It seems distinctly odd, some would say bizarre: why would the US state of Florida, with something as wholesome as an orange as the state’s official fruit, seek to ban an equally wholesome accounting practice?
The answer, of course, is because we are talking about an investment risk framework that measures the effect of the outside world on an asset. We are talking about the risks of a company finding that its future is unsustainable.
That, you may think, still sounds eminently sensible. But then you probably don’t suffer from an allergy – that means that when you hear the acronym ESG you don’t start frothing at the mouth and banning the state’s pension fund managers from considering the use of ESG criteria when assessing an investment decision.
ESG, of course, stands for environmental, social and governance, pretty obvious as areas you would want to cast an eye over to see if the outfit you are thinking of investing in is sustainable. The US arguments continue and, before you know it, they are all rolling around on the carpet proclaiming the investors to be ‘woke’ for even considering such a thing.
In the strange world of US politics, nothing can be ruled out, however illogical it may be
Freedoms?
The main target has been BlackRock, the biggest money manager there is. Here is what one of its senior staff had to say in the midst of the ‘woke’ imbroglio: ‘Given our commitment to those saving for retirement, we are disturbed by the emerging trend of political initiatives that sacrifice pension plans’ access to high-quality investments — and thereby jeopardise pensioners’ financial returns.’
They then invoked American freedoms: ‘Open competition, the free flow of information, and freedom of opinions are core to the strength of US capital markets.’
Game, set and match you would have thought. But in the strange world of US politics and the point where it nudges up against business, nothing can be ruled out, however illogical and bizarre it may be.
The risk of social issues making a corporate future unsustainable is much harder to define and describe
Least tangible pillar
But the US, as so often in business regulation and practices, is an outlier. Much better to look at what the broad church of global business is thinking and, in particular, what it is thinking about the least tangible of the three pillars of ESG, the S, social.
This is the hardest to pin down. Environmental is obvious. Governance is obvious: it has been at the heart of corporate regulation for years. But the risk of social issues making a corporate or organisational future unsustainable is much harder to define and describe.
Now we must also satisfy another stakeholder component – the community
‘Can accountants save the planet?’ has been a banner waved at the accounting barricades for a couple of decades now. The answer lies in how far the ‘social’ element in all this can be defined and how far accountants can provide the answers, the discipline and the reporting.
A new ACCA report looking at Accounting for society’s values moves carefully to some conclusions. It reflects discussions from around the world. One contributor puts their finger on the fundamental issue: ‘As accountancy professionals we have traditionally satisfied the major stakeholder, which is our shareholders, but now we must also satisfy another stakeholder component – the community.’
Heart of the action
This is where the difficult issues that are hard to measure and manage come to the surface. But as part of the report’s conclusion puts it: ‘The social agenda is a fundamental part of the just transition that organisations need to progress through if they are to be sustainable in the medium and longer term. It is a complex narrative that is changing and highly influenced by context – be that geographical, economic or political. It is, however, one that is highly relevant to the business community.’
And that is where the accountants, like it or not, must be. Accountants have always been positioned as the creators of trust between investors and businesses and organisations. There is no reason, just because being in the ‘social’ arena is harder, not to again be at the heart of the action.
And from a sustainable point of view, the accountancy profession itself could be threatened if it doesn’t take up this challenge with enthusiasm. One contributor to the report talked of his daughter’s generation: ‘Very few of them now are going into financial services, banking or other high-powered professions because they feel that they are not helping to address societal issues.’ That sounds like a niche the accountancy profession could happily occupy.
