Six proposals for tomorrow’s world

The world is changing, and the pandemic has further highlighted the need for change if we are to surmount future challenges. A change in business language is paramount, as well as bringing into the equation a variety of capitals (human, intellectual, societal and environmental) rather than only being led by financial results and financial accounting.

Some companies are already ahead of the game, for instance, Danone, which changed its status to that of a “Company with a Mission” last year. But many others are lagging behind. But this strategic and global shift would not be effective without an integrated and multi-capital vision or strong teamwork and a cross-cutting approach.

This multi-capital vision is a strategic move for finance teams who are initiating business partnering with Sustainability Teams. So, here are six proposals for sustainability teams to reflect on the changes that finance Teams are going through, and how they can benefit from the move. 

1) A wider field of vision

While companies have been reporting using economic, social and governance (ESG) indicators for many years now, often using the Global Reporting Initiative, the measure of global performance is now shifting back to the finance team.

Many organisations are now broadening their field of vision from a single capital to a multi-capital viewpoint. Finance teams can now become business partners of sustainability departments, embedding sustainability into financial accounts.

To do this, they need to move from accounting only in terms of financial capital to including their environmental and social capital, among others. For example, agribusiness company Olam now assesses their capital using seven measurements: financial, social, human, manufactured, natural, intangible, and intellectual capitals, with a view to creating long-term value. Some, like Danone, focus on their health capital, others, like Vivendi since 2013, have been working on their cultural capital.

More than 1,500 companies in the world have adopted an integrated reporting model, using a six-capital model. Many “multi-capital” accounting models have been developed under the impetus of the Framework of the International Integrated Reporting Council, and the Capitals Coalition, a group of organisations that encourages the integration of several types of capital into the systems’ decision-making process.

2) A new compass

Thanks to Kate Raworth’s ‘Doughnut’ of social and planetary boundaries (a concept she defined in 2017), companies should operate with an awareness of the planet’s environmental limits and fundamental societal needs, such as access to health, or education for all. 

Companies such as L’Oréal have carved their new sustainability plan around planetary boundaries. To reach those bold targets, finance teams are now also embracing the Doughnut ‘compass’ to guide their organisation in the right direction.

Already, today, 1,040 companies are committed to act to meet climate science objectives (specifically, not to exceed 2 – 1.5°C temperature increase), but everyone should be using this compass and following suit. Some examples of companies using the Doughnut compass include Olam in its multi-capital accounting, mentioned above, or agribusiness company Alpro, which, through its work with the WWF, helps create methods for calculating water and planetary diversity to limit the companies’ impact on planet’s resources and flora and fauna.

3) Transformative accounting

Sustainability teams need to help finance teams to embrace their new accounting as transformative, and orient their new accounts towards the future. It is no longer a question of looking in the rear-view mirror, but rather towards the horizon.

Thus, performance indicators will have to be reoriented towards the actions and the governance necessary to guide the organisation. Indicators showing past performance are no longer sufficient to understand whether companies are addressing tomorrow’s challenges – this is what the IIRC Framework has been asking for since 2013, the Task Force on Climate-related Financial Disclosures since 2017, with the need to work on scenarios for the future, including the 2°C Paris agreements objective. The World Benchmarking Alliance has also helped by developing Seven systems transformations for benchmarking companies on the SDGs (including decarbonisation, urban system and agri-food system).

4) Chief Value Officers

CFOs will become Chief Value Officers (CVOs), acting as business partners focusing on multiple value creation, and to Chief Sustainability Officers. CVOs will share with leadership and management teams the results of their multiple-capital accounting to help with the company’s long-term sustainability strategy. The CVO will guide the evolution of their organisation’s business model towards a more resilient model, in sync with CSOs. All this is no mere utopian wish, but already a reality for several companies such as the agribusiness company Olam, energy company SSE or renewable energies firm Orsted, which have created innovative accounting models, with dedicated Finance for Sustainability teams. The association Accounting for Sustainability has created a CFO leadership network of CFOs who are becoming CVOs in the United Kingdom, Canada and the United States. These new breeds of CFOs must partner strongly with their companies’ CSOs in the future.

5) Multi-capital accounting

Both large companies and small and medium enterprises (SMEs) alike must embark on the path towards multi-capital accounting. Today, the tools are available and customisable for every company: for example, the ACT initiative, supports companies in their low-carbon transition for SMEs. New accountants, trained in multi-capital accounting, will be able to support SMEs in this new world. This will tremendously enhance the capacity to embark SMEs on the journey to sustainability.

6) Reformed training

Radically reformed training is central to prepare this new breed of accountants, management controllers, internal and external auditors, and Chief Sustainability Officers can offer guidance in the move to sustainability. We no longer need to train in techniques that put blinders on future managers. On the contrary, we need to train them in the skills and tools that will enable them to support businesses in tomorrow’s world. The world’s first training course dedicated to the transformation of accounting, control and audit teams is now available at Audencia.

Delphine Gibassier, Associate Professor of Sustainable Development Accounting, Audencia