As 2014 came to a close, HRH the Prince of Wales hosted the 10th anniversary Accounting for Sustainability Project (A4S) Summit and rightly stressed that “We need 21st century tools for 21st century problems…and time is not on our side.” That does indeed capture the sense of urgency and purpose shared by the attendees of this year’s Summit in London. This convening of corporate executives, financial and accounting experts, and senior leaders from across disciplines of civil society, reflected the tremendous commitment to understand the interdependencies among financial, social, and environmental factors, and then to catalyze the shift to a sustainable society.
Just as Bank of England Governor Mark Carney recently referred to “the tragedy of the horizons” in a reference to the short-termism inherent in corporate earnings reporting season, a panel of leading CFO’s explored the necessity of building shareholder value in the long-term. As articulated by Rolf-Dieter Schwalb, CFO of Royal DSM, this meant to his company a portfolio transformation from a petro-chemicals company, to one focusing on life sciences, health and nutrition. Further, we heard from John Rogers, CFO of Sainsbury’s, as he put to rest the issue of whether investors ask him questions about issues of long-term sustainability. John simply said “spot on” when we asked him if a “translation service” is needed between “sustainable investors” and corporate executives. Investors DO indeed care about environmental, social and governance questions (if they relate to revenues, costs, and risk); they simply may not know that they care unless it’s framed in this language!
And speaking of language, Roger Seabrook, VP of Investor Relations at Unilever, agreed that the questions may not be direct, but on the part of the companies, few make the case as clearly as they ought for the commercial imperatives. “We the companies need to look at the metrics and messages; and then lead the discussions.” Further to the metrics, and on the subject of integrated financial reporting, this process will be transforming the way companies communicate to their investors. As it is becoming a global norm, we must be training the accountants and CFOs of the future. Prince Charles would remind us that “Time is not on our side; and at this alarming rate, Nature’s bank is about to go bust as the sums simply do not add up.” We are living on the capital rather than on the earnings of the capital.
Just as HRH Prince Charles said that CFOs are the “engine room” allowing for effective response to global structural imperatives, we would argue that the corporate sector more broadly is the engine room for the global economy. That was echoed after Barry Gardner, MP, Shadow Minister of Natural Capital seemed skeptical regarding prospects for changes in the regulatory landscape which would lead us towards sustainable development goals. David Blood of Generation Investment Management would look for a mandate for either the price of carbon or the disclosure of carbon emissions; but John Rogers reiterated that there is a lot which leading companies can do in the absence of regulatory change. In fact, at Sainsbury’s he went on, “sustainability is at the very heart of our business. If we want to be around in 100 years, we need to lead the conversation.”
The clear message of this 10th anniversary summit is that Stewardship must be the order of the day. Successful organizations must redefine and transform business models to function in this world. We must find new sources of innovation, reduced risk, extended periods of competitive advantage. Finance professionals must leverage their unique capacity to sound the alarm, given that they have the power to direct the resources. Again, corporations need to lead the conversation.
Erika Karp is the Founder & Chief Executive Officer of Cornerstone Capital Inc. and the former Head of Global Sector Research at UBS Investment Bank.