Ladies and Gentlemen, I am delighted to welcome you to St. James’s Palace today and I am much encouraged to see so many new faces, as well as some familiar ones. I must start by saying how grateful I am to Michael Izza, and I.C.A.E.W. for kindly hosting last night’s Opening Session, and of course to Governor Carney for sharing his thoughts with you – I was really sorry that I could not be there too. For the regulars amongst you, I am glad that you have not been deterred by the Summit’s move to an earlier date – this is the first time that it has been held in November in twelve years. No mince pies, I'm afraid, but I am sure that if you are very good you will still be rewarded with something suitably reviving – especially after having to listen to me!
But it is not just the date of the Summit which is taking place earlier in the year. In 2004, when I first started my Accounting for Sustainability Project, Earth Overshoot Day – the date at which humanity’s resource consumption for the year exceeds Earth’s capacity to regenerate those resources – was estimated to be in late October. This year it was in the first half of August. This deeply alarming trend highlights our failure to act effectively over the past decade, and underlines the urgency, or should underline the urgency, of finding ways to account for, and enhance the value of, our natural capital – before we fall off the proverbial cliff. Finance has a critical leadership role to play if we are to have any kind of a sustainable future.
We live in an age of unprecedented change – the so called "Great Acceleration" – which is showing no signs of abating. Indeed, we are currently running headlong into the abyss. Greenhouse gases are continuing to build in the atmosphere at a truly frightening rate. Last year we broke the dangerous barrier of 400 parts per million of CO2, with the warmest temperatures on record, and species are becoming extinct at a disturbing rate. Is this what we really want? And on top of this societies around the world are becoming ever more fractured, with trust in big business and our institutions falling. What good will it do at the end of the day to say, "I told you so….?"
The trouble is the risks we face are interconnected and we are not going to be able to shut ourselves away from these consequences.
Just think, for instance, of the current desperate situation in Syria. It was little reported, but a severe drought for seven years was one of the causes of major damage to Syria's rural economy in the run-up to the conflict. Many farmers became desperate enough to leave their fields and head into the cities, where people were already struggling with food shortages and refugees from Iraq, thereby increasing the social tensions that eventually exploded. There is a direct connection between what we do to the Earth and what we do to each other, and we have to realize how serious it will become if we do not act now. And yet those who should know better are still saying the opposite…
In the face of the overwhelming scale of these challenges, and our failure to act with the urgency needed over the past thirty years – despite the ever more strident warnings – it would be very easy to become utterly depressed and give up. However, just at the point of no return, with our backs to the wall, there are some signs of real leadership emerging. Any risk can present an opportunity, and more and more governments, businesses and investors are acting in concert to deliver the kind of innovation that just might provide the solutions we so desperately need.
The risks we face are growing, but it seems that the scale of innovation is also accelerating at a pace. The cost of renewable energy is falling faster than we had thought possible. With battery technology advancing rapidly, providing the potential to store energy when the sun isn’t shining and the wind isn’t blowing, a radical shift away from our reliance on fossil energy is looking ever more possible. For example, I have just returned from the Middle East, where I was encouraged to hear that the Abu Dhabi Water and Electricity Authority recently received the lowest-ever bid, anywhere in the world, for a planned solar facility.
Ladies and Gentlemen, the world is changing and, if you don't analyse and respond to these opportunities and risks, you will be stuck with out-dated and unsustainable business models.
I have said in the past that it is not necessarily a choice between making money on the one hand and "doing the right thing" on the other. On the contrary, once it is recognized that "business as usual" is unsustainable it follows naturally that those organizations which start to develop resilient business models will be the ones that succeed. And by focusing your business on innovation and having a positive impact on society and on this Planet, you will be in a far better position to attract and retain young talent.
Innovation is also needed in how we perceive value. We need to move beyond narrowly defined financial measures and give full recognition to the value of natural, social and human capital.
