Teddy Liu, Head of Group Audit and Management Services at New World Development Company Limited, and Institute Council member
The answer is very obvious, as accountants are obliged to maximize the value for key stakeholders.
In the past, maximizing the value of a company’s shareholders was believed to be the only goal. And as professional accountants, we would work to achieve this while adhering to the core values and basic principles of accountants including ethical conduct and diligence.
While the core values remain, some basic principles have evolved, driven by societal changes. With calls from renowned environmentalists like Rachel Carson, whose 1962 book Silent Spring brought environmental concerns to the public, businesses have been propelled to look beyond shareholders’ value and interests.
With the world increasingly concerned about securing our collective sustainable future, given the impacts of climate change, acting on environmental, social and governance (ESG) matters has become a universal focal point and even more pressing for accountants. Indeed, “Triple Bottom Line” has now become part of everyday business language. It was coined by John Elkington in 1994 as a framework that examines a company’s social, environmental and economic impact.
Also, in the United Nations’ 2004 Who Cares Wins report, ESG is considered critical for achieving sustainable growth and boosting a company’s competitiveness at a global level.
“As we work through and oversee the daily operations of a business, I believe we are obliged to ensure the sustainable development goals are realized.”
It’s now recognized that a strong ESG proposition can create value for companies and their shareholders. As professional accountants, we are in the driver’s seat helping steer businesses to create value for all stakeholders. As we work through and oversee the daily operations of a business, I believe we are obliged to ensure the sustainable development goals are realized.
The end goal of achieving sustainable development is easier said than done. To achieve the global target of net zero emissions by 2050, companies are urged to set in motion initiatives to reduce carbon emissions in their daily operations – from what we use for generating energy, to what we buy, how we produce, to what we produce to meet customers’ needs. All of these should be monitored and companies need to hold themselves accountable for their ESG performance.
If manufacturers, for example, are required to take care of the ultimate disposal of their products after their life-cycle, what things should they consider before they start producing? As accountants, we are obliged to give our advice, help draft strategies, set forth measurable targets, keep track of progress and report in a timely manner on ESG performance at all times so as to help maximize the values for our stakeholders.
I firmly believe that sustainability is not an option for CPAs but a commitment that comes with the job.
Athena Ng, General Manager, Corporate Finance and Corporate Communications Departments, at China Overseas Land and Investment Limited, and an Institute member
From both a reporting and fundraising perspective, embracing sustainability, or more specifically ESG, and green finance, is no longer an option but a prerequisite for CPAs.
Sustainability, which has a broader stakeholder focus, has been defined by the United Nations Brundtland Commission in 1987 as “meeting the needs of the present without compromising the ability of future generations to meet their own needs.” Institutional investors are increasingly calling for quality, transparent, reliable and comparable reporting by companies on ESG matters.
While financial reporting focuses on financial materiality, the concept of double materiality extends beyond financial materiality (the outside world’s impact on the company) to include environmental and social materiality (how a company impacts the outside world). With the creation of the International Sustainability Standards Board (ISSB) under the IFRS Foundation, companies may soon follow a set of comprehensive, global sustainability-related disclosure standards. Accountants must understand sustainability from a reporting perspective as ISSB and the International Accounting Standards Board (IASB) are working together to ensure connectivity and comparability between the two standards. In addition, ISSB and IASB will utilize principles and concepts from the Integrated Reporting Framework in their standard-setting work.
“Accountants who are in fundraising or investor relations roles should expect investors to increasingly focus on ESG-related issues.”
From a fundraising perspective, green, social and sustainability-linked bond issuance is a fast-growing market. The market size totalled US$983 billion in 2021, which increased 91.6 percent from US$513 billion in 2020, according to Bloomberg data. In addition, Principles for Responsible Investment (PRI) is a United Nations-supported international network of financial institutions working together to implement its six aspirational principles to incorporate ESG issues into investment practices. Accountants who are in fundraising or investor relations roles should expect investors to increasingly focus on ESG-related issues.
A sustainability-linked bond issuance can demonstrate a company’s commitment to ESG performance and practices to the capital markets. As such, investors may be willing to pay a green premium or “greenium” for an issuer’s bonds, i.e. a higher price and thus reducing the yield of a company’s bonds. Therefore, a company may be able to achieve lower financing costs and capitalize on its efforts on sustainability practices.
Carrie Ng, Head of Sustainable Finance, Commercial Banking, The Hongkong and Shanghai Banking Corporation Limited
The transition to net zero touches everyone and every single part of the economy, and we all have to take action. CPAs are a key piece of the puzzle in the ESG ecosystem that is composed of regulators, businesses, non-governmental organizations, banks, other professional services firms, and more.
As corporations become more and more mindful of the pivotal role they play in decarbonization, they are increasingly embedding environmental action into their core strategies to protect the planet as well as safeguard their own profitability. CPAs have an important role to play to help companies and individuals achieve their ESG ambitions.
“CPAs are in a unique position to help businesses navigate this ever-evolving landscape by providing direction and guidance.”
ESG is key to long-term competitiveness and growth for businesses, and CPAs are well-positioned to help companies along their ESG journey. They can help businesses evaluate where they stand when it comes to sustainability, and more importantly aid clients in embarking their journey in disclosure, making ESG reporting more accessible. Especially as the current rules and regulations on ESG compliance and reporting are not yet standardized, CPAs are in a unique position to help businesses navigate this ever-evolving landscape by providing direction and guidance. Disclosure is a key milestone for any company in its ESG journey, and the more businesses disclose, the more it can enable and encourage the wider economy to decarbonize. As businesses continue to embed sustainability targets in their day-to-day operations, CPAs can also help ensure and maintain the robustness of such data points around sustainability metrics, which are sometimes tied to financial products such as sustainability-linked loans.
In the particular case of small businesses, as they work toward reducing their carbon footprint, they are facing several challenges – ranging from limited access to financial and technological resources to a lack of knowledge and information when it comes to execution. They often look to trusted partners for their knowledge, advice, and networks with regards to sustainability, and CPAs will be considered as one of such partners who small businesses can seek help from.
In Hong Kong, 98 percent of business establishments are small- and medium-sized enterprises (SMEs) and they employ 45 percent of the private sector workforce, according to government statistics. SMEs, therefore, have an important part to play in helping Hong Kong meet its carbon neutrality target. We need to help this important segment of the business population to transition, and for CPAs, this is not only a responsibility as a global citizen, but also a business opportunity.