ACCOUNTING: How Businesses Create Value from Sustainability
Recent Gauteng Business News
Â“The resilience of your organisation is what will determine its longevity.Â” ThatÂ’s the message from the London-based Chartered Institute of Management Accountants (CIMA) CEO Charles Tilley, who adds that focusing on the long term success of your business is critical in a shifting economy.
Value From Sustainability Down to Organisation
Â“They must continually ask how resilient their organisation is to the changing landscape. If, for example, their business is in the FMCG retail space and thereÂ’s a great demand for, say, Spanish tomatoes, they need to be clear on what steps must be taken by their suppliers and their own organisation to ensure the continued supply of those tomatoes.Â”
As the worldÂ’s leading and largest professional body of management accountants, CIMA has a very keen interest in governance and sustainability and how these two drivers will shape the future of finance. Â“From a governance perspective, Tilley says, Â“it is critical to be Â– and to be seen as being - a good corporate citizen. This means minimising the use of natural resources, paying taxes, and using an ethical supply chain where wages are fair, among other things.Â”
In reviewing critical areas of their business model, managers must also continually review cost leadership, Tilley asserts. Â“ItÂ’s not about reducing costs at any cost. ItÂ’s about becoming more efficient. Competition is intensifying within the global economy and success will come through reconfiguring products to provide consumers with more for the same price.Â”
An Example of Creating Value From Sustainability
In reorganising to create value from sustainability, Tilley cites the example of Diageo, the world's leading premium drinks business with an outstanding collection of beverage alcohol brands across spirits, beer and wine. DiageoÂ’s CEO Paul Walsh, FCMA, says: Â“A business plan that looked at holistic management, not just the income statement, justified a ÂŁ65million spend on innovative technologies. This resulted in a distillery that recycles 31% of its water and 85% of its steam and electrical power, while removing virtually all effluent discharges to the Firth of Forth. The Cameronbridge distillery produces nearly 400 million bottles of spirits per year.Â”
The ÂŁ65million spend, says Tilley, was a key decision in environmental sustainability, which is, in effect, an investment in the companyÂ’s longevity. Â“This all ties in directly with sustainability. Fundamentally, acting in a sustainable manner makes good business sense. WhyÂ‘ Because sustainable strategies usually result in more successful operations that generate reliable cash flows,Â” he says. Â“Society also needs responsible commercial organisations to generate the tax revenue needed to run public bodies, provide employment for its citizens and to produce the goods and services needed to fuel the economy.Â”
Tilley says this is the heart of the role of the management accountant, who is tasked with making sure that the board has the correct information and options to make these decisions. Â“Just as a shipÂ’s captain would never set sail without a qualified navigator at his side, management accountants help to map the journey to the successful delivery of an organisationÂ’s core business. Their part in creating value from corporate sustainability is indispensible.Â”
Successful organisations around the globe are clearly employing management accounting practices and well-managed companies have management accountants at the heart of the business.
Â“They are the conscience of the business. While the language of business is finance, management accountants are the navigators that ensure only quality information Â– which will affect all financial decisions Â– is given to the board. Creating anything, and especially value from sustainability, is about revisiting that business model and continually building corporate resilience.Â”
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