Sustainability is a characteristic of a process or condition that can be maintained at a particular level for an indefinite period. In the context of a corporation or other organization, we can consider sustainability in two broad ways:
Sustainable development means meeting present needs without compromising the future. This is the traditional approach, which focuses on the environment.
Sustainable systems and processes facilitate the continuity of an organization. This is a control-based approach that corresponds to an enterprise risk management or internal-control-based conceptual framework.
In the past, there was a clear dividing line between operating a business to maximize profit and benefit to the shareholders, versus being concerned about “softer” issues such as sustainability, environmental issues, ethics and governance.
In fact, even today, some believe that considering “environmental, social and governance” (ESG) issues may inherently constitute a breach of the fiduciary duty that the directors and executives owe to the shareholders, since it suggests that the interests of the shareholders are not placed first. This view has been discredited in recent years and it is generally accepted that there is no conflict between attention to ESG issues and sound business judgement.
Indeed, the opposite is probably true nowadays: not considering ESG issues may be a breach of fiduciary duty. In the words of one Alberta-based energy company, they now are “doing the right things for the right reasons.” Currently, the world of governance and accountability acknowledges that a business is accountable to multiple stakeholders, including employees, suppliers, the public, governments, and so on, in addition to shareholders and investors.
Sustainability represents a continuing evolution of the principles and practices of sound environmental and ecological management. The chart below gives some examples of this progression.
Control and sustainability
Interestingly, there are similarities between sustainability and traditional business concepts such as control. COSO’s Internal Control Integrated Framework states that one of the components of internal control is monitoring. Internal control refers to all of the activities a company undertakes to ensure that its objectives will be achieved. Monitoring ensures that internal control continues to operate effectively. It includes both ongoing processes as well as separate evaluations.
The concept of monitoring can be applied not only to the internal control processes, but also at a higher level: ensuring that the organization is responsive to changes in its external environment. Thus, monitoring can be viewed as a necessary element to ensure the continued viability of the organization.
For more information and how to implement sustainability as a control-based approach, consult Finance and Accounting PolicyPro published by First Reference.
Jeffrey is a popular presenter, and was an adjunct professor at York University for 15 years. He is a frequent course director and course author for many organizations, including provincial bodies of Chartered Professional Accountants across Canada.
He has written over 20 books including: Canadian Treasury Management, Canadian Risk Management, and Financial Instruments: A Guide for Financial Managers (all published by Thomson-Reuters/Carswell), as well as Finance and Accounting PolicyPro and Information Technology PolicyPro (guides to governance, procedures, and internal control), and Cash Management Toolkit for Small and Medium Businesses (all published by Chartered Professional Accountants of Canada [CPA Canada]).
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