Audit & the (natural) environment

24 November 2021

This week was the first time that as part of an audit tender process, I’ve seen a prospective client ask about our environmental credentials. They have an environmental strategy that includes their supply chain. So, no longer is it just about the cheapest quote, nor ‘added value’ but about who we are and what we represent. And you know what, rightly so. It also makes me want to work with them more as I know their morals are in the right place.

Much of the press in recent weeks has focused on COP26, with reversing climate change the goal. It appears the definition of a business being solely ‘a vehicle of maximising shareholder wealth’ should be consigned to the history books. The race to the bottom line doesn’t appear to be a business’ sole objective anymore, and about time too!

How does this affect me?

So, how does this affect me, my family, my friends, my colleagues, my clients, my network?  I doubt it will be the same for everyone, but I suspect there will be many similarities.

We probably recycle, we probably avoid single use plastics, some may buy 100% renewably sourced electricity, some may eat less beef, some of us may have electric cars, some of us may invest in ‘ethical’ or ‘green’ funds. Even, as of today, one of the banks I save with has opened another savings account set up to invest in ‘green’ transport initiatives. So, considering the paltry interest rates I currently get I’ll probably move accounts as I’d like to do ‘my bit’. Another similarity is the majority of us are probably employees.

Employees are often the forgotten business stakeholder when considering disclosures in the financial statements. Most employees probably never look at their financial statements. With most of my clients being SMEs, very few have any compulsory environmental reporting requirements. That’s reserved for the largest companies.

Employees are key

According to a business statistics briefing paper from the House of Commons that I stumbled across when doing some research around the subject, SMEs account for 99% of all private companies in the UK, and these 99% hold 61% of the total private work force. However, the people, led by the likes of Sir David Attenborough and Greta Thunberg, have spoken and they aren’t amused. I hope the employees of the SME world do start piping up and reminding business owners that the environment and other sustainable practices are important to them, and they want to see their employers making steps towards operating a sustainable business.

So, will the demands of the employees influence change to disclosures made in the financial statements of SMEs when not compulsory? Maybe. Are the financial statements the right place for such disclosures? I’m not sure. It seems to be the way financial reporting’s moving. In the last few months, I’ve seen many forums, articles and webinars released on the subject. It’ll also be interesting to see how the creation of the International Sustainability Standards Board (ISSB) influences the disclosures made by SMEs down the line.

My responsibility as an auditor is to express an opinion on the numbers but only ensure that any management reporting at the front end is balanced, fair and the content’s consistent to our knowledge obtained during the statutory audit. I’m certainly no expert on environmental reporting but there are people who are, but there will always be a cost to that which will inevitably need weighing up, and this may be a stumbling block to progress.

It will be interesting to see over the coming years whether there will be an increase in applications for programmes such as ISO 14001 / 14005 which are geared towards environmental management, or similar frameworks which will show commitment to the sustainability cause.

However, reporting evolves, the most important thing is employees have access to information detailing their company’s performance in this respect. At Fortus we’re certainly keen to contribute positively to sustainability practises and as such, we’re starting to map out our Sustainable Corporate Social Responsibility plan as a key part of our 3 year business plan. In fact only last week at our Quarterly Business Update, our Head of Brand shared with the firm the approach we’re taking, what this involved and how we could support and drive the ambition as a company-wide team.

Doing our part

In the audit department specifically, day-to-day, we use very little paper, we use software to securely transfer data between us and clients meaning we don’t always need to drive to their offices to perform fieldwork every day, we often use Teams® for meetings which benefits for the same reason. Lots of clients are onboard with this approach for a host of reasons, and now maybe we can add environmental benefits to that list.

No matter the outcome on the tender, these are conversations I’m looking forward to having with my clients. I really enjoy working with them I enjoy learning and hearing them talk passionately about what they do whilst having privileged insight into seeing how they take on the various challenges they face. Covid was a pretty big challenge and my clients all in all proved to be courageous and entrepreneurial and I’ve been very impressed. I’m excited to see how they tackle climate change in their own respective ecosystems, in which we play a small part.