Sustainability: how accountants can move the needle
Sustainability is a hot topic as temperatures rapidly approach the Paris-suggested limits of 1.5°C above pre-industrial levels. To address these issues, and measure progress in doing so, measurement and accountability of businesses of all sizes will be key. Katherine Dumbell speaks to Thrive Accountants CEO James Lizars, winner of the IAFA Sustainability Award, about the business case for sustainable practices
There are times when the adage ‘what gets measured gets managed’ rings very true. And it is also where real opportunities arise for accountants. As signalled by the proliferation of reporting standards and frameworks being suggested and implemented, accountants are well positioned to contribute in a meaningful way to measuring sustainability progress and advising on ways to advance it.
This was highlighted at the recent International Accounting Forum and Awards 2022. Speaking to James Lizars, CEO at Thrive Accountants, the firm that won the 2022 Sustainability Initiative Award, we explore the feasibility of implementing sustainable practices in a business, his motivations for doing so, and what this means for current and future accountants.
A business case
Lizars is passionate that sustainability and growing a business do not have to be mutually exclusive. He emphasises that rather than just being something that looks good or a box-ticking exercise for ESG concerns, there is a strong business case for having sustainable business practices.
During his IAFA 2022 talk, he highlighted that some of his clients are drawn to his business because of the company’s sustainability values and ethos, but also pointed out that his business has grown substantially, and with a 100% retention rate of employees.
However, when I speak to him, Lizars says the general awareness of business leaders and employees around sustainability and sustainable business practices is not great. “This is why accountants have such an important role, we can really shortcut things by being able to put the business case as trusted advisors,” he explains.
“We are the profession that’s trusted and has people’s ear, so we can put this message forward. I think the business case absolutely holds, particularly in small businesses.”
Despite this potential, this is still an opportunity that not everyone has yet taken advantage of, rather than a current strength of the profession.
“I think right now the business case is kind of in the opportunity box of the SWOT [strengths, weaknesses, opportunities and threats] analysis,” Lizars emphasises. This means early adopters can gain an advantage over those lagging behind.
“By all means, be the one that grows faster than your competition. Take the market share. I’d far rather it went to that sort of business than one that was about profit alone.”
Lizars points out that companies may already want to take certain actions but feel nervous as this may not be the way things are usually done. However, this is a time to be innovative, and if accountants can guide businesses through the least-risky ways to do this, businesses are far more likely to take the first steps towards sustainability.
“Accountants have the permission slip for small business owners to make the shift.”
Thrive Accountants was founded in 2013, but Lizars says he only found out about the UN Sustainable Development Goals (SDGs) in 2018, and then B1G1, the platform that enables his business’ micro-giving, about six months later.
In December 2021, Thrive Accountants became B-corp certified – no easy feat. B-corp certification means a company demonstrates: high social and environmental performance; has a legal commitment as its corporate governance structure is accountable to all stakeholders rather than just shareholders; and exhibits transparency. There are currently over 700 B-corps in the UK, but only seven in the UK accounting and auditing industry, one of which is Thrive.
Lizars continues: “My kids aren’t demanding it of me yet, but the reason I’ve gone fast and I’ve gone hard is because they’re going to demand it of me later. I want to be able to look them in the eyes and say ‘look, I really tried.
“That’s pretty motivating and I don’t think I’d be alone in that. Certainly the other B-corp business owners I have spoken to tell a very similar story – that it’s mostly actually about the kids rather than being in some way gratifying for themselves.”
Lizars pointed out in his talk at IAFA 2022 that few people are in business just to make endless money; there are nearly always other motivations behind their business. Even if that does seem to be the goal, he points out that what this money is used for is often linked to causes closer to their heart.
As PrimeGlobal CEO Stephen Heathcote also pointed out at IAFA 2022, a sense of purpose and an understanding of what you stand for is important. He emphasised in his talk that employees want to work somewhere impactful. Heathcote talks from experience, as PrimeGlobal also won International Accounting Bulletin’s Sustainability Initiative Award in 2021 and 2020.
Lizars, however, also speaks of a “vocal minority that’s demanding perfection of business.”
“It’s motivating for sure – motivating by fear is perfectly common. But more effective in my view would be motivating by attraction. What can we pull someone towards rather than push them away from? And again accountants can take that attractive message up – there is a business case. You can have both: purpose and profit.”
Scale of impact
A sense of scale, while potentially daunting, is also important. Lizars points out that over 50% of private-sector employees work in SMEs. Between starting his business and it being registered as a B-corp in 2021, Lizars had to shift the culture of his organisation. He also acknowledges that “if I want to drive culture change in my organisation, it’s a ton easier than a 10,000-person multi-site organisation.”
However, the sheer number of SMEs means that “if we move the needle in SMEs, we move the needle big.”
Asked how he achieved this culture shift at Thrive, Lizars says: “I just played with it. Literally just started and looked at what others were doing and took some inspiration.”
