For Australian financial institution Westpac, the short and long-term objectives of its sustainability strategy have always been clear. The aim was to rebuild the trust of its customers, staff and the wider community; re-establish its social and reputational capital; and strengthen its ‘licence to operate’.
Today, senior executives agree that these objectives have been largely achieved. This has come at some cost, but the benefits would seem to more than offset the financial spending. Going forward, the role of financial professionals has yet to be fully clarified, but there is a strong desire within Westpac to draw them into sustainability strategy.
In this last article of a three-part series, we discuss the lessons learned from Westpac’s sustainability initiative.
Value creation, profitability and savings
Westpac’s sustainability strategy has resulted in a number of benefits, both in the short and long run. These benefits include: improved staff morale; improved reputational and social capital, both locally and internationally; and a better understanding of the long-term drivers of value creation, profitability and cost savings.
Management’s confidence in espousing these benefits is supported by a process of external independent verification and assurance of the sustainability strategy in terms of AA1000 (recognised principle-based standards set by the not-for-profit organization AccountAbility).
Further, Westpac has commissioned the Australian Corporate Social Responsibility Group to review its SIR (Stakeholder Impact Report) reporting processes. The Dow Jones Sustainability Index is also used to verify that relevant procedures and processes have been instituted.
While these initiatives increase the cost of Westpac’s sustainability strategy, the benefits have arguably been far greater. Westpac’s sustainability strategy has been recognised through many awards: Australian Sustainability Award for Corporate Governance 2008; World’s Most Ethical Companies; and Employer of Choice for Women.
Westpac has also been acknowledged as a leader in the global banking sector (2002 to 2009) and a sector leader (2002 to 2006) by the Dow Jones Sustainability Index. Westpac has been placed in the top 1% of the Governance Metrics International Global Governance Rating and included in the global leadership index of the Carbon Disclosure Project and FTSE4Good.
Consequently, Westpac does notview sustainability strategy as ‘a cost of business’ – it is Westpac’s way of doing business and generating future value.
Role of management accounting
Westpac’s sustainability strategy has been envisaged, resourced, implemented and reported by non-accounting personnel. This strategy was driven initially by the Public Affairs (PA) team, but is now ‘owned’ by a sustainability group.
The contribution of the formal accounting and finance function has been limited to the provision of information, as required. However, trained accountants are employed by and integral to the team involved in developing and instituting the supply chain aspects of the sustainability strategy.
Lee David Parker, author of “Green Strategy Costing: Early Days” (published in the Australian Accounting Review, 2000) argues that management accountants have a role to play in green strategising.
Thought leaders within Westpac believe that carbon accounting (reporting as well as assurance) will ‘crack the shell’ of traditional accounting practices, drawing accountants into sustainability strategy. Accountants possess capabilities to contribute to ongoing measurement, management, budgeting, reporting, cost-benefit and risk-analyses of carbon-related activities.
The sustainability group at Westpac also aspires to merge financial and non-financial sustainability reporting. At present, there are numerous stand-alone reports and there is a concern that these are not well connected to traditional financial statements. Correspondingly, there is a desire to work with the accounting function on this.
But if management accountants are reticent to apply their skills and capabilities to the development, implementation, analysis and assurance of sustainability strategy, then other professional groups will act and fill this void.
At present, groups such as environmental economists and engineers are already conducting environmental audits, and mandatory carbon reporting in Australia might well be dominated by these professional groups. Accountants are encouraged to become more engaged with the sustainability debate and to contribute to the development of extended performance reporting.
The conclusions drawn from this research are:
- In order to embed a sustainability strategy into an organisation’s values, culture and managerial mindset, there must be alignment with the strategic imperatives faced by the organisation. That is, to be strategically oriented, a commitment to sustainability requires a reconsideration of how the organisation engages with stakeholders (employees, customers, suppliers, investors, etc.).
- Sustainability ‘journeys’ evolve and are ongoing experiments, being reconfigured not only by external factors but also internal change.
- Espoused commitments to sustainability need to be enacted in a consistent and integrated manner (for example, through systematic supplier screening, customer assessment, carbon management tactics, etc.) and such forms of enactment should be communicated in a variety of forums and media for effective stakeholder engagement.
It is argued that accountants have a potentially important role to play in the translation of a sustainability strategy within organisations and across supply chains.
About the Authors
Jane Baxter is an Associate Professor, Wai Fong Chua is Pro Vice-Chancellor (Enterprise Systems) and Trish Strong is a lecturer in accounting at the University of New South Wales. This article is Part 2 of the CIMA white paper, Westpac’s Squashed Tomato Strategy, and has been abridged and reedited for clarity and conciseness.