In this regard, I am delighted by the progress made by members of my C.F.O. Leadership Network, who are using natural and social capital accounting, and ‘circular economy’ thinking, to drive innovation. This thinking recognizes that an organization does not exist in a bubble – it is dependent on the environment and society for its very existence and must therefore consider its whole value chain. An excellent example of this is the collaboration between Adidas and "Parley for the Oceans", an environmental group that raises awareness of marine pollution, to produce training shoes made from recycled waste. One million pairs will be made using plastic taken from the waters around the Maldives, with each pair containing eleven plastic bottles. As well as the Parley trainers, the company is also using recycled ocean waste to make limited edition football kits for Bayern Munich and Real Madrid, unleashing the incredible power of both their own, and the clubs’, brands to encourage consumers and boost the demand for change. Having perfected the technique, Adidas now plan to phase out virgin plastics in other products and replace it with recycled plastic – clearly a bold ambition. But why don't we all have a deposit scheme for plastic bottles, as Sweden has had for the past 20 years as well as Germany for the past 12 years and Belgium, and eliminate the problem before it enters the oceans?
There are also significant innovations underway in accounting. S.S.E. recently commissioned a ‘human capital’ report which measures the full economic value of the skills and capabilities of the people it employs, both to the company and to society. And I was delighted that earlier this year the Natural Capital Protocol was launched, helping organizations start to account for their impact and dependency on Nature.
Both Adidas and S.S.E., together with a number of other leading companies, are represented on the C.F.O. Leadership Network and have worked with A4S to develop guidance on how organizations can begin to embed sustainability into their own finance function. These guides are available for all to use, but I am particularly pleased to hear that they will soon be accessible to even more people. For example, the Middle East Circle of Practice is translating them into Arabic for use in the region, and I hear that I.D.W., the German representative on A4S's Accounting Bodies Network, is also keen to develop German versions of the guides. A trend which obviously I hope will continue!
I am also pleased to say that the Network itself is growing. A chapter will soon be launched in Canada – thanks in particular to the efforts of Steve Roder from Manulife, Pamela Steer from the Workplace Safety and Insurance Board, and Amanda Sherrington from my own Prince's Charities Canada. Circles of Practice have been set up in the Middle East, Central and Eastern Europe and even in Yorkshire and within the N.H.S., demonstrating an increasing awareness and interest globally as well as the relevance to more regional organizations. There are also moves afoot to extend the C.F.O. Leadership Network to Australia, New Zealand, Hong Kong, India, Brazil and many more countries around the world – so there is no excuse for you not to get involved!
It is not just businesses which are innovating. Investors and pension funds are moving sustainable investment from a niche market product into their mainstream offerings. For instance, I was delighted to hear that H.S.B.C.'s pension fund has worked with Legal and General to launch a "Future World Fund". It seeks to have the advantages of a low-cost tracker fund while also 'tilting' investments to recognize the very real risks and opportunities presented by climate change and other E.S.G. factors. This will be the default scheme for their defined contribution scheme – surely a ground-breaking development that each of you can consider adopting…
The accounting bodies themselves are embedding these new techniques into their syllabi and it is good to know that the A4S Accounting Bodies Network are committed to deliver on this.
All this, I pray, demonstrates that the finance and accounting community really is open to change and understands that innovation towards rapid de-carbonization and therefore sustainability is key to prosperity. I understand that the C.F.O.s among you today have each agreed in writing – perhaps rather rashly – to take action when you return to your office tomorrow, and so please don't dispose of your commitment cards on your way out! I am sure my A4S team is willing to rifle through the bins to retrieve them and take you to task if you do!
Ladies and Gentlemen, I will look forward very much to hearing about the progress you have made at next year's Summit. After all, as I said at the beginning, the world is changing faster than we could ever have imagined, and if we do not take increasingly urgent action to de-carbonize it rapidly, we could well find ourselves with a Planet and a Society that are disastrously beyond repair. That is the problem I think.