Advancing the 2030 Agenda and UN SDGs: Can accounting professionals contribute?
Advancing the 2030 Agenda and UN SDGs: Can accounting professionals contribute?
Authors’ opinions are their own and do not represent their organisations’ views.
The challenges of sustainability reporting
The dialogue has recently intensified within the sustainable finance and development field, revolving around the topics of non-financial reporting, enterprise value, financial materiality versus double materiality, and the various conceptual flaws, definitions differences, and difficulty with standardisation. [1]
On the investment and asset management side, investors frequently point to the lack and/or inconsistency of data. Meanwhile, there is a simultaneous recognition that any unified understanding is, for the time being, beyond reach. For example, the Environmental, Social and Governance (ESG) ratings vary significantly and have low correlations across the ratings’ providers. Indeed, Berg et al. (2020) [2] show that there is significant divergence in the ESG ratings among the six prominent ratings’ providers, driven primarily by differences in scope and measurement.
Moreover, investors who are the users of ESG ratings, view them as ‘subjective’ and dependent on a particular ratings provider’s point of view. Different investors will also have different perspectives, investment horizons, and incentives. Therefore, it remains up to the users to investigate the underlying assumptions behind the data. This comes with associated resource requirements, with similar issues affecting the sustainable and impact investing discussion.
While these debates go on, corporate reputations are made and lost, and the investment landscape is changing. BP is going through a rebrand to ‘Beyond Petroleum’, raising some eyebrows and eliciting concerns regarding potential ‘green washing’. Statoil Hydro made an earlier and ‘cleaner’ rebranding to Equinor. Never mind that petroleum remains Equinor’s core business. Danone changed its bylaws to become a purpose-driven enterprise, yet less than a year later it ousted its CEO quoting unsatisfactory financial performance.
Meanwhile, some asset owners and investors committed to sustainable future and associated long-term returns aim to ‘walk the talk’. For example, the Danish pension fund ATP – Europe’s fourth largest pension fund – divests based on the lack of transparency and disclosure of the investee companies, believing that ‘preconditions for high future returns are long-term and sustainable business value creation’ [3], which is up to the companies to clearly demonstrate.
The focus is now also shifting towards non-financial information and intangibles. Increasingly, the onus is on the companies to demonstrate commitment to long-term planning and survival through transparency: leading key performance indicators (KPIs) and a clear narrative is needed to show the link between sustainability and strategy, including how the company is managed by the board, and to facilitate a good understanding of the company’s efforts through quality dialogue with its stakeholders. For many in the investment industry, it is the basis for good quality stewardship and engagement process, increasingly seen as a significant part of fiduciary duty.
SDGs and ‘Impact washing’
It gets even more complex when it comes to impact and the United Nations Development Programme’s (UNDP) Sustainable Development Goals (SDGs). The SDGs have been set by the UN General Assembly in 2015, with the goal of transforming the world towards the betterment of people, planet and prosperity – the 2030 Agenda for Sustainable Development. The SDGs are now frequently viewed as a potential framework for measuring, managing and reporting social impact, from measuring performance to presenting thematic choices to investors.
The SDGs are characterised by interconnectedness of goals. There is now a widespread recognition that addressing them is crucial for a healthy, prosperous society and economic system. However, according to the OECD there was a US$2.5trn unmet SDG financing need before COVID-19. Due to COVID-19, this is now more likely to stand at US$4.2trn. [4]
While the OECD estimates that aligning 1.1% (US$4.2trn) of US$379trn of global financial assets with the SDGs could fill this gap, as much as US$30trn globally have already been labelled ‘sustainable finance’ . This is estimated by hundreds of different measures by different actors, with a lack of clarity and transparency around how much of it is actually contributing towards meeting the sustainable development goals.
Further, ‘SDG washing’ and ‘impact washing’ are a serious problem. However, it is not always intentionally caused, with many professionals admitting failure to grasp the essential elements of ‘impact’, including what exactly counts for impact and how to accurately measure it. The 2020 Annual Impact Investor Survey by the Global Impact Investing Network (GIIN) shows that ‘impact washing’ is considered to be the greatest challenge by 66% of the respondents, followed by 35% reporting ‘inability to demonstrate impact results’ as the next challenge. [5]
Finally, a CFA Institute’s report [6] shows that investment professionals self-identify as lacking skills when it comes to ESG, with only 11% of respondents considering themselves ‘proficient’. Meanwhile, the demand for sustainability talent is ranked as ‘very high’, as there continues to be a lack of talent and specialised skills in this space compared to the high demand. Marketing departments’ aggressive promotions of various sustainability credentials are often seen as disconnected from the actual realities of their firms’ ability to meet these claims.
Possible solutions
Unsurprisingly, several practical solutions to the problem, ranging from investment-related market intelligence solutions (e.g. Investor Platform) to impact measurement and management (IMM) training, and the SDG Impact Standards, are offered by the UNDP – the lead development agency of the United Nations (UN). Within the UNDP, the SDG Impact Team works to catalyse investment at scale in order to meet the transformation challenge set by the 2030 Agenda.
