THESE DAYS, the word ‘sustainability’ is ubiquitous, appearing on corporate agendas, in government policy and across current affairs. Despite this, it’s a term that is still fundamentally misunderstood.
For some, sustainability is purely about the environment, for others it has strong business connotations. But as we see it, sustainability is all about helping companies to manage risk. And right now, risk is spiraling.
Here’s a fact. The physical environment, which we cannot control (and which is therefore synonymous with risk) is undergoing tremendous change. This change is leading to ever-increasing demand for finite resources, which is slowly starting to impact upon businesses everywhere. I say ‘slowly’ because we’re really just at the beginning of the changes that are on the way.
Ultimately, these changes will affect all businesses by pushing up electricity, gas, fuel and other utility costs. In 2011, gas bills typically went up by 12 per cent and electricity bills by 16 per cent. But it’s going to become worse: these types of annual price rises will increasingly become the norm. Companies, in other words, are at risk from these price hikes.
However, the risk to companies isn’t just financial. Businesses also are beginning to understand that their brands are also under threat if they fail to put positive environmental practices in place. Sustainability strategies are not just about reducing cost and reducing the impact on the environment, but are also key to reduce exposure to negative PR.
It’s also worth noting a growing number of public sector organisations and large businesses – M&S, for example – have begun to cascade sustainability down through their supply chains so if a supplier doesn’t meet M&S’ sustainability criteria then its out of the running.
It’s going to become far more expensive to run a business moving forward with these financial and PR strains. It is also clear that there are real brand dangers for those that fail to adopt a sustainability strategy, which could also directly impact companies’ bottom lines. But how can these threats be mitigated?
As accountants, you will know it is usually much easier and cheaper to reduce costs than it is to generate extra profit, especially in today’s economic climate. Some estimates claim it can often be one-tenth to one-twentieth the cost to save a pound than it is to generate that pound through profit.
But while most blue chip businesses are already aware of this and have already begun tackling these issues due to energy related legislation, such as the Carbon Reduction Commitment (CRC) and Carbon Disclosure Project, most SMEs are still focused on selling more product or service.
This isn’t a bad thing as it reinforces just how driven Britain’s SMEs are in the sustainability arena. It also explains why energy saving hasn’t really taken off to a great extent in the engine room of the economy. But things need to change – and soon – as sustainability is not going away.
The UK’s legislated requirement is to reduce carbon emissions by 50 per cent by 2027 and 80 per cent by 2050. This will undoubtedly lead to a raft of legislation cascading down through all sectors and areas of the economy.
SMEs will be affected, and perhaps sooner than they think, so they need to act. This is where the accountancy sector has a crucial role to play.
The job of accountants is to help their clients manage their finances. If energy cost reduction, supply chains and brand management are not included in this process then the accountancy world is letting its clients down – and they will no doubt look to other industries to solve these problems for them.
Accountants are well placed to help manage these issues as they are in trusted positions that have ready access to both current and historic data. They are also in a position where monitoring and reporting are additional services that can be easily integrated into the service offering.
There’s no doubt a growing number of accountants will have all of this on their radars. At HW Fisher & Company, for example, we started on this path when a client asked for help with the writing of a sustainability strategy in order to comply with a large tender request.
To fully get our heads around what we were planning to offer to our clients, we started by carrying out an Energy & Carbon Audit along with a Solutions Audit – two of our key offerings – on our own buildings.
The net result is a reduction in energy consumption and carbon emissions of 27 per cent for a net capital cost of £133,000 with a return on investment of 25 per cent. This illustrates the business case for sustainability very well – and is very useful when talking to potential customers.
For tomorrow’s accountants, sustainable business is simply business common sense.
Jae Mather is director of sustainability at accountancy firm HW Fisher & Company
CVR Global were appointed in March after the struggling company ammassed around £1m debts
The EU could raise €35bn through environmental taxes in two years removing burden on employment taxes, study finds
First ever integrated reporting framework released following publication of outline, and international consultation
Exploration businesses to pay less tax on their profits because capital expenditure relief will be significantly increased