26 May 2020 — Publication
The COVID-19 crisis has shocked us all. While the outbreak’s origins are still being discussed, the health emergency and the resulting global economic crisis show that countries have to be better prepared. This new crisis does not happen in isolation; it emphasises the ongoing ones, such as on climate, inequality, and demographics. It also shows how interconnected our challenges have become across the globe. And that public and private sector organisations need to focus on long-term goals to make the economy sustainable and resilient.
The European Commission’s Renewed Sustainable Finance Strategy consultation (check our statement) indicates that companies should prioritise key stakeholders’ (employees, customers, suppliers) long-term interest over short-term shareholder interest. As a solutions-focused profession, accountants use their expertise to support society. In their roles and competences, they choose not to look the other way and use what’s in their power to tackle issues that concern us all.
The Global Carbon Project forecasts that 2020’s CO2 emissions will fall by the largest amount since World War II. They also expect that emissions will only reduce 5% and return to normal once economic recovery begins. Now it is time to decide whether this decrease will become structural and link this to a global economic transformation.
Several governments publicly admitted that because of previous financial choices, their health systems can not absorb the shock the coronavirus causes. The political and regulatory agendas need to be re-prioritised towards building a more resilient public health system and economy. It will affect how and why public money is spent. Accountancy Europe has just issued a separate publication on the coronavirus’ impact on the public sector and how to confront the new challenges.
Global leaders should prioritise a sustainable economy, with a strong focus on addressing the interconnected issues that have led to this crisis. As the World Economic Forum’s annual Global Risk Report identified, infectious diseases are among the top ten risks having a major impact on a society:
“No country is fully prepared to handle an epidemic or pandemic. Meanwhile, our collective vulnerability to the societal and economic impacts of infectious disease crises appears to be increasing”
Some businesses have or will have to shut down their operations, forcing employees into a temporary or full unemployment. The virus itself, and the fear of the virus, has an immense economic and social impact. Think about the lack of medical equipment, consumers hoarding, and the inequality innate in the situation for the most vulnerable part of the labour market like warehouse workers, cleaners and hospital staff. This crisis has reconfirmed that companies should not solely aim for financial profit. It also reminds us that Good Health and Well-being is the third UN Sustainable Development Goal and thus part of business contingency planning.
As a first step to a more sustainable economic model, business should focus on their social and environmental impacts, and how the environment impacts them. They need to be aware of risks and gather relevant data. They can use environmental accounting and reporting non-financial information to assess, measure and disclose emerging risks and build a future-proof economy.
Companies need to upgrade their risk management programs and improve how they manage their non-financial risks. They may need to update their systems with additional, and more diverse, risks – like climate change, natural disasters and pandemics. They also need to consider what it would cost for society to do nothing and stick to ‘business as usual’.
Business readiness for infectious disease outbreaks is interconnected with their environmental, societal and governance (ESG) strategy. Accountants’ multidisciplinary expertise can support companies in broadening their approach to risk management. To assess these wider risks, companies should ask themselves questions, indicatively:
Pre-COVID, companies may have found it futile to include catastrophic risk scenarios in their strategy. Nowadays, preparing contingency plans for external shocks, such as pandemics, seems part of the new reality.
The accountancy profession supports public and private sector organisations in shifting towards sustainability. They can connect corporate boards, shareholders and society. They can assess an organisation’s overall performance and structure, including its impact on the external environment. They can contribute to building organisations’ long-term resilience and eventually contribute in moving to a global sustainable economic system.
In their different capacities, accountants can critically contribute to corporate and public sector transformation at all stages:
One lesson we can learn from this period is that we need to think long-term, and beyond financial risks. We need to change our lifestyle and aim for an economic recovery that supports sustainability. The choices we make now can improve or worsen the state of our planet. Building a sustainable economic environment should remain on top of the worldwide policy agendas. Public and private actors should apply their skills and powers to achieve a better future. We need to coordinate globally and coordinate across all sectors.
European accountants will help drive this system change, contribute expertise to the debate and participate in relevant initiatives. Accountancy Europe will continue to promote open discussions, share feedback from practice, listen to other experts and progress the debate at European level.