Monday, June 18, 2012

Integrating material sustainability information into corporate reports should be a key and critical outcome of Rio +20, urges ACCA

A defined goal centred on sustainability reporting by companies ‘a must’ at global summit

Corporate reporting needs to be brought into the 21st century by integrating material sustainability information into corporate reports, asserts ACCA today ahead of the United Nations Conference on Sustainable Development, which will take place in Rio, Brazil this month.

To influence policy makers and create debate prior to the Rio+20 summit, ACCA publishes a paper which looks at possible changes to a key aspect of the discussions – paragraph 24 - which is concerned with the integration of material sustainability information into the corporate reports of listed and large private companies.

Arif Masud Mirza, Head of ACCA Pakistan says: “To make a difference, Rio+20 needs to have goals that are achievable and actionable – one of those goals should focus on the need for a global approach to sustainability reporting. Long term value is enhanced by companies embedding sustainability into their business strategy and key processes, rather than treating sustainability information as a mere add on activity. The long term viability of companies has to be at the heart of corporate decision making.

“An effective and workable paragraph 24 would emphasise the relevance of sustainability to investors and business. It would spread good practice, and emphasise the relevance of sustainability to investors and businesses. Rio+20 should be aiming for this goal – not just for companies and investors, but for the planet itself.”

ACCA believes that:

·         paragraph 24 should lead to a commitment by UN member states to develop mechanisms for sustainability reporting at a national level; while such national reporting would need to meet global standards, flexibility in the mechanisms applied to meet the standards would allow for country-specific solutions
·         paragraph 24 should obligate companies to report on a ‘comply-or-explain’ basis; this requirement would provide appropriate flexibility and would stimulate substantive board discussions on risks and opportunities arising from sustainable development.

Arif Masud Mirza adds: “There is a ground swell of opinion on this issue, led most recently by Aviva Investors through a coalition of investors, NGOs and UN agencies, as well as ACCA. This coalition recently called for a commitment from UN member states to work on an international agreement requiring companies to integrate sustainability issues in their annual report and accounts, on a report or explain basis.  The coalition believes this would be a realistic, tangible and meaningful success.

“However, whatever the policy outcome at Rio+20, there will be a need for rigorous and credible arrangements to map out and assess the fulfilment of any undertaking, whether voluntary or binding. This is where accountants come in – the profession provides the much needed transparency, measurement and comparability required for common international reporting.”

ACCA’s paper includes a series of expert views on this issue from our Global Forum for Sustainability members and other voices from the accountancy profession; the Forum was established in 2011 to bring together leading thinking on sustainability and the role of accountants.

Victor Anderson, senior policy officer at WWF UK: “The most important fact about Rio is likely to turn out to be that it is not the end of the process. It is increasingly clear that it has acted as a major catalyst for debates, campaigns, and detailed work, and that all this will continue for many years after Rio.”

ACCA Global Forum calls for more government departments to focus on small businesses

As global leaders prepare to attend the G20 summit in Mexico (18 – 19 June), they have been urged to offer more support to Small and Medium Sized Enterprises (SMEs) in gaining access to finance, by ensuring that a more widespread approach is taken to policy development for the sector and that there are greater levels of co-ordination at a global level.

The ACCA (Association of Chartered Certified Accountants) Global Forum for SMEs has said in its new Global Agenda on Access to Finance for SMEs, that more co-ordinated and consistent efforts are needed when it comes to SME financing policy.

Mexico, which holds the Presidency of the G20 for 2012, has put fostering financial inclusion to promote economic growth among its five priorities for the G20 this year. The Global Forum's agenda outlines the challenge facing the G20 in these areas, saying that SMEs around the world need - but are not receiving $4 trillion in financing - and that official ‘SME’ or ‘enterprise’ policy forms only a small part of the actual policies relevant to the development of SMEs.

The Global Forum calls for more attention to be given to how central government departments, particularly those departments responsible for fiscal policy, justice or employment law have an impact on SMEs’ access to finance – through their decisions on tax policy on equity funding, setting up or developing better access to efficient credit information facilities right through to well-functioning property and contract law frameworks.

Official institutions, such as banks, through which these funds and products are often channelled, need to be encouraged to promote them more actively to their SME clients. The agenda also says that while banks remain the most significant source of external finance for formal small firms, bank finance is generally only available to those businesses that can offer collateral or a strong record of generating profit. This leaves a large number of SMEs which need large investments, but which have mostly intangible assets.

While the microfinance sector is offering a promising solution by tapping into social networks on the ground for the information that banks are missing, the extent to which it helps the SME sector needs to be better understood at a macro level, especially where experiences from a number of markets can be shared. The option of equity finance also needs to be improved, and emerging and innovative financing solutions need to be encouraged and supported, including 'crowd funding', which uses online communities for raising equity.

The agenda also says that SMEs should also be encouraged to consider how they use technological solutions in helping them with financial management and calls for the skills gap among business owners need to be addressed. Very few have formal enterprise or management training which has an impact on their ability to access finance – from having the knowhow to present a business plan, navigating through the financial markets on offer, to knowing how to apply business skills and acumen to manage and grow their business with a strategic approach to its operations, and ultimately finance.

It calls on the accountancy profession to work with governments and other relevant institutions such as SME bodies, to provide financial literacy and management training for owner-managers. The Forum urges international organisations to work with national governments to encourage much wider use of such initiatives in the interest of raising the level of skills, with a particular emphasis on working with the existing SME intermediaries to enable a reliable access to the sector.

“In Pakistan and in most developing economies, the issues and problems faced by SME businesses are fairly similar. There is a definite  need for establishing training / financial management / consulting institutes to help SMEs in developing corporate governance, plans, systems / processes and training of staff. Region / Country specific recommendations are needed focusing on  adherence to Tax Culture, Private / Public partnerships, Documentation, Etc. To encourage SME growth, government and public administration should establish SME centric facilities to expedite formalities while reducing the red tape.  Financial Institutions focus on Risk Mitigation & Coverage. Creation of Insurance / Takaful products with focus on SME specific risks will provide the impetus needed to invest in SME sector. In Pakistan, Leasing and Modarabas are a major source of funding for SMEs. Banks could be encouraged by the Regulators to provide relatively cheaper funding lines to Leasing & Modarabas”, said Arjumand Minai, Member - ACCA Global Forum for SMEs and CEO, Standard Chartered Leasing Limited, Pakistan.

“There are a range of issues which policy makers, banks and the accountancy profession need to address and we urge the G20 to consider many of these problems at its meeting. There are persistent market failures that stand in the way of a long-lasting change in SME financing across the world and we hope the G20 can begin to address them, and we look forward to discussing these issues further with G20 members and other bodies around the world,” said Arif Masud Mirza, Head of ACCA Pakistan.