28 May, 2019
An interview with Founder, Daniel Botterill.
How well in general do you think businesses are progressing with integrating sustainability and finance?
That’s an interesting question as a truly sustainable approach evaluates and integrates environmental, social and financial considerations. Businesses however still in general see sustainability as being more about the ‘environmental’ considerations. It’s almost a case of, ‘let’s carry on doing business and retrofit or bolt on sustainability’. Sustainability should though, be the overarching process and philosophy to drive the business plan forward.
The rise in Environmental Social Governance (ESG) as a framework for examining sustainability ‘risks’ and ‘opportunities’ is an interesting one and financial institutions are beginning to really get behind it conceptually. It can however deliver quite a simplistic view of performance if not considered as part of a broader sustainability strategy.
What are some of the challenges companies face in this respect, particularly when it comes to breaking down these silos?
It’s the integration issue and not simply bolting on sustainability. Due to its broad nature, sustainability is also a hell of a concept to get your head around. Every business is different, every sector has different impacts that need to be mitigated, working out what is truly material in sustainability terms is the biggest challenge faced by many businesses.
Ensuring people in the business understand sustainability is one of the biggest challenges, as is examining and complying with the vast amount of legislation, particularly from an environmental perspective. This often requires very specific skill sets, which rarely exist in businesses, meaning a large reliance on expensive consultants to advise, without necessarily embedding the required skillset in the organisation.
Sustainability does have clear financial and risk benefits - how can these be better accounted for, and who is best placed within an organisation to take the lead on this?
When CFO’s and Finance Directors pull end of year accounts together, its generally done rigorously and with great attention to detail. Larger organisations also have to be audited and lots of time and money is spent doing it. It’s very important and the business can’t afford to get it wrong. There is a lot at stake.
When pulling a sustainability or non-financial report together then – why do we think the process is any different? I would argue it is in fact significantly more complex. Rising ESG agendas and stricter non-financial reporting are being mandated by legislation and are driving improvements here but it is very early stage.
The problem is, sustainability data (in an environmental and social context) is generally very poor quality. That’s because it’s a very big and complex beast with data coming from suppliers across a broad range of sectors. The digital infrastructure and systems that businesses rely on for financial reporting are generally not available, so we need experts to do this and it costs money. Businesses need to better recognise the complexity of this data and information.
If you put poor data in, you will get poor reporting out, and it will tell you noting about where you really are or how you are performing. It will also be virtually impossible for a third party auditor to verify or assure.
The solution I believe, is the rise of the sustainability accountant, backed up data management and reporting platforms that are at the standard we use for financial reporting.
We've seen a rise in Integrated / ESG Reporting in recent years - how effective do you think this approach has been to date?
Quality varies dramatically, linked heavily to the points I have made above. It also depends on the complexity of an organisation and the level of detail organisations decide to report upon. For example, a VC investor, may have a very small direct impact on the environment if it just looks at its internal operations. However, if it starts to consider the impact of its capital on its portfolio and the subsequent indirect actions, then reporting takes on a much more challenging dimension.
I think it is important to recognise that this is a learning curve for organisations and is very early stages for most. Because the smarter investors are realising that ESG considerations should also be fundamental to the investment and due diligence process, I’d expect to see a rapid improvement in the level of data quality and reporting in the medium term.
Another issue is the presence of a variety of different sustainability and reporting frameworks being used, so comparison and benchmarking is challenging, for example, do we use the SDGs as a basis for reporting? How about Carbon Disclosure Project or Principles for Responsible Investment (PRI)? We could do with a mandated consistent framework, perhaps specified in greater detail by legislation to drive some consistency here.
Such reporting approaches do rely on businesses being able to integrate all the capitals (e.g. social, natural) into their decision-making. What skills or collaboration are required within organisations to do this successfully?
This depends on the sector the organisation operates in, but generally there are three core buckets an organisation should look at as a framework to build and develop understanding to drive the sustainability strategy.