Kenneth Witt

What Do CPAs Have to Do With Sustainability?

Cost savings, efficiencies, risks and rewards are just the tip of the iceberg.

July 18, 2011
by Kenneth Witt, CPA

A recent AICPA-, CIMA- and CICA-released survey report (PDF) shows that though the finance function’s involvement in corporate sustainability initiatives is highly valued in some leading organizations, it remains limited. What is sustainability, what are the drivers for company sustainability initiatives and what is the CPA’s role in sustainability?  

Sustainability Drivers — Cost Savings and Efficiencies, Risks and Rewards

The most popular definition of sustainability that has evolved over time is the “triple bottom-line” of economic, environmental and social performance. While a popular catch-phrase for the triple-bottom line is “doing well by doing good,” sustainability is about ensuring that companies develop and execute business strategies that ensure their success and viability over the long term. Leading companies have recognized that successful sustainability performance translates to successful business performance and competitive advantage.

Reader Note: Don’t miss Kenneth Witt’s session at the upcoming AICPA E.D.G.E. Conference in New Orleans, LA, August 10-12.

While compliance is the most common driver for sustainability initiatives in both large and small companies, cost-cutting and efficiency ranked second among smaller companies and managing reputational risk ranked second as the most significant driver of sustainability efforts among larger companies responding to the AICPA/CIMA/CICA survey.

One prime example that sustainability is about long-term value of a business is the Green Returns program developed by the private equity investment company Kohlberg Kravis & Roberts (KKR) in collaboration with the Environmental Defense Fund (EDF). Launched in 2008, the KKR Green Returns program now includes 16 of KKR’s portfolio companies. According to KKR total avoided costs associated with reductions in Greenhouse Gas Emissions, waste and forest resources in the participating companies for 2008 to 2009 was to be $160 million.

In addition to cost savings and efficiencies, consumers and business customers are increasingly looking to products and companies that are environmentally and socially responsible, creating upside revenue opportunities and driving job creation for companies embarking on the sustainability path. This holds true for smaller companies as well as for large multinational enterprises. At the large end of the spectrum, GE’s Ecomagination business line revenues totaled $18 billion in 2009, triggering the commitment of an additional $10 billion in research and development by 2015. At the smaller end of the spectrum, the success of North Carolina-based LED lighting innovator Cree Inc. prompted President Obama to hold a meeting of his Jobs and Competitiveness Council at their corporate headquarters.

Companies not directly involved in sustainable technologies or products also realize upside potential by introducing new product lines, modifying existing product offerings or by highlighting their corporate sustainability efforts. For example, more than 80 percent of customers leaving Canada-based Woodbine Entertainment Group’s horse race tracks indicate that the company’s sustainability programs positively influenced their decision to do business with Woodbine (PDF).

The CPA Role in Sustainability

In addition to cost-cutting, efficiency and risk management, CPAs can play an important role in other aspects of accounting for sustainability. Companies look to CPAs to provide analysis of the business case and investment return calculations and to develop and monitor performance measures or key performance indicators (KPIs) for important sustainability metrics. Providing objective analysis and measurement of sustainability elements like energy usage, recycling or other solid-waste reductions, employee well-being progress and greenhouse gas emissions inventories are critical skills that CPAs can bring, especially to companies that provide external-sustainability reports.

According to Steve Leffin, UPS Director of Global Sustainability, measurement accuracy is important because these measurements serve as the foundation of an effective sustainability report. “If sustainability reporting (PDF) is to be credible as it necessarily must be when reports contain information that qualifies as material to financial performance the process must be disciplined, comprehensive and, above all, accurate,” said Leffin. Unfortunately, while most large companies issue comprehensive sustainability reports and many smaller companies are beginning to do so as well, the AICPA/CIMA/CICA survey results reveal that finance function involvement in sustainability reporting is currently quite limited.

Measurement accuracy and a disciplined approach to reporting, is obviously also critical for the provision of assurance on sustainability information. There is currently no requirement for companies to provide assurance on their sustainability information. However, assurance is an important element of transparent reporting and the confidence that users place in the information that companies disclose. Bloomberg now delivers sustainability metrics from company reports across the same terminals that provide financial and other analytic data to its customers. While there is arguably an expectation that there is uniformity in the quality of information provided, much sustainability information reported today is not subjected to the same level of control as financial information. This often presents a challenge for CPAs in providing assurance on company sustainability reports, an emerging practice opportunity for CPA firms.

Future Trend — Integrated Reporting

One recent development in the world of sustainability and business reporting that will likely have significant impact on the role of the CPA is the evolution of integrated reporting. In 2010, the Prince’s Accounting for Sustainability Project (A4S) and the Global Reporting Initiative (GRI) formed the International Integrated Reporting Committee (IIRC) to oversee the creation of a globally accepted integrated-reporting framework that would connect financial and sustainability reporting. Integrated reporting is an approach to business reporting that hopes to provide more comprehensive information about company strategy, governance and performance in a way that considers the social, environmental and long-term economic context within which the company operates.

The AICPA is a founding member of the Prince’s A4S network and hosted the May 2011 meeting in New York City. In June, the AICPA, the IIRC and Ceres co-convened one of several roundtable discussions being held around the world with business leaders from the corporate, investor, standard-setting and regulatory communities to gather perspectives on integrated reporting.


Integrated reporting is set to spread quickly. A discussion paper outlining the proposed IIRC framework is expected to be released for public consultation in the third quarter of 2011. In South Africa, the King Report on Corporate Governance (King III), requiring companies to file integrated reports became effective in March 2010. In response to a public consultation conducted earlier this year, the European Union is expected to adopt a requirement for integrated reporting in 2012.

Rate this article 5 (excellent) to 1 (poor). Send your responses here.

Kenneth W. Witt, CPA, is technical manager in the Business Industry and Government team at the AICPA and represents the Institute as technical lead to The Prince’s Accounting for Sustainability Project and the technical working group of the Climate Disclosures Standards Board.