ACCA Global President calls for multi-stakeholder action in ESG reporting and sustainable practices

In recent years, sustainability reporting has gained significant prominence within the field of accountancy, with ACCA playing a pivotal role in driving this momentum. At its core, sustainability reporting offers stakeholders a comprehensive understanding of an organization’s societal role as well as insights into its ability to create value for all stakeholders. On a recent visit to Sri Lanka, ACCA Global President, Joseph Owolabi shared some thoughts on ACCA’s role in being a force for good and the significance of championing Environmental, Social, and Governance (ESG) frameworks in organizations.

On ACCA’s commitment to the UN Sustainable Development Goals (SDGs) the link between ACCA and SDG and efforts to align itself accordingly

I think for us at ACCA, ESG is core to how we see our role. First, we want to be a force for public good. To do that effectively, we know we need to think about the issues that matter to the economies where we have members, students, and officers.

In terms of commitment, we are committed to the UN SDGs as an organization. That is the first. Secondly, we are encouraging our members to be champions of ESG in the organizations and public entities that they work for.

Thirdly, we are imbibing ESG and inculcating that into the curriculum in terms of preparing future members. More importantly, we support our members with continuous professional development opportunities. Those are some of the areas where we are making sure that the mandate and the ambitions represented by the UN’s 17 SDGs are incorporated across the value chain.

As an organization, we are also very committed to implementing nine of those goals that are very much aligned with the sector we find ourselves in and our operations globally.

#4 – Quality Education

#5 – Gender Equality

#8 – Decent work and economic growth

#9 – Industry, innovation and infrastructure

#10 – Reduced inequalities

#12 – Responsible consumption and production

#13 – Climate Action

#16 – Peace, justice, and strong institutions

#17 – Partnerships for the goals

You will be hearing more about what we are doing as an organization, but that is pretty much embedded in our strategy and our operations across the locations and everywhere we have offices, people, and members.

A glimpse into ACCA’s Accounting for a Better World agenda for action and its main priorities outlined for the accounting profession.

We have tried to structure our organization’s focus around brand themes over the last two years or so. The Accounting for a Better World initiative and the campaign are all about looking at the core elements of what would drive a sustainable future.

There is a piece of research that backs that up, and it calls out areas where we need to focus in the future to be able to deliver not just the net zero economies that everybody is talking about, but societies that work and are equitable for everyone—a fair society. So, issues like building a resilient economy are very important to a market such as Sri Lanka.

There are new standards on sustainability that will become effective next year, globally. There are also local frameworks that organizations need to think about in Sri Lanka, and as an organization, we are supporting that in terms of policy implementation by providing accountants with the skills and competencies they need to deliver that. There is an area there about encouraging entrepreneurial growth. We need entrepreneurs, we need young people to be ambitious, to dream about a better future, but also to support that local value chain by providing “made in Sri Lanka” goods that can be competitive to service the demand locally and potentially exported overseas.

There is also an aspect of transforming the public sector. There are a lot of conversations around corruption, governments not doing what they need to do, and governance not being right at different parastatals or agencies of a government. At ACCA, we have been advocating for the professionalization of the public sector. Public finance management is an area where we are focused globally.

We (partnering with PwC and the World Bank) published research at the World Congress of Accountants in India in November last year where we articulated what needs to change to ensure that there is the professionalization of public finance management, which includes ensuring that there is a career track for finance professionals who make their career in the public sector.

There is a need for capacity building in that area. So those are some of the initiatives there. But more importantly, it is also about ensuring that you build sustainable businesses. Ensuring that businesses inculcate ESG to attract foreign direct investment is essential to be able to overcome some of the current challenges locally.

Building trust and creating transparency is important not only for the stock markets but also for the entire economy so that there’ll be trust in financial operations. How can we effectively report on the actions taken and ensure that shareholders, regardless of their involvement in management, have a comprehensive understanding of their true position within the organization? This includes information presented in the balance sheet and other primary financial statements but also highlights the organization’s dedication to environmental commitments and addresses potential reputational risks that organizations may encounter. It is a piece of work that I would encourage everybody to look into and see how we can localize the effects for our use here in Sri Lanka.

How does ACCA collaborate with governments and standard centres to promote sustainable development and contribute to accounting for a better world?

