Accounting for Sustainability: Drawing on a New CIMA Guide, Louise Ross Sets out Practical Steps for Developing a Sustainability Strategy and Reports on Current Practice

Article excerpt

Environmental sustainability can be a source of competitive advantage. Unfortunately, some organisations see it only as a regulatory burden or a cosmetic activity designed to reassure their stakeholders, while many consider that resources devoted to sustainability initiatives in the current economic climate are better spent on those needed for their survival.

The key to gaining more value from sustainability activities is to integrate them into corporate strategy, so that they meet business needs. CIMA's Management Accounting Guideline on environmental sustainability (see "Further information" panel, next page) proposes a four-step process for embedding sustainability into strategy.

1 Identify the key issues and drivers for environmental sustainability in the business, using methods such as stakeholder engagement, analysis of strategic position, risk assessment and environmental impact assessment. This process will suggest the relative importance of the following factors:

* Regulatory compliance.

* Managing risks and contingency planning.

* Efficiency and cost savings.

* Meeting customers' and investors' needs.

* Attracting talent and improving productivity

* Improving the organisation's reputation with its local communities, investors or the government.

* Preparing the organisation to thrive in a low-carbon economy.

* Achieving competitive advantage and long-term profitability.

2 Based on this assessment, establish priorities and set objectives and the means by which they will be achieved. Identify any skills shortages that suggest you may need to outsource activities or seek contributions from stakeholders.

3 Based on your priorities and a realistic assessment of what can be achieved, draft policies; define goals; make action plans; and set targets, KPIs and budgets against which to measure progress.

4 Use appropriate tools and techniques to make the link between sustainability and financial reporting more visible. The genuine integration of an environmental sustainability strategy into your overall corporate strategy requires a multi-disciplinary perspective, which is where management accountants are particularly useful. As well as contributing their specific analytical skills, they are also experienced in communicating with many different management functions.

Some of the tools used in environmental sustainability activities may be new to management accountants, but many are merely existing accounting tools applied in a new context. For example, you may be able to use traditional costing approaches but need to factor in less tangible or indirect costs, such as liability costs or future compliance costs, and externalities that may become true internal costs as a consequence of future regulation.


Current practices in environmental sustainability accounting can be gauged from the results of CIMA's recent survey of tools and techniques. This found a relatively low usage of environmental management accounting and environmental impact I assessments (ElAs). As their name suggests, ElAs express the consequences of an organisation's activities in relation to emissions, the contamination of land or water, the amount of waste going to landfill and future decommissioning or disposal considerations. We found that 28 per cent of all respondents performed ElAs, (the figure rising to 40 per cent among large organisations). About five per cent of other organisations intended to ntroduce ElAs within two years. Only ten per cent of respondents were engaging in environmental management accounting (see chart, next page).

These results suggest that further qualitative research would be useful. For example, respondents may have taken the term "environmental management accounting" to concern only the use of specific tools such as environmental management systems, life-cycle assessments, full cost accounting, material flow cost accounting and carbon or water "footprinting". …