Why Earth Day needs good accountants

Earth Day is an ideal moment to reflect on the state of the planet. We can take stock of where we are, measure how things have changed – for better and worse – and plan for the future. For businesses, it’s an opportunity to take responsibility for the environmental consequences of their actions in the past year and identify new ways they can make a difference.

EARTH DAYBut to do this taking stock is difficult when there’s such a lack of usable or meaningful environmental data or reports. Sadly, the natural environment is systematically excluded from most of business decision-making and performance measurements despite all human activity’s total dependency on healthy ecosystems. For example, while company annual accounts include many pages on directors’ salaries and incentive schemes, they are silent on biodiversity impact and often give little or misleading numbers on carbon emissions.

For business leaders, it’s worth thinking about your understanding of the environmental consequences of your companies’ actions and what information you need to make better, more responsible and sustainable decisions. To what extent do you consider how life on land and below water is affected by the procurement, production, sales and consumption of your products and services? How aware are you of the ecological risks being racked up, pushing us further towards catastrophic climate collapse?

There is an urgent need to improve the ecological literacy and accountability of all citizens, institutions and businesses. And this is particularly true for accountants who have a unique responsibility to produce meaningful accounts of their company’s environmental impacts. That’s why I became involved in a recently published book on environmental accounting that seeks to address this ecological illiteracy.

Distilling decades of research and experience in the field from 40 scholars on all five continents, it presents a new and comprehensive understanding of best practice for environmental accounting – both now and for the future. But at the heart of the book is the realisation that accounting really matters, no matter how boring you might think it is! Bad accounting helps create an unsustainable world, while better accounting makes a sustainable world more possible.

This is because accounting can do four crucial things:

  • It creates an authoritative narrative about what we know about the world.
  • It provides evidence that is used for the decision-making of others.
    • It makes connections by translating the impact on a system into a value used in another system.
    • And it enables people to co-create a vision of what could be, which can be used to inspire transformation.

If the environment is excluded from these four processes, then we can’t fully understand the world. So business leaders will end up using distorted datasets to make decisions and aspirations that omit critical ecological relationships and environmental risks. Fortunately, there are many ways to embed different aspects of the environment into such accounting processes that will help manage these risks and create more sustainable outcomes, which the book explores in more detail.

But ultimately it’s the questions of what accountants and others need to know to do their jobs properly and how to provide robust and reliable environmental data that are at the root of any solutions proposed by the book – and are core to the work we do at the Lloyds Banking Group Centre for Responsible Business and Birmingham Business School, too. Finding the answers to these questions is vital if we’re to make any future Earth Day reflections and accountability more effective. 

Written by Professor Ian Thomson, Director of the Lloyds Banking Group Centre for Responsible Business.