Mobilizing accounting academia against the climate crisis

Posted by Thorsten Sellhorn - Mar 18, 2021

The following is an edited version of a (German-language) talk I gave at the annual meeting of the German Association of Business Professors' Accounting Section on 18 March 2021.


Crises and disasters are massive and threatening dysfunctions in a system. In the case of a crisis, a turning point is reached; in the case of a disaster, on the other hand, there is a permanent decline of often dramatic proportions. Unfortunately, the two can only be distinguished in retrospect. Two recent crises come to mind.

First, the Corona pandemic of course affected the sick and the dead and their families. But on a higher level, the health system and also society and its cohesion are affected. In some countries, even the political system itself suffers because anti-democratic elements are strengthened.

Second, the Wirecard scandal is damaging the corporate governance system of the German capital market-oriented stock corporation with its sub-areas of management board, supervisory board, external auditing of financial statements and balance sheet control. For some elements and players in this system, Wirecard has already become a disaster; work is currently underway to restructure and rescue other elements.

But let's not forget the climate crisis! It is happening more slowly, but it will occupy us for generations. Experts warn of catastrophic consequences for humanity itself. That's why today I want to ask: What can we as university lecturers in accounting contribute to overcoming it?

I am not a climate or environmental accounting researcher and have certainly not thought through many things to the end. Therefore, please take the following thoughts as a modest contribution to the discussion.

Why is the climate crisis a topic for accounting academics?

I see three reasons why the climate crisis is an issue for us. First, hardly anyone today doubts the need to bring economic, ecological and social sustainability together. The UN's 17 Sustainable Development Goals, the Paris Agreement and, most recently, the EU Green Deal also make climate protection a binding political goal. So even as a normative researcher, one can refer to this – and still avoid value judgements; Rico Mattessich sends his regards. Goal achievement is also becoming increasingly measurable; and this also enables quantitative, positivist research.

Second, the sustainability debate in business studies has so far revolved very much – too much for me, I must say – around the financial sustainability of companies. What do companies have to do, how do they have to change their business models in order to satisfy their investors in the long term? Of course, business enterprises are our primary research object – and of course they are also affected by climate change: by its physical consequences as well as by the transition risks. However, ecology and social issues stand quite disconnected in such a three-pillar model of sustainability as "nice to have" next to the – often short-term – financial goals.

Increasingly, however – and from my point of view absolutely justifiably – the sustainability of the environment and society is coming more into focus. How can companies be prevented from damaging our natural livelihoods and social peace in the world through the externalities they produce? Environmental and social sustainability takes precedence over corporate profit opportunities. It is therefore first about "sustainability of people and planet" – and only then about individual companies and sectors. Because according to this priority model of sustainability, without the natural foundations of life and without social peace, there will be no financial returns to be made for anyone in the long term either.

And third, it is true that Corona has pushed climate change out of the headlines. But it will lead to catastrophe if it is not stopped – and unfortunately time is already very short; some say, too short. The picture shows a popular TED Talk by sustainability researcher Johan Rockström (the key note speaker at the 2021 EAA Online Annual Congress, by the way) – highly recommended if you want to have a really bad night's sleep. It certainly shook me up.

Just one example: as early as 2012, it became clear that global warming can only be limited to 2°C if no more than 20% of the reserves of fossil fuels already proven at that time are extracted and burned. So if we want to achieve the Paris 2° target – and that is what the states have committed to – we have to take measures that would lead to massive impairments at many large companies.

Fields of action

I may be carrying owls to Athens here – but I would like to remind you (and myself, by the way) that we as applied scientists – especially at state institutions – have a social mandate to place ourselves even more strongly at the service of ecologically and socially sustainable development in the public interest. Among the colleagues at WK RECH who understood this early on are Edeltraud Günther and Axel Haller. They and others have devoted significant parts of their careers to the service of sustainability and have achieved astonishing things – much more than can be measured in the currency of top journal publications alone.

Overall, our discipline can do and contribute much more here. So what can we do? Besides our personal lives (i.e. less air travel), we have our fields of action, our “professional pentathlon” of five disciplines.

Field of action 1: Research

First, a few – certainly subjective – thoughts on research. Today I see two (if not three) modes of motivation for research, also in our country. (If you find me exaggerating here, it is also a bit of self-reflection).

Mode 1 is called 'curiosity-motivated' research by Gibbons et al. (1994). It usually takes place in firmly defined disciplines. One often searches for causal connections in order to develop explanatory models of the accounting world. One's own research should be recognisable as "accounting". One primarily turns to colleagues with similar subject interests, such as other audit researchers or financial accounting researchers. Data speaks for itself, we are fact-oriented and "neutral" and hold back on subjective interpretations and normative recommendations for action.

