• September 30, 2016
    Last updated 7 minutes ago

banking

Setting a sustainable foundation for financial reporting in GCC

Organisations need to consider a wide variety of ‘capitals’ — beyond financial and manufactured capital

Carla Koffel, Special to Gulf News
14:18 September 18, 2016

Across the world, organisations can no longer define success or efficiency solely on the merit of financial results or revenue earned. According to a Deloitte survey, as many as 73 per cent of CFOs believe there is a strong link between increased sustainability and business performance. Today, any forward-looking CFO will tell you that the integration of environmental, social and governance factors in strategic decision-making is vital to creating significant value for an organisation.

Yet, current financial reporting practices still do not seem to reflect this idea and although many organisations have sustainability policies, relatively few have robust systems and procedures to embed these consistently and effectively into the “DNA” of their businesses. Reporting is still very much driven by numbers, and performance is measured in terms of hard outcomes, rather than the more qualitative, comprehensive aspects of operational decision-making, which ultimately lead to sustainable change.

Long term success

It is therefore necessary for CFOs and finance departments of an organisation to consider how financial practices can work in synergy with sustainability practices to produce long term success for the organisation. Integrated thinking provides organisations with a strategic and operational framework which enables them to look towards a broader, longer-term vision of value creation through providing a more thorough understanding of how value is created in the first place. The approach is made up of a set of processes and organisational changes that ultimately drive a company to take a more holistic approach to sustainability and value creation spanning several dimensions.

An integrated approach asks the management of an organisation to consider a wide variety of “capitals” — beyond financial and manufactured capital. This helps the company better analyse the full range of capitals, including intellectual and human capitals, as well as social and natural capitals such as the community and environment in which the company operates in that are likely to impact its performance across all measures.

New challenges

The concept is fairly new to the GCC but across the region as a whole, sustainability has become a major focus for businesses and organisations of all kinds, particularly as issues such as climate change and water scarcity create new challenges for businesses every day. In addition, companies are increasingly expected to strengthen their external relationships to earn their social license to operate — whether through regulatory compliance or corporate responsibility efforts. In other words, a company’s ability to create and maintain sustainable value for its regulators, suppliers, customers, the society and surrounding ecosystem is extremely important. Integrated thinking maps out these broad ‘external’ strategic areas for companies and CFOs to pay close attention to when looking for sources of value creation as well as risk management.

Today, sustainability cannot be separated from other business practices and instead needs to be fully integrated into each function within the organisation. An integrated approach does exactly this, producing organisations which are better aligned towards shared goals and value creation in the context of an ever-changing business environment. The concept is an opportunity for CFOs and other senior leadership within organisations to really shape and develop the future of their organisations to build more efficient, resilient and future-ready entities in the long run.

Carla Koffel, Executive Director of the Pearl Initiative