MAINSTREAMING IMPACT: SCALING A SUSTAINABLE RECOVERY 2020 Association of Chartered Certified Accountants October 2020 About ACCA ACCA is the Association of Chartered Certified Accountants. Were a thriving global community of 227,000 members and 544,000 future members based in 176 countries that upholds the highest professional and ethical values. We believe that accountancy is a cornerstone profession of society that supports both public and private sectors. Thats why were committed to the development of a strong global accountancy profession and the many benefits that this brings to society and individuals. Since 1904 being a force for public good has been embedded in our purpose. And because were a not-for-profit organisation, we build a sustainable global profession by re-investing our surplus to deliver member value and develop the profession for the next generation. Through our world leading ACCA Qualification, we offer everyone everywhere the opportunity to experience a rewarding career in accountancy, finance and management. And using our respected research, we lead the profession by answering todays questions and preparing us for tomorrow. Find out more about us at MAINSTREAMING IMPACT: SCALING A SUSTAINABLE RECOVERY This report identifies barriers and opportunities for improving businesses management of social and environmental impacts through engaging finance teams and professional accountants. It describes the challenges that have been heightened by COVID-19 that have made making such impact mainstream even more important. It examines highlights from an ACCA member survey and 10-day online community discussion exploring motivations, real-world barriers and opportunities for involvement of finance teams in tackling these issues. It identifies current, and future, skills areas of ACCA members that can be engaged to improve social and environmental impact management through finance. Foreword Alongside its devastating health impacts, COVID-19 has shone a light on many social and environmental issues faced around the world. The pandemic has worsened existing socio-economic inequalities and reinforced the value of the natural world to our physical and mental health. Helen Brand Chief executive, ACCA 2020 has also seen record-breaking temperatures, as well as devastating wildfires and flooding, further emphasising the need to redouble efforts on climate change. Systemic racial injustices have also been called out rightly this year by the Black Lives Matter protests. Taken together, a return to the pre-COVID-19 status quo will not be enough to rebuild a flourishing world. More must be done and with greater intention. As business, finance and governments look ahead to how to shape both green and socially inclusive recoveries, there is an opportunity to rethink how to truly build back better and strive to do more to make an enduring positive impact. Guided by the United Nations Sustainable Development Goals, which can act as a common language roadmap to follow out of the current crisis, businesses of all sizes can use this moment to step forward and commit to making an intentional, positive impact on society and the environment through their activities. And they can turn to professional accountants to make these commitments a reality. The uniquely wide view that professional accountants have across the organisations that they work for and advise, coupled with their ethical and technical competencies, makes them vital to this transformation that can place impact at the heart of business decision-making. Making an intentional positive impact is more than a new normal for business. It is a means to redefine corporate purpose and rewire economies to so that recoveries tackle social and environmental challenges with the urgency required. Supported by finance, where impact investing is moving into the mainstream, and by national governments looking to kickstart recoveries, now is the time to mainstream social and environmental impact management so that our economies and societies become more resilient to future shocks and can embed health, equity, community and sustainability into business models. Professional accountants are ready to play their role in mobilising the ingenuity of business to meet these challenges. 