The growing focus on resilience now calls for a shift in accounting paradigms
The concept of “resilience” did not originate in 2020. The term originally comes from physics and engineering and referred to an object’s ability to withstand a disturbance and absorb an impact before returning to its original shape.
Quentin Arnaud, University of Montpellier; Amel Ben Rhouma, University of Paris; Clément Carn, IAE of Poitiers and Souâd Taïbi, Audencia
Recently, the concept has been applied in various academic fields, including psychology, geography, physics, and ecology. The COVID-19 health crisis has even brought it into the spotlight.
According to the dictionary, resilience refers to a person’s ability to stay strong in the face of adversity. But beyond this individualistic view, it can be considered on a systemic scale, as proposed by the Stockholm Resilience Center:
"Resilience is the ability of a system—whether it be an individual, a forest, a city, or an economy—to cope with change and continue to thrive."
Against the backdrop of an economic crisis, the concept of “organizational resilience” emerged, referring to a company’s ability to adapt to a constantly changing environment. This concept is now the subject of an ISO standard.
Enthusiasm for this concept permeates society as a whole. However, its inclusion in accounting systems warrants scrutiny.
One-way accounting?
The definition provided for organizational resilience appears to focus attention on the economic and financial aspects of performance. The company is viewed within its traditional boundaries, and environmental and social resources are thus considered in a one-sided manner.
This is evident, for example, when shareholders of major oil companies demand that executives take climate change more seriously. The primary issue is to examine the financial resilience of these organizations in the face of the Anthropocene—that is, the era characterized by humanity’s dominant role in altering its environment.
It was with this same aim in mind that the G7 established a working group, the Task Force on Climate-related Financial Disclosures (TCFD). The task force’s report, released in June 2017, recommends that organizations disclose the potential impacts of global warming on their operations and the strategies they have adopted to mitigate those negative impacts.
This outside-in perspective, however, has its limitations. Since flexibility and adaptability—in a dynamic and uncertain environment—are key qualities for achieving resilience, companies have acknowledged their dependence on a multidimensional ecosystem and have also modified their monitoring tools to account for the impact of their activities on that ecosystem.
This is particularly true of the IR and capital coalition approaches. They aim to foster the emergence of multi-capital accounting, the purpose of which is to guide changes in the value of the capitals on which it depends. In this way, a connection can be established between the concepts of resilience and corporate social responsibility.
Change Course
Researchers have nevertheless shown that there may be a disconnect between a company’s actions and its CSR communications. Whether intentionally or unintentionally, companies focus on factors they consider fundamental, neglecting certain aspects that are essential to other communities or ignoring the interconnected and global nature of social and environmental systems—a reality that the current crisis has brought into sharp relief.
In addition to the “outside-in” perspective, organizations must also adopt the reverse perspective: “inside-out.” It seems desirable for accounting to incorporate indicators of organizations’ contributions to the resilience of a system facing multiple crises.
The effort is no longer limited to ensuring the resilience of the organization itself, but rather that of its system. This shift in focus is necessary so that companies can address the increasingly significant challenges and issues of the Anthropocene.
This is accompanied by a paradigm shift: by incorporating the constraints of the system of which it is a part, the organization shifts from measuring its own resilience to measuring the resilience of the socio-environmental system.
This article was written by a group of researchers as part of a collaborative “speed blogging” session organized on the sidelines of the CSEAR France/EMAN Europe 2021 online academic conference. The speed blogging exercise involved collaboratively writing an article within a limited timeframe on the conference theme, “Sustainable Development Accounting in the Anthropocene.” Following the event, three articles were co-authored by established researchers, junior researchers, and doctoral students..
Quentin Arnaud, Ph.D. candidate in Accounting, University of Montpellier; Amel Ben Rhouma, Associate Professor of Management Sciences, University of Paris; Clément Carn, Assistant Professor of Management Sciences, IAE Poitiers and Souâd Taïbi, Lecturer and Researcher in Sustainable Development Accounting, Audencia
This article is republished from The Conversation under a Creative Commons license. Readthe original article.