.
- Establish key performance indicators (KPIs) and targets. That may involve transitioning to achieve zero emissions in a particular time frame.
The Hong Kong stock exchange has published a net-zero guide. It includes ways to set short- and long-term targets for emissions reductions, avoid common pitfalls in implementing preventive and mitigative measures, and net-zero strategies for businesses to pursue.
Also, the World Economic Forum (WEF) is developing an approach to net-zero. The Mission Possible Partnership is building net-zero industry platforms across aviation, shipping, heavy-duty road transport, iron and steel, aluminium, chemicals, and cement. These sectors together account for 30% of global emissions.
- Develop and implement ESG initiatives. Walmart and Nestlé, for example, also make sure their suppliers do not use forced labour or permit unsafe working conditions, update their risk assessment regularly, and assess the environmental impact of products under development.
- Enhance ESG reporting. The disclosure of data sheds light on a company’s ESG activities, such as to address climate change. The Task Force on Climate-related Financial Disclosures (TCFD), which was established to improve and increase reporting of climate-related financial information, has published recommendations addressing governance, strategy, risk management, and metrics and targets.
Miti Ampoma is a senior content writer with the Association of International Certified Professional Accountants, representing AICPA & CIMA. To comment on this article or to suggest an idea for another article, contact Vivian Fung at vivian.fung@aicpa-cima.com
Find out more about CIMA activities and access ESG CPD resource materials for CIMA members and CGMA designation holders.