Developing robust accounting metrics and management accounting systems will be crucial as companies adapt to today’s huge environmental and technological challenges.
Speaking at a recent Alliance MBS/LSE conference at The University of Manchester, George Serafeim, the Jakurski Family Associate Professor of Business Administration at Harvard Business School, said there was a fundamental role for accountants in helping organisations change and adapt to the demands of a low carbon economy and technological disruption.
“The scale of change is massive and the pace of change has accelerated. In the face of this, many organisations are struggling to adapt and as a result change is going to be painful for many of them and for many of their investors. Accounting metrics will become very important for organisations that are successful in managing change, and disclosures will become very important for investors that are able to adapt and change their portfolio too.”
Prof Serafeim said many of the disclosures that companies are making – for instance releasing environmental, social and governance information – are now necessary for investors to understand the change process.
“If companies don’t move fast they will fall behind. Vast numbers of investors are now integrating environmental, social and governance data in order to better understand both the risks and opportunities of the business they are investing in.”
The move towards ‘integrated reporting’ and the challenges it poses was a major theme of the conference which focused on alternative forms of corporate reporting.
Brendan O’Dwyer, Professor in Accounting at Alliance MBS, said integrated reporting referred to “succinct, focused and cohesive reporting” which only focused on key issues that companies want to communicate to broad stakeholders groups. He added:
“This is purportedly about bringing corporate reporting into line with the needs of the business community in the 21st century. How is integrated reporting going to help solve the key problems relating to an emerging and more sustainable economy?”
Prof O’ Dwyer said at the same time a mindset had developed since the financial crisis that a long-term focus was also much more beneficial both for investors and society at large.
“Companies are experimenting and there is a lot of rhetoric around long-term value creation and investment.”
Martin Walker, Professor of Finance and Accounting at Alliance MBS, said in the face of these huge global challenges everyone agreed there was a problem with corporate reporting, but it was difficult to solve in terms of a set standard. Although the move towards integrated reporting was one solution, he said there remained questions over how this could become legitimised and adopted.
“How does society and companies relate to each other, and how should companies be held accountable for the costs and benefits they bring to society?” he added. “Companies have significant impacts on society through the environment, employment and innovation, and it is important that they hold themselves accountable for the impacts they make on society.”
Prof Walker said there was a trade-off for companies between the costs of managing social and environmental impacts and managing their profits.
“We are looking to ensure that all companies play their part in terms of avoiding doing damage and instead doing good in societies. This then leads to a debate about how we encourage innovation in corporate reporting too.”
The conference was attended by around 80 participants from across the globe. A number of practitioners from organisations including the ICAEW, Black Sun, ACCA, FRC, IIRC and PwC also joined the conference. Conference co-organiser Dr Wei Jiang said:
“This is an outstanding event that brings together academics and practitioners to address important topical issues in accounting. The practitioner panel was also a success and provided a platform for an open exchange between academics and practitioners.”
During the panel Leo Dee, a senior analyst from Greeneye, discussed how useful CSR (Corporate Social Responsibility) data is to investors and the impact of ESG (Environmental Social & Governance) on investments.
Neil Stevenson, managing director at the International Integrated Reporting Council (IIRC), discussed the development of the integrated reporting framework, and the major opportunities and threats facing the IIRC on the road of integrated reporting.
*The 11th AMBS/LSE conference was organised by AMBS lecturers Dr Wei Jiang, Dr Alice Liang Xu and Dr Colin (Cheng) Zeng. Co-funded by the Centre for the Analysis of Investment Risk (CAIR) at AMBS, the LSE and the ICAEW’s charitable trusts, the one-day conference in June encouraged the search for multiple perspectives and stimulated insightful dialogue between researchers and practitioners on the topic of alternative forms of corporate reporting.