If one wants to be cynical with Anthony Hopwood, there is a variation of this mode 1, the 'career-driven' research. Here, it is less about content and advancing knowledge than primarily about publishing in recognised mainstream journals. The aim is to convince editors, reviewers and other gatekeepers on the way to one's own career goal. Research questions, methods and data are already selected with a view to publication opportunities. You hear statements like, "I'm doing text mining with Python." If you ask whether someone has ever discussed their hypotheses with practitioners, you hear that "mixed-methods" is not really planned.

In sustainability science – and elsewhere – a mode 2 prevails: 'mission-driven' or 'issue-driven' research. The focus is on important societal problems that are to be addressed with scientific means. Such challenges are usually highly complex; they require the knowledge of the most diverse disciplines as well as the participation of actors and those affected outside of science. One works in a solution-oriented and practical way in multidisciplinary teams of people who have a passion for the question and also relevant skills. You are less interested in statistical generalisability, but know that contextual factors are important and solutions usually only work locally and have to be renegotiated continuously. They also celebrate the next top publication – but the champagne corks only really pop when they have made progress in the real world. People think in terms of long-term research programmes and less in terms of "publishable units". Although one also has one's own CV in mind, one does research in a larger community on problems that one's own children, parents and partners also understand and find important.

Now, one could object that this mode 2 sounds suspiciously like ideologically coloured research in which research questions and resource allocation are politically motivated. Marxist-Leninist science comes to mind. But in contrast to this, sustainability research serves to achieve a globally accepted political goal that is binding under international law – not a specific political conviction or particular interests. Moreover, the allocation of research funds has long been politically motivated: the EU's current Horizon Europe programme, for example, earmarks almost 100 billion euros for sustainability research, among other things.

Why does research on the climate crisis only work in this problem-focused mode 2?

Climate change as a "wicked problem".

Climate change is a so-called "wicked problem". Such wicked problems can only really be tackled with a jointly developed approach to solving them. For example, the concept of emissions trading makes it clear that one cause of the climate crisis is that CO2 reductions do not always take place where they would be most efficient.

Wicked problems are never completely solved. Their solutions are also not right or wrong, but "more or less bad" – just as democracy, according to Churchill, is a bad form of government, but the best we have. Solutions are usually temporary and local, often consist of compromises and often have unexpected consequences. Transparency obligations on sustainability, for example, can lead to evasion and greenwashing.

There are no templates for wicked problems. Those who deal with them have to break new ground, have to invent and develop. Such teams must be interdisciplinary – and this does not mean teams of management accountants and financial accountants. For those unfamiliar with business administration, we are as indistinguishable as sheep that only the shepherd can tell apart.

When trying to solve wicked problems, trial and error is often not an option. The room for manoeuvre is often so narrowed by intervention that possible alternatives are eliminated by the passage of time. If Ms von der Leyen now relies on the power of the capital markets to help resolve the climate crisis, it will not be possible in 2030 to say: "OK, that didn't work. Let's try something else."

In the discussion, we are welcome to talk about how financial reporting could be geared towards encouraging companies to be more environmentally and socially sustainable. How, for example, would IFRS have to be changed if "decision useful information for capital providers" were replaced by another guiding principle, such as "information for society about firms' impact on the sustainability of people and planet"?

We can also discuss the topic of sustainability or CSR reporting. By this I mean stakeholder-oriented reporting on the impact of corporate activities on the environment and society. Some of these disclosure obligations explicitly pursue political steering goals. Together with bans (e.g. coal phase-out) and financial incentives (e.g. emissions trading, CO2 tax), they constitute a third form of regulatory measures against climate change.

There is interest in such research questions outside our journals as well. Many outlets for sustainability science have a much larger and broader readership than our accounting journals – precisely because of their interdisciplinary orientation. This also applies to social media. A little more visibility would be good for us.

Field of action 2: Teaching

Our second field of action is teaching. Here I also owe my wife the insight that we can reach many young people through this – much more than through research and even practical transfer. What messages and values should we convey? How about, for example:

The world is complex and "truth only comes in twos".

Scientists can hardly be neutral and data does not speak for itself.

Corporate profit should, as Barbara has recently written with Edeltraud Günther and Debbi Schanz in the FAZ, also include the external effects of corporate activity. Should this be about avoidance costs – or about the values of the protected goods? By the way, have you heard of the "sand mafia"? The FAZ article opened my eyes. Sand does not come from the construction market.

Knowledge and technical skills are important – but so are attitude and decency. Wirecard and the Union's mask affair show once again what damage is done when individuals shamelessly and selfishly seek personal gain – in one case for our political system and in the other for the German capital market.

