24 DIVERSITY, INCLUSION AND EQUALITY


Demand grows for a sustainable approach to financial accounting


A


n increasing number of financial accounting experts and businesses believe that the current system is not fit for purpose and needs a fundamental overhaul so that the


right investment decisions are taken for the good of the planet. One of the most vocal is Jeremy Nicholls,


who founded the SROI network in 2007 to change the way that the financial world accounted for value, and went on to become chief executive of Social Value UK. One of Jeremy’s current roles is chair of BSI’s social value subcommittee, which aims to influence the development of financial accounting standards.


“Financial accounting was originally designed in the 19th century to provide investors with information to make economic decisions and to have control over assets and liabilities,” said Jeremy. “It sounds reasonable that decisions about what to invest in are made to improve financial


returns, but when you actually ask people what they want, profit is only one aspect. People want social and environmental value as well, not just economic. They generally do not want financial returns if they come with child labour or contribute to destroying the environment.”


Some companies do already produce


information about their social and environmental impacts alongside their conventional financial reporting, but Jeremy believes this should be remodeled to integrate social and environmental with financial reports and give it equivalent value. To achieve this, International Accounting


Standards would have to change, for example, to include a profit and loss account for social and environmental aspects. Jeremy sees this as a public policy issue, and that it is up to governments to determine what society expects from company accounts. “Section 172 of the 2006 Companies Act covers the duties of directors to consider the


effect of their decisions made in the interests of investors and on other stakeholders such as consumers and employees. There are moves to strengthen that and raise the bar to include social and environmental considerations but more needs to be done.”


Alongside a public discussion, Jeremy Jeremy Nicholls


believes that standards can have a positive influence in changing behaviours. British and ISO standards are separate from International Accounting Standards and provide another avenue to create change.


“The building blocks of a new financial accounting system could be found in existing ISOs. If you take BS EN ISO 14001 for example, you’ve got a standard that tells you how to put a value on environmental impacts. “We need to change the building blocks of the economic system in an equitable way and international standards could help bring about a new approach to investment and accounting. A standard on social value that is the equivalent of BS EN ISO 14001 would be a big help.”


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