However, with increased pressure from the public on government and professional bodies to introduce legislation, there is soon likely to be a need for everyone to act, whether prepared or not.
It is important to recognise that at the other end of the scale, the power of larger corporations allows them to realise many goals that may be harder for small businesses to achieve. Speaking from experience, Lizars says: “It’s hard, running a small business. You don’t have the sustainability team. It’s hard enough trying to cover the household expenses.”
And although larger businesses may face greater hurdles in driving culture shift, their access to resources and funds enables them to materially be forces for good.
Actions and solutions
Sustainability is a complex topic. Creating a positive impact means different things in different places, and can be incompatible with existing corporate structures.
International standards may soon apply with the advent of ISSB potentially providing a cohesive set of standards, as opposed to the current mix of organisations such as the Global Reporting Initiative, Climate Disclosure Standards Board and the recently formed Value Reporting Foundation. Even with cohesive aims and standards, how these are achieved will require different actions from different companies and stakeholders.
When these differences are embraced and “you just figure out what works for you” as Lizars puts it, meaningful change can start to occur.
What is meant by meaningful is important. Greenwashing has become prevalent as companies pick up on sustainability as a trend and want to hop on the bandwagon without the hard work of identifying and acting on what contributes to or harms our environment and society.
Lizars believes messaging is key here. He says: “If we can share that we are taking the actions, but also acknowledge that we’re not there yet – but we plan to get there,” acknowledging that being humble but honest about efforts is the way forward.
Lizars also notes that telling people about the sustainable actions being taken is part of the business case, but that both the actions and the messaging should be authentic. Education will play a key part in enabling and enacting change, especially in the accounting sector. This is partly around sustainability, the environment, and climate-science. Not all accountants may need a master’s degree in environmental science, but a basic understanding of the climate system and some of the issues surrounding sustainability is important.
Not all aspects of sustainability are intuitive, and there is no one-size-fits-all solution. For example, some communities and environments may benefit from a tree planting scheme sponsored by a business. However, if not researched properly, these schemes can actually end up emitting more carbon and contributing negatively to the environment. The ACA is incorporating more sustainability modules into its training programs, but it is important not to assume a level of competency from colleagues or employees that they simply do not have.
In his IAFA 2022 talk, Lizars pointed out that accountants are not sustainability experts, but they do know the business. There is a case for having sustainability experts in this space, but accountants can work alongside them, using their financial and business knowledge to achieve the most effective results for their clients.
He adds: “Ultimately it comes back to education. I think we’re still teaching a version of Milton Friedman that basically says businesses exist for the benefit of the shareholder, and that shareholder primacy is everything.”
Lizars suggests an alternative way of thinking about business, as exemplified in the B-corp principles, that does not focus on profit above everything else. “B-corp has bubbled up alongside that saying ‘well hold on, that doesn’t sound that good – it’s kind of what got us into this mess. So how about we do it differently?’”
He references Alex Edmans’ book, Grow the Pie, saying: “It’s by looking after all stakeholders in your decision-making, then the pie grows for everyone – including the shareholders.”
While Lizars is clear about the business case and the ability for his small business to grow profit and retain its sense of purpose, his references to growth not being the be all and end all of businesses are particularly pertinent for larger, better-established businesses.
In fact, diving deeper into progressive ecological economic literature, ‘degrowth’ is being called for. Degrowth challenges traditional economics which argue for indiscriminate growth as imperative. GDP and greenhouse gas emissions have been historically tied together – as one increases so does the other. Traditional economists, with their desire to retain economic growth, have argued for a push to ‘decouple’ these so the economy can continue to grow without the associated rise in emissions.
However, researchers Jason Hickel and Giorgos Kallis argue in their 2020 paper Is Green Growth Possible? that there is little to no empirical evidence to suggest that decoupling GDP growth from greenhouse gas emissions is possible.
As a potential solution, Kate Raworth explores the idea of a more distributive economy in her book, Doughnut Economics. This would aim to meet everyone’s needs without exceeding so-called ‘planetary boundaries’. This is opposed to the current traditional drive for continuous profit and growth, which comes at great cost.
The justification for economic growth is traditionally the fact that social factors have also been linked to GDP growth. However, this is a saturation curve; after a certain point, any further growth in the economy leads to minimal advancement in social conditions.
This also links to a point Lizars makes: “Sure, everyone who runs a business has some money need. But when you start to get beyond that, all the other motivators really come into play.”
Be the change
It is clear that beyond the obvious business case, Lizars is motivated from the heart, and wishes others to take action too. He says: “I like the job I do and the work I do for clients, but I don’t want it really to be what defines me.”
Sustainability is a complex matter, with ultimately systemic change needed to enact meaningful and long-lasting change that goes beyond more than surface-level initiatives to ‘recycle more’ or plant a few trees. However, in Lizars’ words, it is possible to “move the needle” and begin making those changes now.
He concludes: “What do you want your legacy to be? I don’t want it to be a legacy, I want to live the legacy.”