When is a company genuinely sustainable?

Fact Check 4 min. Lieke Steijvers

Many companies boast a Corporate Social Responsibility profile, but how can we be sure these are not just words? Business Economist Bart Dierynck studies how companies measure their sustainability, how they report their findings, and what role accountants play in this process.

Bart Dierynck: “It’s not always easy to determine whether a business is acting sustainably. It’s cutting corners a bit, but we only know how decisions are made by studying a business’s external reports. And that goes for its sustainability claims, too. That is why it’s crucial that those sustainability reports are reliable and can be compared with those of other businesses as well as over time. And there’s the rub. Research points to widely divergent reliability levels of reports and to different standards being used . And sometimes, reports depend on those who draft and check them.”

It is crucial that sustainability reports are reliable

Short and long term

“The first challenge is defining sustainability. ESG, or Environmental, Social and Governance, is often used to measure sustainability, but this term itself encompasses a truckload of ways to define sustainability. I’m not a huge fan of using just one [DB1] corporate decision to award a sustainability label (or not); rather, I favor taking into account a series of different decisions a business takes.

One example is to focus on both the short and the long term. Businesses that consistently focus on the short term probably don’t score high on sustainability. It is also important to look at how companies take operational and strategic decisions.”

Indicators

“The other challenge is to develop sustainability indicators. Imagine two companies that want to measure their employees’ commuting emissions, with company A estimating commuting distances based on the home addresses registered in the HR database and with company B using an app that registers the distances actually traveled and detects the means of transport used. Which company reports the most reliable numbers? And can we compare the two companies?”

Challenges for accountants

“These are major challenges for an accountant. Just as with financial reporting, an accountant must verify whether the reported numbers are a fair and accurate representation of reality. Businesses whose reports must comply with the Corporate Sustainability Reporting Directive (CSRD) and the related European Sustainability Reporting Standards are required by law to have an accountant audit their reports. It is hoped that this compulsory compliance will improve reporting reliability and comparability. At my department, research is being done to help SMEs comply with CSRD reporting requirements.”

Accountants who self-identify with sustainability less strongly are less critical professionally in sustainability audits

Professionally critical

“Accountants are mostly trained to verify the reliability of financial data, not so much to ascertain the reliability of emissions and bird diversity near a wind farm.

In a research project, PhD student Lobke Weijers and I have established that accountants who self-identify with sustainability less strongly are less critical professionally in sustainability audits, so-termed ESG audits. And this effect persists: even when accountants are made aware of this effect, it doesn’t vanish completely. That is not the result we should want. Ideally, an ESG audit yields the same result regardless of the auditor. That’s why accountancy firms are moving with the times: traditional accountants are given sustainability training and new job profiles are being implemented. These are interesting and challenging times for our profession!”