Red And Blue Part Ways On Green Auditing

How earlier generations of market activists helped mainstream a controversial idea

I don’t think I’ve ever disagreed with anything I’ve read by Gillian Tett when writing her columns or articles in the Financial Times. But the opening paragraph of her latest FT article (March 1), entitled “Green audits are coming for a firm near you,” left me shaking my head.

“Green activists never used to attack accountants,” she says. “No wonder: bean counters’ work seems dull compared with oil driller or flamboyant bankers.” Nicely written, but not entirely right.

In the end, true, it all hangs on how you define the words “activists” and “attack.” If you define “activists” as Greenpeace and “attack” as occupying headquarters buildings or campaigners chaining or gluing themselves to massive bits of infrastructure, then Gillian is right.

But activism has long operated on a broader front when it comes to the theme of her article, which is the inexorable rise of the “green audit.”

To put it mildly, accountants did not welcome our own “market activism” at SustainAbility back in the Nineties. This built on the back of the success of our 1988 book The Green Consumer Guide, which sold around a million copies, vigorously stirring the market pot and leaving companies like Unilever, Procter & Gamble and Novo Nordisk reeling.

Businesses that had grown used to challenges only coming from regulators suddenly found themselves outflanked as consumers and retailers switched on to a growing spectrum of issues.

In 1990, we then produced a report on environmental auditing—at the time pretty much unknown in Europe—for WWF UK. Once it was finished, they sat on the document for an entire year, suspecting that on publication the wider world might sensibly ask whether they required green audits from the major businesses they were taking sponsorship from. The answer, then, was that they didn’t—and they were duly challenged when the report was finally released.

Then, just as our market activism around green consumerism led directly to our work on environmental auditing, we also built on earlier work (dating back to 1987) on how companies covered safety, health and environmental issues in their annual reports and accounts to consider how future environmental—and then sustainability—reporting might best be done.

We worked with international organisations like the United Nations Environment Programme (UNEP), with emerging reporting platforms like the Global Reporting Initiative (GRI)—and later the International Integrated Reporting Council, or IIRC—and with accounting bodies like ACCA and the ICAEW.

Once we had introduced the “triple bottom line” in the mid-Nineties, the implications for accounting (and auditing) were clear. For those accountants who chose to pay attention, they could also be existentially disorienting. Trained to do no-nonsense financial accounting, they were seriously blinkered—and yet found themselves being urged to do social and environmental accounting.

My interest in the first of these tracked back to pioneering work I had covered many years earlier in New Scientist (September 7, 1978), the early social audits carried out by Charles Medawar’s NGO Social Audit. They targeted companies like Avon Rubber, Coalite and Tube Investments. Did such companies welcome such attempts to audit them in a very different way, and ditto account for their relative progress—or the lack of it? Like hell they did!

But now the green bits of social auditing are going mainstream, if not yet many of the social bits. The nub of Gillian’s argument is that differing takes on green issues in the EU and US now risk opening up a transatlantic divide between rival accounting regimes. At the same time, too, radically different approaches between “Red” (Republican) and “Blue” (Democrat) states in the US also risk snarling companies operating across state boundaries, as most do.

Noting the way that regulatory shifts in one market can cascade to others, Gillian spotlights California’s stance on all of this. The state has often been a bellwether in terms of new market rules, as when California Governor Gavin Newsom signed “a bill requiring all companies with more than $500mn in annual revenues to provide extensive climate reports by 2026, and those with more than $1bn revenues to offer scope 3 reports by 2027 too.” Scope 3 reporting involves looking back into supply chains, rarely an easy task.

The direction of travel in all of this seems clear. Large numbers of businesses will now be required to adopt or expand green auditing and reporting, many no doubt protesting every step of the way. The big question then will be whether all the data, information and (hopefully) intelligence produced in the process will meaningfully influence the operation of today’s market systems—let alone the evolution of tomorrow’s. That, for me at least, has been the point of the exercise.

Scenting a huge opportunity, meanwhile, the big auditing and accounting firms will often push for a maximalist interpretation of the new rules, Scope 3 and all. But the question we need to ask again and again is whether the ends justify these means. Where the answer is no, we should consider what we can do to evolve the next generation of tools, processes and market incentives required to achieve the necessary systemic changes.