Good morning Ladies and Gentlemen. May I just say that I am very grateful to The Chancellor for taking the trouble to be with us today. I know how difficult it is to get these things in the diary and I am very touched that he is here. I would also like to thank Michael Peat for arranging all of this.
I have to say that I am rather surprised to find myself, for the third time in two years, speaking about accountancy matters. I hadn’t been brave enough to tackle the subject during the previous fifty years, and I am particularly flattered and delighted that an old Cambridge Archaeology and Anthropology and History graduate should, late in life, have been made the first honorary member of the Institute of Chartered Accountants in England and Wales.
The cause of this late blossoming interest in accountancy is quite simple. It is the central role that accountants must fulfil in providing the tools and information needed to tackle climate change and the “sustainability revolution” that is hurtling down the tracks towards us.
Revolution is a strong word, but the facts about greenhouse gas emissions, deforestation, and over-consumption of dwindling natural resources are abundantly and frighteningly clear, with scientists ever more concerned that “tipping points” may occur within the next ten years, or even sooner, which will affect, irretrievably, the Earth’s habitability for humans. I was, for example, profoundly alarmed – surely we should all be? - to note that it is now being predicted that the North polar ice cap will melt entirely during the Summer in as soon as seven years (source: The Ice and Snow Data Centre in Colorado). As Dr Rajendra Pachauri, the chairman of the Intergovernmental Panel on Climate Change put it, succinctly and in stark terms, “We are risking the ability of the human race to survive.” I must confess that I sometimes wonder whether we are all in our right minds – with a growing queue of leading scientists forming up every other day to warn of impending catastrophe unless the world acts rapidly, there still seems to be no real sense of urgency, nor that we are facing an international emergency, on a scale never witnessed before in human history.
Interestingly a recent poll suggested that 85 per cent of us believe that we cannot afford to neglect the environment and, of relevance to many of you here today, 45 per cent believe that better environmental practice should be the highest priority for business. But how do we translate growing concern into real and concerted action on the ground and not just talk?
When I first spoke publicly about accounting for sustainability, at a dinner to mark the 125th anniversary of the Institute of Chartered Accountants over two years ago, I said that accounting mechanisms had not kept pace with our requirement for sustainability information. A financial report may show how profitable a company is, and the wealth that it has created, but rarely will it show how the seemingly profitable company can also destroy wealth, for example through negative environmental impacts. The cost of depleted natural resources and of increasing atmospheric pollution should, surely, be included in the price we pay for what we buy and consume? However, these costs and others like them, for which future generations will pay dearly, are generally not recorded in the accounts of companies or Government departments. Yet they are real, they are being incurred now and, as I have said, in a relatively short time the damage caused may be beyond remedy.
The issue of deforestation is a particularly good example. The world’s rainforests are in essence giant global utilities, providing essential public services to humanity on a vast scale. They provide much of the world’s freshwater and rainfall, and store carbon which is released into the atmosphere when trees are cut down and burnt. Amazonia’s forests, for instance, release around twenty billion tonnes of water into the atmosphere every day and half of Africa depends on rain from the forests of the Congo. The United Nations International Panel on Climate Change has estimated that the burning of forests is responsible for around 20 per cent of annual global carbon emissions, and is second only to power generation as the major contributor.
Yet, despite all this, current systems of valuation allow those who live in the great rainforests to reach no conclusion other than that the trees are worth more dead than alive; and that they must make their living by cutting them down because the world is not valuing and paying for the great public utility benefit which the rainforests are there to provide, and without which we cannot survive.
This valuation, or market failure – Sir Nicholas Stern called our response to the challenge of climate change “the greatest and widest-ranging market failure ever seen” - is, I hope, a good example of why I established my Accounting for Sustainability Project in the first place; and, as it happens, of why I have recently initiated a Rainforests Project to bring to bear the resources and ingenuity of the business community to help address the deforestation problem – but more of this on another occasion.
As I have said, there is increasingly widespread concern about these issues and about sustainability generally, with commissions and committees established and strategies and policies developed and promulgated; however, the translation of this concern and aspiration into effective practical action has been inhibited by the lack of new sustainability systems and processes.
I hope that the conclusions and recommendations of my Accounting for Sustainability Project will be helpful in addressing this gap, and that they will assist as many of you as possible in meeting the challenges of the sustainability revolution. The recommendations are not intended to be an end, but a beginning to be built upon; to provide impetus for the development of corporate reporting and to change the focus of companies from making profits, and in addition trying to be sustainable, to making profits because they are sustainable.
I am pleased to say that the Project’s two main work streams will continue to be taken forward, with the Embedding Sustainability website developed and updated, and all the accountancy bodies in the United Kingdom, together with a powerful group of international accountancy bodies, overseeing further development of the Connected Reporting Framework.
I hasten to say that none of this could have been achieved without, first of all, the utterly invaluable interest and support of the over 40 people who have worked as part of the project team, or on related committees, and, secondly, the over 150 fifty public and private sector organizations who have contributed to the Project. I am at a total loss to know how to thank you all, and in particular to my fellow speakers today, for being prepared to risk helping an old Cambridge graduate with a record of talking to plants and trees. But all I can say is that I have learnt a lot from trees and plants over all these years – including the idea of accounting for sustainability! I know how very busy you all are, and the fact that you have given up some of your scarce and valuable time to contribute to this important endeavour is hugely appreciated. With your powerful and influential involvement we may – just – have a chance of saving the situation for all our descendents. But there’s no time to lose.