4 Contents Introduction 6 1. COVID-19 calls for accelerating impact management 8 2. Research highlights: combining values, experience, action and learning 14 3. Values, experiences and why organisations must change 15 4. The role of finance teams in addressing challenges 19 5. To what extent are social and environmental impacts being addressed by the finance team? 22 6. What issues should professional accountants help their organisations tackle and what approaches work? 24 7. Skills, the future and overcoming barriers to mainstreaming impact 29 Conclusions and calls to action 32 References 33 5 This report identifies barriers and opportunities for improving businesses management of social and environmental impacts through engaging finance teams and professional accountants. Introduction It describes the challenges that have been heightened by COVID-19 that have made making such impact mainstream even more important and outlines the steps taken to systematise positive impacts by business and the role of the UN Sustainable Development Goals (SDGs) in helping to codify sustainable development issues for the private sector. It then discusses how professional accountants the world over recognise the social and environmental crises faced and the active role that business must begin to play in their resolution. The report considers professional accountants and finance teams to be central actors, though currently underused, in embedding, throughout an organisation, a focus on making positive social and environmental impacts. It demonstrates how their skills, knowledge and ambition to do more in this field are essential to supporting the mainstreaming of better impact management and building an enduring recovery. The findings in this report are informed by: 1. a survey of 829 ACCA members, and 2. the written responses of 34 ACCA members during an online community discussion that took place over 10 days during July 2020. Over those 10 days, 34 ACCA members engaged as participants in a series of questions with ACCAs Professional Insights team, discussing their views, experiences and advice on issues related to social and environmental impact and the role of finance teams and professional accountants. Highlights from both the survey and these online discussions have been explored in this report. Can this moment, as recovery routes from COVID-19 are beginning to be mapped out, act as an inflection point for rethinking how businesses are run and what more finance teams can do to contribute to making a positive social and environmental impact. Combined, the views and experiences, both from the survey respondents and from participants in the online community discussion, are intended to illuminate the desire for change among professional accountants and the real-world barriers and opportunities that they face as they seek to make it happen. What is impact? Impact has been defined as the measure of an actions benefit to society and the planet (Cohen 2020). Managing impact is the practice of measuring, assessing and improving the effects of activities on sustainability issues. It is relevant for enterprises and investors who want to manage environmental, social and governance (ESG) risks, as well as those who also want to contribute positively to global goals. (IMP n.d.) MAINSTREAMING IMPACT: SCALING A SUSTAINABLE RECOVERY | INTRODUCTION CAN THIS MOMENT, AS RECOVERY ROUTES FROM COVID-19 ARE BEGINNING TO BE MAPPED OUT, ACT AS AN INFLECTION POINT FOR RETHINKING HOW BUSINESSES ARE RUN AND WHAT MORE FINANCE TEAMS CAN DO TO CONTRIBUTE TO MAKING A POSITIVE SOCIAL AND ENVIRONMENTAL IMPACT. 6 MAINSTREAMING IMPACT: SCALING A SUSTAINABLE RECOVERY | INTRODUCTION 7 The world has been shocked by COVID-19. Beyond the current health emergency, social and economic shutdowns have destroyed livelihoods, reduced incomes, disrupted educational attainment, led to a rise in mental health problems, worsened gender imbalances, and limited access to medical care. 1. COVID-19 calls for accelerating impact through finance Globally, social, economic and healthcare systems have been overwhelmed. At the same time, racial injustices have been brought into the open, with worldwide action and activism rightly demanding greater recognition and more equity for minority groups. Elsewhere, mini environmental reprieves caused by shutdowns of carbon-intensive and polluting activities were short- lived. Increasing incidence of flooding, as witnessed across South Asia, West and Central Africa and Europe, devastation caused by wildfires, as seen in the West Coast of the US, other extreme weather events, and continued biodiversity loss, are now part of daily life as potentially irreversible changes to the planet have a negative impact on peoples lives around the world. These impacts are now a constant, with the only variable in their degree being geographic location. If 2020, set to be the hottest year for some regions since records began (NOAA 2020), is year zero, and environmental problems intensify, there is a real possibility that many largely populated parts of the planet will become literally uninhabitable very soon. The pandemic has also revealed to many what was already known but largely hidden. The systems for creating prosperity were already stretched, skewed towards rewarding too few and leaving many vulnerable to various shocks and risks. Unequal access to public goods, quality employment opportunities and the means by which to live a good life have increased gaps in societies as the rungs of the socioeconomic ladder within many countries have been driven further apart. Industries rocked by the loss of income and