We always collaborate with governments. They are partners in the markets we operate in, so when we talk about our role in society, again, this is driven by our purpose and our ambition. We want to develop the accounting profession that the world needs. The profession here in Sri Lanka is something we want to develop. But that is through the lens of being a force for public good.

To be a force for public good, we need to work with governments, not just the Ministry of Finance, with which we have an amazing relationship, but other government agencies, market participants, stock exchanges, and corporations. We also want to work with industry groups to advance policy, standards, transparency, and ethics.

Most of the organizations that we work with are part of what we call an approved employer scheme.

It is important to note that our members work in industry, practice, and the public sector. Through their contributions, they promote high-quality financial reporting and build trust.

We have offices in over 100 countries, and our members and students are in 178 countries. We know that the economic challenges being experienced here in Sri Lanka are not isolated. There are other markets with similar issues, and we can bring our experience, learnings and insights from those regions to our engagements with the private and public sectors in Sri Lanka.

We leverage our relevance and global reach to add value to our partners around the world.

Could you provide examples or notable achievements that demonstrate the impact of ACCA’s initiatives in driving the ESG agenda?

There are many stories and examples of what our members are doing globally. The one that comes to mind quickly is one of the projects that is going on in India, where our members are assisting in promoting financial literacy in high schools. They developed animated learning with characters that young people can relate to and understand.

The initiative was designed for and delivered to young people in secondary schools. I had the privilege of joining one of the graduation ceremonies in person and handing over certificates to those who had completed the course.

As you can imagine the students partook in the curriculum during the COVID pandemic so it was challenging for the young people as well as their teachers who delivered the course.

This is one of the several ways our members – all volunteers, work to bring very complex accounting and finance principles to young people from an early age so that when they grow up, they can manage their finances better.

In the long haul, the initiative will also benefit the country. This is a good example of how our members are taking initiative, being responsible citizens, and playing a bigger role outside their organizations.

Started in Singapore, and now expanded globally, our members over the years have participated in social runs/walks annually. Physical movements like walking and running are recorded using digital and mobile tools and the results are shared within the online community. Participants also raise funds and donate to defined causes or initiatives to address social inequality or CSRs. In places like Malaysia, our members help raise awareness of ocean life, grow coral reefs, and preserve marine biodiversity. This initiative is driven by members’ commitment to the environment. There is a Women’s Network in Malaysia which promotes social cohesion, inclusion and collaboration with other women’s groups across the ACCA network.

We still have fewer women on boards. We still have less female representation at the C-suite and all of that. To see our members tackling the biggest challenges and complex problems globally, whether it is around environmental or social issues, gives me great pride. The stories are many. I am proud of our members and our young people for what they are doing in their communities around the world.

Adoption of ESG accounting among members and the role ESG accounting plays in driving sustainable business practices

Over 100 years ago, ACCA is now celebrating its 120th anniversary; we were the first professional accounting body to consider how to incorporate ESG into the qualification back in the 1900s.

We are the first professional body—not just accounting—to publish integrated reporting.

We started 12 years ago, even when there was no global framework. When the Integrated Reporting (IR) framework was issued, we aligned our reports with it. Several of our human resources are volunteers or seconded to organizations that develop guidelines or standards for non-financial reporting. Our CEO – Helen Brand, served as vice chair of the International Integrated Reporting Council (IIRC).

We support the work of the International Sustainability Standards Board (ISSB) in developing sustainability disclosures. In June 2023, the ISSB issued the first two IFRS Sustainability Disclosure Standards – IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate related Disclosures.

ACCA played a key role in the launch of the Standards in London and around the world, where our teams were there to present. We are working with other similar organizations, including Chartered Financial Analyst (CFA) and Institute of Internal Auditors (IIA) to support members and collaborate on professional insights and ethics. We (alongside CFA) co-developed a climate finance course. ACCA also developed the Certificate in Sustainability Finance course for finance professionals to understand sustainability and its impact on organizations.

What challenges do you see for the widespread adoption of ESG accounting? What can ACCA potentially do in that context?

Apart from capacity, one of them is also a barrier to change. People tend to resist change. It is easy to keep doing things the same way. This is not different for accountants and other finance people.

That is where capacity building comes in. When people feel they have the right skills, then they feel confident and empowered to overcome any inertia and the initial challenge of coming on board with an idea.

