Monday, July 13, 2009

Accounting group endorses sustainability

It's been said, somewhat tongue-in-cheek, that lawyers and accountants stand to benefit the most from the shift to sustainability in the institutional investment sector. Whether you believe it's altruistic or profit-driven (or perhaps a little of both), European accountants appear to be getting on board.

Eurosif and the Federation of European Accountants recently issued a “call to action” (download here) for more and better sustainability disclosure by companies.

The two trade bodies were invited by the European Parliament to host a roundtable discussion of investors (held on 29 April 2009), which welcomed sustainable investment experts, bureaucrats and even an MEP (Member of the European Parliament). The keynote speech was provided by Richard Howitt, European Parliament Rapporteur on Corporate Social Responsibility. The MEP argued that the current financial crisis should not provide an excuse to companies to avoid sustainability reporting. He further suggested three ways of persuading companies to disclose sustainability information:

Highlighting that sustainability issues can have an impact on the financial bottom line of companies;

-- Rasing public awareness to achieve greater responsibility for environmental impacts;

-- Motivation through legislation; while some elements are already in the Modernisation Directive, the envisaged amendments of the Fourth Directive might be a good time to enhance the framework of sustainability disclosure.

The result of this first roundtable was an explicit appeal to companies, regulators and investors to focus on the provision of "future-orientated" sustainability information geared towards mainstream as well as SRI-type investors. They also called for an investigation into mandatory disclosure, perhaps linked to corporate governance codes and on a "comply & explain" basis.

As a follow-up to this work, the European Commission will organise a series of five workshops on the subject of “sustainability disclosure” in the coming months. The second workshop (to be held in late October) will focus on the point of view of investors, financial analysts, accountants, rating agencies and Eurosif will nominate experts to participate in the discussion.

It is particularly heartening to see a European accounting body endorse sustainability disclosure as a means to improve transparency and drive improvements in corporate behaviour. Given the activism of the EU in the aftermath of the credit crunch we may even see something that goes beyond guidelines to some form of mandatory reporting? Watch this space!

Lisa Hayles is Senior Client Relationship Manager with London-based EIRIS.

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