There is a clear need for a strategic and integrated approach to the SDGs – a meaningful integration calls for a deepening of implementation throughout the different levels of an organisation. In turn, this can help organisations create and present a clear and compelling long-term sustainable growth strategy as well as to lead the way forward, as opposed to being reactive in catching-up.
The SDG Impact Standards for Private Equity, Bonds and Enterprises are practice standards created by the UNDP that seek to address the issues raised in this article. They provide organisations with a unifying framework, which bridges the gap between high level principles and impact performance reporting, helping to embed the SDG, impact, and sustainability goals into strategy and governance practices. Moreover, the Standards are aligned with existing principles, tools and best practices, providing added value without duplicating or replacing other initiatives that organisations might already have in place.
With the benefit of being practice-oriented, SDG Impact Standards help mitigate the risk of ‘impact and SDG washing’ by embedding impact considerations into long-term, sustainable thinking and planning throughout the organisation. This helps to plan for, manage, measure, and demonstrate impact with clarity on an ongoing basis to all external and internal parties.
In response to practitioner demand, several training courses on impact measurement and management are also in development by the UNDP to help fill the current professionals’ skill gap in this area.
How can accounting professionals contribute
Accounting professionals can help with a systematic approach towards deepening the implementation of the SDGs across organisations. The ways for individual professionals to contribute are numerous, depending on the organisations they work for, the particular role occupied, as well as training, skills and technical knowledge. Accounting professionals are uniquely placed to provide leadership throughout the process, including through the audit and assurance functions.
Accountants both in the profession and within academia can play a significant part in contributing to the ongoing debate on sustainability and meeting the SDGs, as well as advancing progress through thoughtful questioning, the ability to create knowledge, test assumptions and influence the wider discourse.
Educational institutions are increasingly paying attention to their own sustainable practices and looking for other ways to show their commitment. It remains to be seen whether this is demonstrated through universities’ endowment funds, pension fund selection, and curriculum design. Apart from the specialised academic institution departments and resources, such as dedicated sustainability centres, Business Schools also have a progressively important role to play through the preparation of the new generation of accounting and finance professionals adapted to address future challenges.
Every accounting professional can do their part to contribute: opportunities to shape and influence debate and practical implementation of the SDGs and the furthering of the 2030 Agenda on a global scale are available through different avenues, including through collaboration with the UNDP and Higher Education institutions (see below on ‘How to get involved’).
We call for accounting professionals to contribute now – by getting engaged with bringing about meaningful, long-term, sustainable change through work with their clients, organisations, academia, policy makers and local communities.
How to get involved
Join the transformation – work with UNDP
UNDP SDG Impact Public Consultation for Enterprise Standards – Call for participation until 31 May 2021.
Enterprise Standards provide a clear framework for integrating impact on SDGs into business and investment decision-making, and are suitable for all Enterprises, irrespective of size, geography, or sector.
SDG Impact Team seeks feedback from a range of Stakeholders, including investment and business community, civil service, organizations expert in human rights and the rights of indigenous peoples, other United Nations bodies, and relevant industry groups. Be part of the transformation: https://sdgimpact.undp.org/enterprise.html
Contact SDG Impact direct: sdgimpact.standards@undp.org
Ongoing Feedback
Has your organisation begun using any of the SDG Impact Standards? Ongoing feedback is welcome for Standards for Bonds and Standards for Private Equity. Contact SDG Impact direct: sdgimpact.standards@undp.org
Training
UNDP and Duke University course on Impact Measurement and Management will become available in Q2 2021 and will be offered as a public good. Sign up to UNDP’s newsletter to stay updated: https://sdgimpact.undp.org/
Help shape future generations of professionals – through Higher Education
Get in touch with the University of Strathclyde to find out how you could help through contributing to education by sharing your experience, inspiring future generations and role modelling. Contact: accfin@strath.ac.uk
References
[1] See Professor Carol Adams’ excellent blog on these and other pertinent issues https://drcaroladams.net/
[2] Berg, F., Kölbel, J., & Rigobon, R. (2020). Aggregate Confusion: The Divergence of ESG Ratings. Available at http://dx.doi.org/10.2139/ssrn.3438533
[3] ATP Group (2020). Responsibility Report 2020. Available at https://www.atp.dk/en/responsibility-reports-and-publications
[4] OECD (2020). Global Outlook on Financing for Sustainable Development 2021: A New Way to Invest for People and Planet. OECD Publishing, Paris. Available at https://doi.org/10.1787/e3c30a9a-en
[5] GIIN (2020). Annual Impact Investor Survey 2020. Available at https://thegiin.org/research/publication/impinv-survey-2020
[6] CFA Institute (2020). Future of sustainability in investment management: From ideas to reality. Available at https://www.cfainstitute.org/en/research/survey-reports/future-of-sustainability
