Climate change has entered mainstream business
It has also become a major source of consulting work for accounting and law firms alike. Prior to the UN COP17 Conference in Durban, consulting firms in the environmental space report a huge increase in business coming their way. This comes both in the wake of the government throwing its considerable weight behind the "greening" of our economy, as well as through the reputational damage from a series of global ecological disasters.
Climate change has entered mainstream business and, therefore, become a major source of consulting work for accounting and law firms alike, as well as an entirely new cottage industry consisting of small environmental consulting firms.
This interest can be attributed to an increase in potential new policies and regulations at national and international level.
Environmental awareness will become as embedded as BEE
We're at the early stages of the process, but, in time, environmental awareness will become as embedded in companies as black economic empowerment is today. Indeed, the two are closely aligned in their purpose of establishing sustainable business models.
At the moment, the majority of our consulting time is spent on educating clients and simply introducing them to the concept. It is that King 3 has required listed companies to provide integrated sustainability reporting, but with the caveat that if they do not wish to report they may simply explain why. There is no enforcement - but that may change in time with government regulation.
Sensitising business to the environment has come through auditing channels and is associated it in the minds of many people with "just another compliance irritation".
Where the education step has to begin
This is where the education step has to begin: to get management to see it as not simply another reporting hurdle, but as core to the sustainability of their business and that it makes plain business sense.
The bulk of our activities concern introducing the concept of integrated reporting to our JSE-listed clients; explaining the reporting requirement in terms of King 3; assisting them to identify how sustainability fits into their business model, why they should adapt their business strategy to incorporate the concept of economic, social and environmental sustainability, and how they go about doing this; explaining the business case for embarking on this additional reporting requirement; as well as assisting them to translate the reporting requirement into actual measurable impacts on the environment, society and the economy.
There are lots of global developments happening around sustainability and climate change, including a push for integrated reporting, and this is being pushed down to national level where carbon tax discussion papers and climate-change green papers are being introduced in many countries, adding to the complexity of business life.
Nonetheless, at company level this still remains rudimentary, with most discussion between PKF and clients revolving around what it all means to their business strategy, or whether it remains sufficient simply to report on their sustainability and climate change initiatives.
In most people's minds, green policy is still dismissed as tree hugging. Until recently it was pigeonholed as CSI (corporate social investment/responsibility), with boards only interested if the company had a good tale to tell in its sustainability report. The base point of any discussion has to commence by looking at it as a commercial proposition.
Part of the overall business strategy
It has become necessary for companies to look at environmentalism as part of the overall business strategy across all operating units. That's why PKF is increasingly getting involved, in order to incorporate it into the total audit process.
Part of this is business reputation, for it is the man in the street who cares most for reducing the carbon footprint of business and it is these individuals who are to be found as employees of the business, as its shareholders and customers, or in the government.
It would be a reputational disaster for any company to be associated with an environmental incident - as can be seen with what happened to BP's share price.
Paradigm shift required at management level
Therefore, a paradigm shift is required at management level to take every conceivable means to reduce the carbon footprint. This is the focus of our efforts at the moment, to persuade managements that an environmental programme has to be a living and breathing policy contained in a document that has long-term relevance - as well as complying with such regulations as exist.
It is irrelevant if individuals are sceptics of climate change or global warming, as many are, because it is increasingly becoming government policy around the world and companies that wish to trade internationally have to comply, or face the consequences of not being in step with global best practices. This trickle-down effect will ultimately mean smaller businesses will also have to comply - and they are yet to get involved at all.
All the global initiatives are starting to worry boards, as to whether it will be a cost to them, affect their profitability or impact on shareholder value. This is a transformation phase as the issue escalates from CSI department to board level.
For the present, most companies focus on little more than their electricity consumption, but the real issue is one of sensitising every individual.
In South Africa, the current reporting practice, where it is performed at all, is to have separate annual financial statements and a sustainability report, but the global best practice is for a combined integrated report, either audited or not.
In fact, South Africa is at the cutting edge in developing standards as a result of the activities of Mervyn King (of King Report fame) who is also chairman of the global Integrated Report Commission.
About Claire JenningsClaire Jennings is manager of the Technical and Sustainability Reporting Department at audit and accounting firm PKF.