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Welcome to the era of the activist accountant.
Yes, I know that sounds weird because buttoned-up money men aren't usually environmental rainbow warriors. But that is the road we're travelling on. That status quo-loving balance sheet fundamentalist is now on the front line of change and rewriting the rulebook for ESG.
Why? It's down to that G of ESG, or governance. Any company manager or investor needs to know what a company is worth to do their job. This used to be done with corporate accounts and accountants who measured profits and loss and assets. But that ignored anything external to the money flows, like the environment or social factors. At best, these were relegated to half-hidden footnotes.
But today, people want to understand the personality of the company. What does it stand for? How do we measure a company's character? So auditors are scrambling to put issues like the environment into the accounts to reveal to investors and managers the risks around companies.
It's not easy. Nobody quite agrees how to measure carbon costs let alone gender ratios. But the activist accountants have produced a range of competing systems.
One, the so-called general reporting index, tracks a company's impact on the world. Another, the Sustainability Accounting Standards Board, measures how external environmental and social issues have a material impact on companies. Some systems track impacts in both directions, or double materiality to use a buzzword. Then, there's the task force of climate-related financial disclosures backed by financiers like Larry Fink, and Mike Bloomberg, and Mark Carney.
It's a messy alphabet soup. But messy or not, nobody in business can ignore this because regulators are saying they're going to make these systems mandatory in the next couple of years.
Court is now in session.
So the question now is not how much money do you have, but who are you? What are the consequences of what you do? When a risk jumps from the footnotes of corporate accounts into the centre of the page, you ignore it at your peril. So better keep watching those new activists, the accountants.