potentially irreversible effects of the pandemic on their business models and value chains are also facing calls for doing more to help people live well, to create more resilience to shocks and to cause less harm by design. Beyond demands for less environmental damage, questions are growing about businesss role in society, its societal purpose, and the inaction of businesses in meaningfully engaging with the negative social and environmental impacts of their activities. These charges range from a focus on short-term profits rather than longer-term value creation, lack of support for workforces, distortionary effects of market concentration, lack of protection of the climate and natural world and giving enough priority to social inclusion and the concerns of wider stakeholders. This lack of engagement in social issues by business is highlighted in evidence from big data analysis provided MAINSTREAMING IMPACT: SCALING A SUSTAINABLE RECOVERY | 1. COVID-19 CALLS FOR ACCELERATING IMPACT THROUGH FINANCE by Datmaran, an external risk management insights provider, of coverage of social inclusion issues in both financial filings and sustainability reports produced by publicly listed entities (see Figure 1.1). It shows that over the last 10 years, in almost all regions around the world, the level of emphasis placed by businesses on social inclusion issues remains low and is decreasing 1 . THE SYSTEMS FOR CREATING PROSPERITY WERE ALREADY STRETCHED, SKEWED TOWARDS REWARDING TOO FEW AND LEAVING MANY VULNERABLE TO VARIOUS SHOCKS AND RISKS. 1 The emphasis score takes into account variables, such as, the number of times the topic is mentioned in a sentence (also a number of sentences mentioning it), its location (eg CEO letter). 8 MAINSTREAMING IMPACT: SCALING A SUSTAINABLE RECOVERY | 1. COVID-19 CALLS FOR ACCELERATING IMPACT THROUGH FINANCE FIGURE 1.1: Emphasis on social inclusion issues in financial (left) and sustainability (right) reporting, by region, 20102020 (score 1 low 3 high) Source: Datamaran, 2020. Find our more about Datamarans emphasis calculation: . Despite this alarming outlook, a new compact is emerging: one where positive social and environmental impact can be at the centre of mainstream business activity. Against the backdrop of COVID-19 and the changing shape of markets and global value chains, the redefinition of risks and the new resilience imperative, there is a growing convergence on how to face the concurrent crises, rebuild our economies and support societies to thrive, and to do it quickly and at the scale required. The call for better impact management, to support stakeholders, customers and communities, actively and intentionally, to flourish, is reaching its own positive tipping point. The impact revolution, kickstarted by civil society organisations and social enterprises, fair trade organisations and the cooperative movement, and supported by grant makers, social investment and patient capital, has now reached mainstream business and finance. That is because of the need, now accelerated due to COVID-19, for all to recognise that their resilience to shocks, their purpose and their commitment to creating multidimensional and long-term value that puts social and environmental positive impact on par with financial returns, must be 100% aligned if they and the communities they serve are to prosper. Around the world, pioneering leaders in organisations of all sizes are making intentional and additional positive impact a part of their strategies. And investors of all kinds are starting to see impact not just as something to achieve alongside financial returns but that it can be the driving force behind what they do. 3.0 2.8 2.6 2.4 2.2 2.0 1.8 1.6 1.4 1.2 1.0 Geographical comparison on Social Inclusion A vg. rank 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Social inclusion Financial reports Sustainability reports 1.69 1.47 1.39 1.26 1.17 2.00 1.56 1.46 1.25 1.18 Africa Americas Asia the SDG Disclosure Recommendations support businesses in underpinning their approaches to tackling relevant sustainable development risks and opportunities (Adams et al. 2019); and the Principles for Responsible Investment (PRI 2020) have used them to inform an outcomes-based investor framework (see Figure 1.5). Elsewhere, within the UN system, the SDGs are being used by the United Nations Development Programme (UNDP) to create SDG Impact standards for SDG bonds, private equity and enterprise 2 , and by UNCTAD-ISAR to create a core set of universally applicable SDG reporting indicators for business (UNCTAD 2020). SDGs HAVE BEEN ADAPTED BY MANY MULTI- STAKEHOLDER GROUPS TO HELP THEM MORE READILY GUIDE BUSINESS AND INVESTMENT DECISION- MAKING ON SUSTAINABLE DEVELOPMENT ISSUES. 2 SDG Impact: . 11 Other initiatives, such as the Business Call to Action Impact Lab 3 and the SDG Action Manager, use the SDGs to inform tools that business can use to benchmark performance against the SDGs and uncover a