Those keeping up with our latest insights will recall our deep dive into the evolution of sustainability reporting. We explored how the IFRS Foundation answered regulators’ and investors’ calls for the consolidation of sustainability standards and frameworks and how companies are no longer just crunching numbers — they're accounting for environmental and social impacts. This groundbreaking transition provides companies with better decision-making information and is redefining how investors value companies.
But as the saying goes, "With great power comes great responsibility," and the rise of sustainability reporting is shaking up traditional business practices. It is leading to a new era where transparency and long-term value creation are not only paramount but linked to the social and environmental assets upon which all value is ultimately derived.
The Shift from Traditional Accounting to Sustainable Finance
Gone are the days when accounting was solely about balance sheets and income statements. Today's investors and stakeholders demand insight into how companies integrate environmental, social, and governance (ESG) factors into their financial performance. According to a 2020 survey by Deloitte, over 80% of investors consider ESG disclosures when making investment decisions.
Traditional siloed accounting methods are evolving to incorporate sustainability metrics, providing a more holistic view of a company's value. This shift isn't just about compliance; it's about recognizing that investors see companies that effectively integrate ESG risks and opportunities as better positioned for long-term success.
So, how do you link sustainability to financial impacts? Enter the Fundamentals of Sustainability Accounting (FSA) credential for finance and sustainability professionals.
Understanding the Role of SASB in Sustainable Accounting
Before delving into the value of the FSA credential, it's essential to understand the standard at the crossroads of sustainability and financial value. The Sustainability Accounting Standards Board (SASB) was consolidated into the IFRS Foundation’s International Sustainability Standards Board (ISSB), which plays the leading role in managing the development of the SASB standard as a part of IFRS S1 and S2 — the global sustainability reporting standard focused on financial materiality.
Originally established to help investors evaluate how sustainability affects a company's value, SASB is a mandatory element of IFRS S1. It guides the identification of sustainability-related risks and opportunities and supports companies in determining which information is suitable for disclosure.
Meanwhile, IFRS S2 uses SASB as the basis for industry-based guidance for reporting on ESG topics aimed at investors. This laser-focused mission from the investor's perspective standardizes how companies report on ESG. This delivers consistent and comparable sustainability data, which enables better risk assessment, improved transparency and accountability, enhanced market confidence, and ensures investors make more well-informed decisions.
Finance and Accounting in Sustainability
At the risk of oversimplifying the complex interactions between accounting and finance, accounting summarizes the financial actions of business activities, focusing on historical information. In contrast, finance utilizes accounting data as a tool for managing resources to strategize for the future.
In the context of IFRS S1 and S2 sustainability disclosure, accounting tracks historical ESG metrics, while finance uses this data and scenario analysis to forecast future performance and develop strategies. Aimed at more accurately valuing companies, SASB augments traditional accounting by integrating sustainability metrics that inform financial strategy and corporate direction. In this pursuit, SASB originally created the FSA credential program.
Introducing the Fundamentals of Sustainability Accounting (FSA) Credential
With this background, it's easier to understand how sustainability impacts finance and the value FSA-credentialed professionals bring to a business.
What is the FSA Credential?
The FSA credential is a professional certification that equips financial and sustainability professionals with the skills to integrate sustainability risks and opportunities into financial analysis. Think of it as a bridge between traditional financial expertise and the field of ESG reporting.
By earning the FSA credential, professionals demonstrate their ability to assess how sustainability issues impact a company's financial performance. It's about understanding the nuanced ways in which environmental and social factors influence profitability and risk.
For example, an FSA Credential Holder might identify water scarcity in a region as a critical sustainability criterion for a manufacturing company's operations. They would quantify existing water use, calculate associated costs, and use a range of scenarios to assess the risk associated with water scarcity. This information is then used to supplement traditional estimates of potential savings made from water efficiency improvements to more accurately value the risks associated with the investments, as well as the opportunities associated with benefits such as lower costs, enhanced operational efficiency, and a positive public image.
