Thursday 25 February 2021
‘Green Finance’ (and its close cousin ‘Sustainable Finance’) is an increasingly recognised concept. But what does it actually mean? And what are the issues for finance specialists, managers generally, and for academics?
The short answer is its meaning is broad, varied and even contested! Google ‘green finance’ and you’ll mostly find sources dealing with capital investment. Look further and definitions will broaden to encompass all aspects to do with ‘greening’ both public and private financial management. Including accounting and reporting methods (increasingly known as sustainable accounting and reporting or SAR), strategic planning and risk management, budgeting, fiscal strategy and procurement. Indeed, every aspect of finance and accountancy now has a green aspect!
Green in this context can include not just climate change (where attention has tended to focus on greenhouse gas emissions) but a wider range of accounting and reporting issues related to conservation of the natural environment such as protection of biodiversity, landscapes and water resources. Sustainable finance is broader still: encompassing potentially all aspects of sustainable development and therefore the range of the UN’s Sustainable Development Goals and not just SDG13 on climate action.
The agenda for accountancy is therefore vast! Accountancy provides the basis for managing as well as accounting for commercial, public and third sector organisations. Changing organisational behaviour to meet sustainability goals will therefore need the full force of accountancy. Equally accountancy will have to continue to broaden its remit and develop new methods.
In the short to medium term the several standards for sustainability reporting internationally provides a considerable challenge, generating urgent demands to improve consistency and comparability. The confusion is also reflected in academic research.
A recent research paper reviewing literature on Climate Change Accounting and Reporting* found that not only were there varied accounting and reporting practices but that academic research, though accelerating, was underdeveloped (both in volume and in types of research). In the view of the authors research was over focused on external accounting and reporting with more attention required on management accounting and indeed all aspects of management decisions and actions.
Equally academics see sustainability accounting and reporting as closely tied to stakeholder theory and understanding how organisations change in both competitive and social contexts.**
All in all, green finance generally and sustainable accounting and reporting specifically are massive topics which are rapidly evolving both practically and theoretically. IASeminars has assembled a team of practitioners and academics which will keep abreast of developments and continue to publish updates on this blog.
* Gulluscio C, Puntillo P, Luciani V and Husingh D (2020) Climate Change Accounting and Reporting: A Systematic Literature Review. Sustainability, 12, 5455; doi:10.3390/su12135455.
** For example De Villiers, C. and Maroun, W. (Ed.s) (2018) Sustainability Accounting and Integrated Reporting, Routledge, Abingdon.
Dr Tim Thorogood, an IASeminars instructor, is a former public and third sector chief executive now researching green finance at Cardiff Business School and teaching business studies at the Open University Business School.