AS OF APRIL 2013, company annual reporting will require a detailed analysis of the sustainability performance of large businesses alongside their financial achievements, and who better than accountants to corner this supplementary discipline for themselves?
No matter how small the organisation, businesses across all sectors are under pressure now to measure and reduce their energy consumption. As new legislation looms, and as large enterprises increasingly use their environmental credentials to boost their brands, smaller companies will themselves have to fall into line so that their customers can, in turn, show an end-to-end commitment to green targets, including in their supply chains. Any company further down the supply chain that fails to measure up is at risk of being passed over for a more environmentally conscious supplier that can back up its claims to carbon efficiency.
The increasing formalisation of environmental performance measurement has ramifications for both finance directors and their accountants. In June 2012, the UK coalition government announced the introduction of mandatory carbon reporting.
This demands that, from April 2013, the UK's largest listed companies must report on their greenhouse gas emissions annually. This requirement is in addition to the Carbon Reduction Commitment (CRC) reporting already in place. (CRC is a mandatory scheme aimed at improving energy efficiency and cutting CO2 emissions in large public and private sector organisations. Those qualifying must measure and report on their emissions and purchase allowances to offset their impact on the environment.)
Change spells opportunity
With the additional measures now confirmed, the UK will become the first country to make it compulsory for companies to include emissions data for their entire organisation in their annual reports. At first, this will affect all Main Market companies on the London Stock Exchange, but the rules are likely to be extended to all businesses by 2015.
For internal finance teams and the accounting services on which they draw, seizing the challenge represented by energy consumption monitoring and carbon reporting would offer accountants a chance to stand out from the crowd and demonstrate new, wider value to their clients.
Most organisations, irrespective of their size, don't know where to start in monitoring their energy efficiency – even if they've installed energy saving fixtures or equipment. By stepping in, accountants are able not only to offer a differentiated, value-added service; they are also able to present the business with a new vehicle for cost cutting – and one that does not threaten the capabilities of the organisation. And who appreciates painless cost cutting more than the finance department?
Once a company gets a better handle on its energy consumption, managers and employees are likely to be shamed into adopting better practices. When one London-based office building installed a real-time display in its reception area showing current levels of energy consumption, the reality check was enough to drive a 20% reduction in carbon emissions through conscious, incremental changes in individuals' behaviour. The adage that ignorance is bliss is particularly poignant when it comes to people's environmental conscience. Change starts with awareness.
Raising the bar
Auditing and measuring energy consumption plays right into the hands of accountants, especially those looking to raise their profile. Carbon accounting is a logical extension of financial auditing and, as the two disciplines converge, companies are likely to turn instinctively to their accountants for help establishing and maintaining the new records.
Adding sustainability auditing or carbon accounting services to an accountant's portfolio offers a means for them to get closer to customers, and to expand their role by offering critical new services. The more deeply accountants become entrenched in a business, the more they can hone their services to meet the organisation's specific needs, thereby tightening their hold on the client.
Even where organisations are not yet concerned about their reporting obligations, they may well have implemented energy-saving measures to boost their corporate social responsibility (CSR) credentials, or to bring down operating expenses. The problem is that in many cases companies are unable to demonstrate the savings delivered. Again, if suitably skilled and equipped, accountancy professionals are in the perfect position to help measure and report on such savings.
The good news is that taking advantage of these new opportunities is far from onerous. Training and accreditation in programmes based on energy performance certificates (EPCs) and display energy certificates (DECs), in addition to the ISO 14001 energy accreditation, are so commonplace for professions such as estate agents that it has become commoditised – making it particularly quick (typically only one day) and cheap (usually less than £500) for an accountant to gather the necessary background information required.
Such education will ensure that accountants are sufficiently knowledgeable to provide sustainability auditing and reporting services – knowledge and appreciation that many small and mid-sized organisations won't have time to acquire for themselves, especially as standards and specific requirements are changing all the time.
For accountants quick to recognise the opportunity, providing sustainability auditing, energy measurement and reporting services offers a means of carving themselves a new niche in the market, and of deepening their traction. Before long, however, accountants not up to speed could find themselves overlooked in favour of ‘full service' firms. In this sense, there is reasonable urgency in acquiring the skills sooner rather than later.
Ultimately accounting is a flooded market, populated with ‘me too' firms that trot out the same old services. The call for formal carbon accounting offers auditors a way out of the humdrum routine – even a chance to help steer legislation while it is still being formed, if they are so inclined. If in doubt, do the maths!
Duncan Everett is managing director of Optimal Monitoring
This opinion is an extract from an e-book entitled Carbon monitoring and reporting: a new revenue stream for accountants
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