Why Companies Need an FSA Credential Holder
Having an FSA-credentialed professional on your team isn't just a nice-to-have; it's a competitive edge. These professionals enhance decision-making at the corporate level by bringing a nuanced understanding of how sustainability impacts financial outcomes. ESG factors are increasingly driving long-term business success by boosting profitability through reduced risk, lower operational costs, improved reputation, and higher employee satisfaction.
FSA Credential Holders also improves transparency both internally and externally. By acting as a liaison between often siloed departments within an organization, they help implement the integration of sustainability throughout a company — an imperative since every department impacts a company’s ESG performance. They also help companies disclose their ESG performance effectively by focusing on industry-specific, globally accepted sustainability metrics investors and stakeholders need to assess a company’s intrinsic value.
The Consultant's Role: Practical Applications of FSA Expertise
Consultants with FSA credentials are an integral part of a well-rounded business team.
Identifying Material Sustainability Issues
Firstly, they identify material sustainability issues relevant to a company's industry and goals. Reliable data is the backbone of effective sustainability reporting and decision-making, and FSAs ensure that the data collected is both accurate and actionable.
Bridging Accounting and Operations
FSA Credential Holders act as a bridge between accounting and operational teams, ensuring everyone is aligned regarding sustainability goals and their tangible financial impacts. This collaboration allows accounting departments to include sustainability information in their reporting and helps finance-focused business leaders understand the value of sustainability initiatives.
Forecasting Financial Implications of Environmental Risks
Another practical role of FSA consultants is analyzing environmental data and trends to forecast the financial implications of future risks and opportunities.
For instance, climate change poses a significant risk to Florida's real estate market. Companies in this area may be exposed to expenses associated with increased insurance premiums resulting from the increased intensity of flooding and hurricanes. FSAs can analyze how these and other ESG factors influence cash flow by taking into account the sustainability-related variables that influence a company’s value. This information is invaluable in making finance-focused business decisions.
Analyzing Opportunities for Sustainability Improvements
FSA professionals also assess how sustainability-focused improvements can increase profits. For example, older cities like New York offer ample opportunities for retrofitting buildings to be more energy-efficient. An FSA consultant will evaluate how building retrofits can positively affect revenue through energy savings and incentives.
In contrast, newer cities like Nashville may focus on integrating sustainability into new constructions and how those integrations meet local policies, such as Climate Action Plans. FSAs help tailor strategies to ensure sustainability investments align with financial goals.
Integrating Sustainability into Value Creation
Similar to SASB, FSA professionals are also versed in the International Integrated Reporting Council’s (IIRC) Integrated Reporting Framework, which was rolled into and embedded within IFRS S1 and S2. By utilizing six capitals (Financial Capital, Manufactured Capital, Intellectual Capital, Human Capital, Social and Relationship Capital, and Natural Capital), this framework is designed to provide a comprehensive view of an organization’s value creation process. Integrating sustainability, FSAs work with organizations to identify how their business model transforms capital inputs into capital outputs that generate value for stakeholders. This iterative and integrated approach allows organizations to better understand their value from a holistic perspective.
Partnering with Emerald Built Environments for Sustainable Financial Success
Integrating sustainability throughout companies, and specifically into accounting and finance isn't just a trend — it's the future of business. FSA-credentialed professionals are at the forefront of this transformation, bridging the gap between traditional financial analysis and the pressing need for sustainability.
At Emerald Built Environments, A Crete United Company, we specialize in guiding companies through this complex landscape. Our team includes FSA Credential Holders who can help integrate sustainability into your financial strategies. We assist in developing sustainability strategies, streamlining data collection processes, and connecting environmental impacts to corporate finance strategies.
By partnering with us, you'll not only enhance your sustainability initiatives but also gain a strategic advantage in an increasingly ESG-focused market. We're here to help you stay ahead of the curve and drive sustainable growth.
