An initiative from the ICAEW

SUSTAINABLE BUSINESS
SUSTAINABLE BUSINESS
Today’s imperative is for a market system that rewards businesses for
promoting sustainability. Trusted flows of relevant and accurate information
are vital to the success of any system and such flows and the processes that
support them are the natural territory of the ICAEW. They will be the primary
focus of the ICAEW’s Sustainable Business thought leadership initiative.
The challenge of sustainability
Business recognises that sustainability is
a major challenge, but it is still poorly
understood and much remains to be done.
Everybody now accepts that there is a
problem. Sustainability is an important
concern, if not the most important concern,
for business and society today. Even for
long-standing advocates of sustainability,
there is a new sense of urgency. It’s not just
about future generations but the here and
now. The Brundtland Report said that
‘Sustainable development is development
that meets the needs of the present
without compromising the ability of future
generations to meet their own needs’.
Yet now we face the real possibility of
not being able to meet our own needs.
Business people broadly accept that
sustainability issues present a real danger
of a catastrophic destruction of business
value. Sustainability is no longer just an
aspect of risk management. It’s no longer
a cause for discretionary philanthropy and a
source of brand positioning and competitive
advantage. People are no longer interested
in whether a business has good intentions
and is seen to be caring. They want to
know if it is effective in tackling sustainability
issues or whether it is making things worse.
This is happening at a time when the
credit crunch has sparked widespread
scepticism about whether and how business
contributes to social cohesion and the wider
interests of society. There is a risk of the
public losing faith in the ability of business
to lift large numbers out of poverty and
disease, let alone to tackle the big issue of
climate change and wider concerns about
overconsumption of natural resources and
the loss of ecosystems and biodiversity.
This scepticism about business is unlikely
to be compensated by a belief that
governments can solve all the world’s
problems.
That’s why we need governments, business
and wider social interests to work together
in pursuit of sustainability and to build
public confidence in our ability to do this
effectively. There is a wide range of possible
initiatives but huge uncertainty about what
works best. We can’t afford to waste our
time and resources on potential solutions
that turn out to be ineffective. We need
diversity and experimentation but not a
muddled mix of solutions that fails to inspire
confidence. Businesses need a stable
environment in which to plan and respond
to the growth and investment opportunities
presented by the sustainability agenda.
A way forward
Good quality information that is trusted and
properly targeted is vital to sustainability,
sustainable development and sustainable
business.
Sustainability is the goal and describes
a world where resources are at least
maintained and which does not live
by eating into its capital, whether
environmental, economic, social or
human. This view sees business as
connected with communities and the
natural world. Business functions in a
wider society and contributes to it.
Business and society are not separate
and, in fact, rely on each other to work.
Sustainable development is the
economic process by which sustainability
is achieved and maintained.
Sustainable business describes the
activities and obligations of business in
promoting and achieving sustainability.
If we want businesses themselves to be
sustainable, then the resources they rely
on must also be sustainable.
There are strong links between sustainability
concepts and information, including
accounting information.
Sustainable systems, whether they are
organisms in the natural world or
organisations in society, all learn, adapt,
improve and succeed by processing
information. They need to be able to modify
their behaviour on the basis of information
 Sustainable systems,whether they
are organisms in the natural world
or organisations in society, all learn,
adapt, improve and succeed by
processing information.

about both the results of that behaviour

and changes in the environment in which
they are operating. Information is the life-
blood of any system and part of a dynamic
process to help ensure survival. Feedback
needs to moderate rather than exaggerate
behaviour with negative consequences if
a system is to be stable and sustainable.
Accounting information is typically used
in this way in organisations. It provides
feedback on performance which guides
management decisions about the future.

At the heart of all accounting information

produced by businesses is the concept of
capital maintenance, and capital in the
broadest sense is central to the idea of
sustainability. Accounting information
enables an organisation to establish whether
it has depleted its financial capital by making
a loss, maintained it through operating at
breakeven or grown it by earning a profit.
Of course, these are controversial subjects
among accounting practitioners and
business people. In the light of the credit
crunch there is also currently much debate
about whether accounting information
tends to promote instability rather than
stability.

However, we should not expect debates

about important issues to be without
controversy and sustainability is no different.
We should also expect uncertainty to dog
discussions about whether a particular
course of action enhances sustainability. Yet,
without better information, we are unlikely
to make much progress in understanding
what works to promote the rational and
efficient use of resources in addressing
concerns about sustainability.

