A decade ago, the ‘sustainable development’ item was written on the last line of a company’s budget, as though it were voluntary charity handed out when there was a surplus. A tree-planting campaign here, a donation to a school there, and a volunteering initiative struck out the moment profits came under pressure.
Today the equation has been turned completely on its head.
What used to be regarded as an ‘administrative luxury’ has become a financing condition, a regulatory requirement and a yardstick by which foreign investors assess companies. Sustainability has moved from the social responsibility page to the heart of the operating and strategic budget. So how did it turn from an item we ‘give away as charity’ into an item we ‘are held to account for’? And what has to change in the way we think about it, in accounting terms and in strategic terms?
First: What changed the standing of sustainable development?
Three main forces pushed it from the margin to the centre:
1. Regulation and supervision
The Capital Markets Authority, the Central Bank of Kuwait and ESG governance standards now require clear disclosures about environmental and social impact. They are no longer optional.
2. Financing
Banks today ask ‘What is the company’s sustainability plan?’ before approving the loan. In Kuwait, for example, some local banks have begun linking the interest margin to the company’s rating on ESG indicators. Sustainability now translates directly into money.
3. Risks
From water outages to rising energy prices to brand reputation. Companies have discovered that ignoring sustainability = a direct loss on the income statement.
Second: From ‘expense’ to ‘strategic investment’
A practical example: Installing solar panels is no longer a ‘green initiative’; it is now a project that cuts the electricity bill for a period of up to 20 years. That is an investment, not charity.
| Item | Previously: a luxury item | Now: a strategic item |
|---|---|---|
| Objective | Improving the image | Reducing risks and increasing value |
| Funding | From the remaining net profit | An approved item in the annual budget |
| Measurement | Number of initiatives | Return on investment + impact |
| Responsible party | Public relations department | Senior management + board of directors |
Third: The accounting treatment… where do we put the deduction?
The common mistake: charging the deduction for development against net profit after tax.
The correct treatment under IFRS:
- A contractual or legal obligation → a provision under IAS 37, charged before net profit.
- A voluntary initiative linked to revenue → a marketing or operating expense under IFRS 15.
- A capital project such as solar panels → capitalised as an asset under IAS 16.
- A mandatory disclosure under IFRS S1/S2 → linking the financial budget to sustainability in the integrated annual report.
Fourth: How do you build a successful sustainability budget?
- Tie it to risks: water, energy, employees, the supply chain.
- Set measurable performance indicators (KPIs): ‘We cut water consumption by 15%.’
- Separate capital expenditure (Capex) from operating expenditure (Opex).
- Disclose transparently: the investor wants the figure and the impact, not the photographs.
Fifth: Challenges, and a warning against greenwashing
The most dangerous challenge is ‘greenwashing’: presenting an illusory picture of sustainability with no real impact. It has become a reputational and regulatory risk as supervision tightens. Success comes when sustainability indicators are tied to senior management remuneration and to an internal control system.
Sixth: Who pays the price?
Whoever does not pay today will pay many times over tomorrow: fines, lost financing, lost contracts. Sustainability is no longer a cost; it is insurance against the risks of the future.
Conclusion
Sustainable development today is risk management, a competitive advantage and a condition of survival. The golden rule: ‘Do not allocate to development what is left of the budget… allocate to the budget what development needs for your company to survive.’
In the new world of finance, companies that see sustainability as a ‘luxury’… will find that they themselves are a ‘luxury’ the market can do without.