So that’s number one. The second challenge is cost. For every new thing, there will be a learning curve. Organizations will need to consider the directly attributable costs of ESG accounting and where consultants are contracted, they do not come cheap. How do we navigate the extra cost of reporting that comes with sustainability? At ACCA, we know that SMEs have unique challenges. They are focused on growth and there may be challenges with capital allocation.

We developed guidelines and free tools for SMEs to support ESG accounting, climate finance, and sustainability. The challenge would be in terms of best practice: what’s out there? How do we know what other people have done? Through industry groups and roundtable sessions, we produce professional insights that provide best-case approaches and shared stories from mature organizations and economies that are at the forefront of implementing sustainability and green finance.

Those are some of the challenges. I know I may not have touched on all of them, but those are some key challenges that come to mind.

Which specific ESG accounting standards or frameworks does ACCA support or recommend to its members, including IFRS?

There are many frameworks, such as the UN Global Compact, and many people use GRI (Global Reporting Initiative) which is quite mainstream and common. The good thing is that the International Financial Reporting Standards Foundation, the IFRS Foundation, set up the ISSB, International Sustainability Standards Board, which over the last two years has released its standards.

The idea is that if we can have one source of truth, hopefully, in the future, we can have that convergence. Even though there are all these frameworks, which they still use and are still relevant, one source of truth, helps with comparability. The challenge with having many guidelines/ frameworks is that it makes it difficult to assess the performance of companies. For investors and stakeholders, it might be challenging to tell the difference or to compare results in terms of non-financial or sustainability results for companies.

With the new S1 and S2 IFRS disclosures, it is going to take a while for organizations to adopt them and, over time, start reporting appropriately. In the next decade or so, hopefully, we can have that comparability.

But we are supporting that. As I mentioned earlier, we know it is in the profession’s best interest that we have one global set of high-quality sustainability standards that is global in its appeal.

Concluding Thoughts

In conclusion, I would stress a call to action for everybody to get involved, not just accountants. When we talk about sustainability, accountants are leading, and rightfully so. Accountants have the skill set and experience based on their understanding of things like accrual, materiality, and reporting. Accountants have always been in a position to report to boards. It is pivotal for the success of global adoption of sustainability, that accountants lead the way. But accountants can’t do it all. Everybody, from media, public relations, sales, marketing, operations, engineering, and logistics across the organization must gets involved.

There needs to be that multi-stakeholder approach where everybody brings all of these data points from across the organization. Finance professionals can support storytelling and presenting the information in ways that are relevant to the board and other stakeholders. It is a call to everybody in whatever part of the organization, public entity, or public office that you work in, to support the movement towards non-financial reporting.

When we say non-financial reporting, we’re talking about having data and non-financial indicators that will cut across environmental, social, and governance impacts. How are we using resources—water etc., the quality of air, social issues—are we empowering women, education for the girl child? Opportunities are still rare for the female gender globally.

How do we ensure equal access to opportunity? So that is something that everybody can contribute to, not just accountants. To ensure the government is held accountable, appropriate anti-corruption frameworks are established in countries like Sri Lanka and all over the world to ensure transparency and accountability in governance.

BEYOND PROFIT: EMBRACING THE SOCIAL VALUE AGENDA

The Association of Chartered Certified Accountants (ACCA) and its members reflect on the economic, environmental, and social consequences of business choices, influencing broader perspectives in a roundtable discussion.

Coinciding with ACCA Global President Joseph Owolabi’s visit to Sri Lanka, the premier accounting body’s Sri Lanka office gathered key industry financial decision-makers for a roundtable discussion on embedding long-term social strategies in line with the Environmental, Social, Governance (ESG) accounting frameworks now coming into play in many organizations. Here are a few excerpts from those thoughts.

ROLE OF FINANCE IN IMPROVING ECONOMIC GOVERNANCE AND POLICYMAKING

From a finance professional’s point of view, we need a mechanism that supports data-driven, rational decision-making in the government sector. I have seen many government organizations that need proper data or information to make decisions. Most of the decisions are based on gut feelings or political motives. Secondly, we need to build credibility in the system so that everyone will support it in their way.