Students should not see reckless pursuit of personal financial gain as rational or even "clever". According to the motto: "What is not explicitly forbidden is allowed and therefore OK."

You should look for your own mission statement. Haniel, for example, has coined the term "grandfathering". After all, business administration has long known the term "honourable businessman" for this attitude.

Last but not least: Question critically everything that is put in front of you – not only at your parents' dinner table, but also in the lecture hall, in politics, at work and above all on the internet.

Field of action 3: Practice transfer

A few more words about the other fields of action. It is good and right that business practice and research support each other – see the Schmalenbach Society. However, business studies should not only help companies, but also – at least – the climate. So how can we help companies not only to make themselves economically sustainable, but also to contribute to overcoming the climate crisis?

This is exactly what the EU Taxonomy Regulation is trying to do. There are still many unanswered questions about its implementation. We can accompany companies constructively and critically – and, where necessary, point out discrepancies between claims and reality in implementation.

Field of action 4: University management

We all get involved – more and more as we get older – in university management. This is not always fun, but it gives us influence. Take appointment and tenure procedures, for example: Who among us hasn't been annoyed that the Excel table with the publication points sets an almost immovable anchor – and that in the end you don't evaluate whole people, but one-dimensional publication machines? That one has to justify oneself if one considers another person more suitable than the one with the most A+ contributions in the overall picture? Can't we take more account of whether someone has a convincing content-related vision – for example, in line with sustainability – and the potential to implement it successfully in research and teaching? Then we should also assert ourselves more strongly among colleagues.

Field of action 3: Academic community

And finally: How can we help to anchor the guiding principle of sustainability within the scientific community?

At the European Accounting Association, for example, we are making a large effort in this regard. In 2019, for example, we established a Stakeholder Reporting Committee to provide scientific support for the regulatory process surrounding sustainability reporting and related areas.

Last summer, we held a very well-attended online workshop on the Consultation Paper, in which the IFRS Foundation brings itself into play as a standard setter for sustainability reporting. Here, critical voices from the long-established social and environmental accounting community were explicitly heard.

Another online workshop series that will start soon is called Academic Empathy Dialogues. Here, we want to bring two representatives of different paradigms or schools of thought/camps together with a moderator – or better: mediator – into a dialogue on different research areas. The aim is to develop and promote understanding and benevolent interest for the respective other point of view and the underlying theories, assumptions and world views. In this way, we are addressing young scientists, among others, who should recognize that there are several legitimate and mutually complementary and enriching points of view for any topic. How did we come up with this? – Personally, I was somewhat shocked by the vehemence with which two camps are at loggerheads in the field of sustainability reporting, ranging from incomprehension to contempt on both sides. If these two camps each march off separately and send separate and contradictory messages to the IFRS Foundation in the context of the consultation on sustainability reporting, I am concerned that the Foundation will perceive the scientific community as divided and ignore us in this important area. Under the leadership of Richard Barker of Oxford, Christian Leuz, Bob Eccles, myself and others tried late last year to integrate several “camps” into a joint comment letter, but ultimately failed to find consensus. One of the conclusions I came to was that we need bridges between the camps, because we can't get anywhere on the big issues if we are already at odds within the accounting research community. Hence the idea of Academic Empathy Dialogues.

For the opening event of our Annual Congress at the end of May – which will of course take place online – we were able to win Johan Rockström, whom I mentioned earlier, as keynote speaker. Maybe he will shake us accountants up a bit. (Registration is still possible, by the way).

Last but not least, the Corona pandemic has also helped us to realize that committee meetings and even some scientific formats can also be managed very well via Zoom. The EAA-related travel activity will therefore remain significantly reduced "after Corona".

But we have another sphere of influence: many of us have a massive impact on the careers of (not only) young academics as editors, conference organisers or in associations and committees. For example, if we expand traditional, one-dimensional measures of success and quality, we can remove obstacles for young researchers who pursue a sustainability-oriented agenda, even outside the mainstream. We can focus our journals, conferences and organisations more on wicked problems that affect society as a whole. This would be good for our sense of belonging – and also for our motivation. Honestly, who among us feels that our research is in urgent demand by decision-makers in practice and regulation, like the research that virologists conduct, for example? It would also do our reputation as a science good – as well as our chances of getting EU and other funding pots – where it is always about socially relevant collaborative research.

To conclude

Thank you very much for reading this. I wanted to make the case that we should work more on issues of ecological and social sustainability in all our fields of action – as some of us have been doing for years. I myself am still at the beginning and have many questions and doubts – but I can no longer avoid the topic. And I think we all have a lot to gain personally and professionally.

And now I am looking forward to the discussion.

Thank you very much!

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