In this thought leadership programme,

Sustainable Business, we will explore the
importance of information in decision-
making, arguing that good information in
an appropriate form is fundamental to the
ability to discriminate between solutions in
an age where well-intentioned support for
sustainability is no longer enough. We need
effective action.
A market-based approach to sustainability

MECHANISMS SUSTAINABILITY

Environmental
Corporate Supply chain Stakeholder Voluntary performance
strategies pressure engagement codes

Social
Market activity performance

Taxes and Requirements

Rating and Tradable
subsidies and Economic
benchmarking permits
prohibitions performance

SUPPORTING ACTIVITIES

Information and reporting

Assurance processes

Three strands of thought leadership

Sustainable Business will build upon and develop the analysis and arguments made in Sustainability:
the role of accountants, which we published in 2004. This report employs a market-based framework
to examine the mechanisms through which individuals, society and governments can encourage
business to promote sustainable development and become more sustainable themselves.

This framework of outcomes, mechanisms
and supporting information flows leads us to
identify three strands of thought leadership
work that we will perform under the banner
of Sustainable Business, namely information
about options, actions and impacts.
Options
It is conventional to identify unsustainable
outcomes as examples of ‘market failure’ and
then to look at the regulatory means that can
be used to correct them. However, the market
mechanisms in our framework are not just
regulatory. It is an integral part of a pluralist
market system to offer individuals, interest
groups, governments and businesses a wide
range of means for encouraging or directing
market behaviour towards sustainable
outcomes. We see the description and
explanation of the options that are available
as a crucial enabler of sustainable development
and sustainable business. We think that it
would be helpful for all market participants,
including policy makers, to have a better
appreciation of the breadth of the options
open to them.
It is all too easy to become fixated on particular
mechanisms such as cap and trade schemes or
tax incentives to invest in new technology.
They might be effective in one context but less
so in another. In this strand, we will encourage
the exercise of imagination and the acquisition
of knowledge about the functioning of market
systems and the circumstances and
combinations in which the various policy
mechanisms work most effectively.
Actions
For any initiative that promotes sustainability
to be put into effect, it is essential to take
practical steps to report information about
what people are supposed to do and what
they actually do. For example, corporate
strategies need to be communicated and
results reported against them. Voluntary codes
need to be articulated and systems put in place
to report on their application. Green taxes
need to be enacted and communicated to
taxpayers who need to make returns to the
tax authorities and so on.
Competing climate disclosure standards and
sustainability reporting frameworks are all
seeking to respond to the need for credible
information about what businesses are actually
doing about sustainability issues. It is, however,
difficult to design systems that reflect a real
understanding of the information needs of the
various actors involved in different mechanisms
and to ensure that flows of information within,
into, out of and around organisations are
consistent and properly controlled. Our work
will seek to improve understanding of how
businesses manage sustainability-related
information flows and report the practical
actions that they are taking to promote
sustainability.
Impacts
High quality information on overall
sustainability outcomes will enable us to
know if we are getting closer to achieving
sustainability. Such information is essential
for understanding the relative efficiency and
effectiveness of the different options available
to society to promote sustainability. Time and
other resources are limited and so we need to
know what success looks like and what works.
The impacts of our actions are what matters
now, not mere good intentions.
Just as there is a distinction between national
income accounting and the accounts of
individual businesses, so there are choices to
be made about how aggregate measures of
sustainability should be compiled. Some
measures might be the result of aggregating
or extrapolating information from individual
businesses, although this will not work where
there are significant externalities. Other
measures, for example related to climate,
health, welfare and social inclusion, might rely
on completely different non-business sources.
Changes in aggregate measures will also be
difficult to relate to specific causes. This makes
evaluation of the effectiveness of different
policies difficult, but no less important for that.
Future activities
We plan to pursue our three strands of work through four
types of activity which are already well established:
Convening debate
We will continue to host sustainability-
related conferences, round tables and
seminars with a range of leading NGOs,
think tanks, business organisations, public
bodies and academic institutions. Recent
partners include the University of
Cambridge Programme for Industry and
the World Wildlife Fund. We are also active
members of HRH The Prince of Wales’
Accounting for Sustainability Forum and
