We are now seeing a drive for private and public sector entities to consider sustainability within their overall organisational strategy, with the risks and uncertainties connected with these issues increasingly disclosed by large organisations. The leaders in this area are starting to differentiate themselves and leaving others behind.
But how embedded within an organisation has sustainability really become? In many cases it has been a compartmentalised issue, managed by a small department or a sole individual. It has not been seen as a core business issue, more as something for the marketing team to handle.
Only when something is picked up by finance and reported regularly to the board does it mean it is being taken seriously. We think this is starting to happen.
The need to measure
How do we see finance getting involved in measurement? Take emissions as an example; there are now a variety of emissions measurement frameworks in place, some of which have mandatory compliance requirements. The primary UK legislative driver of the CRC Energy Efficiency Scheme (CRC or "the Scheme") has come into force this year. This leapfrogged up the corporate agenda following the Comprehensive Spending Review announcement on 20 October. Revenue recycling no longer plays a part in the Scheme; as such it is no longer revenue-neutral for government and the money raised will be used for public spending, including on environmental matters.
There are financial penalties and risks to reputation associated with failure to comply. Further, as currently designed, the Scheme brings in a need to forecast for allowance purchase, new to many participants. The revenue raised from the Scheme is forecast by government to reach more than £1bn per annum by 2014/15 and will now hit the bottom line for affected organisations. The implications for cashflow and profit have significantly raised the profile of emissions reporting and energy management for finance and tax teams. The voluntary guidelines published by Defra also raise this with those responsible for reporting. In the public sector, with the advent of sustainability requirements within FReM, reporting of sustainability issues must now be embraced by finance professionals.
Implement and improve
There is a variety of ways that performance with respect to CRC, carbon dioxide emissions and energy usage can be improved. Many of these can be "win:win" because improvement around the green agenda often leads to cost reduction. These cost savings will be increasingly important as energy costs continue to rise. Again, finance professionals have a key role in deciding the budgetary implications of any such improvements and in assessing the relevant tax or incentive mechanisms that an organisation must take into account in decision making. Improvement in energy consumption can come from changes in staff behaviour, action through the supply chain, greening of information and communication technology, property, waste handling and energy generation.
Ensuring a return: spend to save
A number of energy improvement steps require upfront capital expenditure. In the current fiscal environment "spend to save" schemes are difficult for public sector bodies to progress. For this reason partnerships and private financing solutions may have a role. When Chris Huhne, secretary of state for energy and climate change, announced that local government could now benefit from receipts of energy sales, his statement also said that this was likely to be in partnership with the private sector. Given the potential use of partnerships and private financing solutions, finance professionals in the public sector and private sector have a key role in supporting the design and implementation of these arrangements.
In summary
Sustainability is a complex, multifaceted challenge that demands a strategic cross-departmental response. Finance professionals, given their skills and disciplines, should be at the forefront of measurement and improvement.
So chief financial officers, finance directors and finance and tax professionals should liaise closely with their counterparts in the sustainability arena to understand the drivers towards sustainability for their organisation and ensure they are able to report and manage them. The need to frame a strategy, to provide information for decision making and to take responsibility for improvements in these areas should now be within the remit of the finance department. Reporting of sustainability issues is becoming more mainstream and should be contained within annual reports. Closer integrated reporting, as advocated by the Prince's Accounting for Sustainability Project, should also be on the agenda.
Jenny Harrison is responsible for Deloitte's carbon reporting and assurance services
Mark Williams leads Deloitte's Green Agenda in the Public Sector