For that, we need more governance and transparency. One of the good things the IMF has come up with is the anti-corruption component. Whether you like it or not, that will play a major role because, in this part of the world, politics and corruption are two sides of the same coin. There is no politics without corruption.

We need to have some mechanism to curtail or eradicate it to have some confidence in the system. As accounting professionals, we can play a bigger role in this. On one side, we can support the government in establishing those things. Secondly, we can also play a bigger role in educating the masses because the lack of knowledge is also a problem.

IMPLICATIONS FOR STAKEHOLDER VALUE CREATION AND ESG

The economic crisis resulted in recalibrating stakeholder value between 2022 and 2023 because 2022 in Sri Lanka was a dark period in terms of the economic crisis.

In the manufacturing sector, we have done much in Sri Lanka to create value. We need to accelerate Sri Lanka’s transition to a low-carbon economy. That is our ESG theme. Manage the allocation of finite resources, whether water or any other resources. Many corporations went into shorter supply chain cycles instead of manufacturing items and replaced them with local produce to improve value creation in the local community. We could also look into renewable energy generation. If manufacturers focus on renewable energy, they can cut costs and increase financial value creation. Convert waste into value.

The purpose of business has to be to create profit, not excessive profit, because that profit helps the rest of the community, and that is where you can create additional stakeholder value. A saying goes like this: When the winds of change blow, some people build walls, and others build windmills

Over the past four months, our focus has been building windmills and harnessing the winds of change. We have placed a strong emphasis on the ESG agenda. Many organizations are directing their attention towards the ESG agenda, as it can create substantial stakeholder value.

ON AUTOMATION AND ENHANCING SOCIAL VALUE CREATION

Infomate serves renowned brands globally, including Australia, the UK, the US, Saudi Arabia, Sweden, and Sri Lanka. Our commitment to making a positive impact through business is evident, with 62% of our workforce being female and our pioneering the rural BPO concept. We have demonstrated that rural areas in Sri Lanka possess the talent for world-class accounting work on SAP.

To address migration challenges, we recognized the vast talent pool outside Colombo and tapped into the provinces of Sri Lanka. Additionally, we are dedicated to achieving carbon neutrality by 2025. We involve our enthusiastic employees by monitoring our carbon footprint, reducing energy consumption, and engaging in tree-planting initiatives. In our first year, we successfully planted over 2000 trees, with plans to increase that number shortly.

In terms of SLASSCOM, we aim to grow the workforce from 125,000 to 200,000 employees by 2025, alongside our vision of becoming a $5 billion industry. Furthermore, we strive to establish ourselves as the world’s first green IT-BPM destination. Our goal extends beyond being a centre of excellence for services; we aspire to be a responsible service provider advocating for climate change, inclusive growth, and women’s Employment.

GOING BEYOND COSTS: UNLOCKING THE VALUE OF ESG

The Group monitors its relevant ESG topics on a quarterly basis to identify, manage and rectify any risks and to report on its relevant ESG topics. The Group Corporate Finance teams work closely with the Sustainability team to report the performance of these topics to the relevant stakeholders including investors.

In today’s investment landscape, meeting investor requirements often involves prioritizing Environmental, Social, and Governance (ESG) criteria. It’s no longer just a box to tick; ESG has become a fundamental criterion for investors, at times taking precedence over financial performance. Some funds now identify themselves as sustainability frontier funds, indicating a shift in the perception of ESG to a core consideration within organizations.

To attract investors, our investor relations team actively collaborates with the sustainability team to ensure our sustainability practices and initiatives are highlighted and presented to potential investors. We are pleased with the progress we have made so far and aim to attract more investments and funds that align with our company’s overall purpose. Our focus primarily lies in the healthcare and consumer brands sectors, with particular emphasis on healthcare. It is essential for us to showcase this aspect of our business strategy, and we see a strong integration of these values within our teams.

When it comes to healthcare, we believe in leading by example. We have implemented wellness programs that promote fitness, good health, and healthy lifestyles among our employees. Additionally, we prioritize mental health awareness by conducting programs facilitated by Group Directors who specialize in personal coaching. These practices are deeply ingrained in our company culture and reinforced by the industries in which we operate.

INTEGRATING ESG INTO A PROFESSIONAL QUALIFICATION

By integrating ESG factors and principles into our curriculum, we can ensure that professionals and individuals who attain qualifications from these professional bodies possess the essential knowledge, skills, and awareness of ESG. The qualification equips them to address the challenges related to ESG effectively.