participants in its annual conference.
Outside insights
We are keen to provide a platform for
stakeholders to air their views on current
sustainability issues and to help us develop
our thinking. We expect Sustainable Business
to stimulate conversations with the wide
range of stakeholders that we encounter as
both a members’ body and a public interest
organisation. The first Outside insight we
published by David Bent of Forum for the
Future was entitled Competitiveness and
sustainability: building the best future for
your business. Such publications provide
opportunities to hear and give voice to
different points of view.
Asking the right questions
Our own thinking about sustainability will
primarily focus attention on areas where
we believe there is a need for more research
or fresh thinking. We are committed
to evidence-based policy-making and
encouraging objective research across a
wide range of disciplines. Our original
work in writing Sustainability: the role of
accountants illustrates our approach and we
are following it up with academic research
funded by the ICAEW’s charitable trusts.
We also expect to produce a high-level
thought piece on the value of climate
change reporting by working in association
with Ernst & Young. Future work on the
calculation and reporting of externalities
is also envisaged.
Turning questions into answers
We are committed to sharing knowledge.
Developed by the ICAEW with KPMG,
the Business Sustainability Programme
e-learning package reflects our market-
based framework and aims to raise
awareness of the business case for
sustainability and the issues companies
face. We have also developed guidance
in partnership with the Environment
Agency entitled Reporting on environmental
issues in annual financial statements:
a practical guide for report preparers, users
and auditors. In addition, we will use our
thought leadership work to inform our
representations in response to public
consultations, particularly on matters
related to sustainability reporting.
Anticipated benefits
Sustainable Business will deliver a range
of benefits, including helping businesses
and governments to:
• move beyond good intentions about
sustainability to consider effectiveness;
• bring the expertise of the accounting
profession to bear in building confidence
in sustainability initiatives;
• promote the vital and wide-ranging role
of information in sustainability and
sustainable development;
• focus on the information needed to assess
available options, to take relevant actions
and to measure their impacts;
• secure a sustainable future and show
that this is compatible with a dynamic
business culture; and
• reinforce belief in the ability of the
business community and individual
businesses to promote society’s interests.
Role of the ICAEW
We need diversity and
The ICAEW is an independent professional body which experimentation but not
is obliged by its Royal Charter to act in the public interest.
In its work on sustainability, the ICAEW can draw on the a muddled mix of solutions
experience and knowledge of active members drawn from that fails to inspire confidence.
a broad and diverse international membership of over
132,000. The ICAEW’s commitment, not just to leading
Businesses need a stable
and shaping debate on sustainability, but also to taking environment in which to
practical action is demonstrated, for example, by our
capacity building work in Bangladesh, which is funded
plan and respond to the
by the World Bank. growth and investment
In delivering this Sustainable Business programme, the opportunities presented
ICAEW will also be able to draw on our other sources by the sustainability agenda.
of expertise and thought leadership, for example in
corporate governance, financial management, ethics,
financial reporting, audit and assurance, regulation,
taxation and financial services. Our ability to act as a
bridge between the academic community and practitioners
(ie, non-academics) is a particular feature of our thought
leadership work. We are also well qualified to stimulate
debate on information quality as it relates to sustainability.
This programme will question the assumptions that
underpin much sustainability reporting and assurance and
be objective about its value while trying to develop better
information to assess and enhance the contribution
business is making to a sustainable world.

Summary

In conclusion, we know that sustainability and sustainable

development are of vital importance today and that
business should be working with all interests in society
to promote them. However, time and resources are in short
supply and the range of potential initiatives is daunting.
Any system that is sustainable needs information to help
it to learn and adapt. There is therefore a vital role that the
accounting profession can play in meeting a pressing need
for high-quality information about the sustainability options
open to us, the actions that these options call for, and their
impacts. Through Sustainable Business, the ICAEW will
engage a broad range of partners in making our
contribution.

Next steps

If you have comments on any of the activities associated

with Sustainable Business or if you would like to know more
or are interested in partnering with us, please contact us at:

ICAEW
Chartered Accountants’ Hall
PO Box 433
Moorgate Place
London EC2P 2BJ
UK

or email sustainability@icaew.com
Institute of Chartered Accountants in England and Wales TT-COC-002529

Chartered Accountants’ Hall PO Box 433

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