Furthermore, it is essential to contribute to businesses by adopting sustainable business practices. From CFA being a qualification that focuses on investment management, one of the key reasons we want ESG in our curriculum is its relevance in investment management or investment analysis.

When conducting ESG analysis, we consider the financial performance of a company, along with its risk portfolio and ethical considerations, as the pivotal factors.

Further, a solid grasp of ESG principles empowers individuals across the organization to devise effective risk mitigation strategies as they gain comprehensive insights into all facets of ESG. The third one is all the regulators and clients that demand adopting the ESG, especially for them to make better decisions.

These are a few reasons we aim to incorporate it into the curriculum. The last one is of utmost importance and is an ethical responsibility. From a CFA perspective, professionals are expected to act in the best interests of their clients.

 

CREATING VALUE FOR STAKEHOLDER BASES

Investors, regulators, and stakeholders across global markets are increasingly demanding greater transparency from organizations in terms of environmental, social and governance (ESG) and sustainability performance to assess the true long-term value of organizations.

EY GDS is a worldwide network of service delivery centers offering strategic business solutions to EY member firms and EY clients worldwide with a workforce exceeding 75,000 spanning across ten countries and 20 cities.

Over the years, EY teams have helped organizations address sustainability issues, investor concerns, support ESG reporting and disclosures and improve ESG performance. As part of the service offering, EY introduces the latest innovative leading-edge technologies, including Artificial Intelligence (AI), to assist clients in integrating ESG and sustainability into their business strategies. Through close collaboration with all our stakeholders, we are spearheading an innovation-driven wave of economic growth while also safeguarding our planet and advancing sustainability.

EY GDS Sri Lanka was established early last year with the purpose of enhancing EY’s existing capabilities, enabling broader regional support. Since then, we have played a vital role in the EY GDS global growth strategy. We have actively supported EY clients in their journey towards agility, efficiency, and adopting sustainable business practices. By doing so, we are contributing to our shared mission of creating a better working world.

Sustainability is no longer a tick-box item because we see its significant impact on how we live and do business.

EQUIPPING BOARDS TO ENHANCE THEIR UNDERSTANDING OF UPCOMING ESG REGULATIONS

The mandate of the Sri Lanka Institute of Directors (SLID) is corporate governance and equipping Board Directors with the knowledge and skills they require for stewardship. In this arena, we conduct Board leadership training and we will be introducing a Masterclass on ESG very soon. Through this Masterclass, we will support Boards to acquire a proper understanding of the new frameworks coming into play.

Throughout the past, Sri Lankan companies have been doing a lot of work in terms of social responsibility. Many of our companies have been running CSR projects in environmental conservation, providing pure water, reconstruction of tanks etc. I would say that this is part of the DNA of Sri Lankan corporates. We are not doing it simply to check a box but because we believe in doing the right thing and in giving back.

With the new ESG framework, we need to start looking at how we fit in all that we do, into this framework. Considering the upcoming implementation of the ESG framework starting January 1, 2024, there is likely to be a need to provide updated information to Boards. SLID is ready with the necessary resources to support Corporate Boards on this learning curve and the upskilling of knowledge.

FINDING A BALANCE BETWEEN SHAREHOLDER RETURNS AND THE IMPACT ON THE ENVIRONMENT AND PEOPLE

The realization that the world has come to today is that organizations need to implement business models that accommodate the values of all its stakeholders; the customers, the employees, the suppliers and the eco system.

Consumers today are very conscious of what they’re buying, where they’re buying it from, who makes it, how it will be disposed of, and what impact it has on the environment. So you can never generate value or returns to your shareholders if you also don’t consider these different aspects. There is greater expectation on transparency, honesty and they want to see tangible global impact.

Even from an employee perspective, you can always recruit people, but retaining and continuing to carry that workforce means you have to ensure that they’re taken care of, looked after, and are the best versions of themselves.

Creating and looking after the community within the organization and outside is the only way you can unlock value, and that’s the only way you can be a sustainable organization that generates value for its shareholders and stakeholders. Having that strength and being able to use that strength in the right way and in a meaningful way creates value across the entire community.