Accounting for Climate Change: KPIs and Cases

CIMA and The Prince’s Accounting for Sustainability Project (A4S), an initiative of Britain’s Prince Charles, have conducted an international survey of almost 900 finance and sustainability professionals. CIMA also carried out in-depth interviews with experts in leading companies. This has helped us understand best practice in the area of climate change and sustainability as well as identify opportunities for the management accountant to become more involved.

In that CIMA survey, entitled Accounting for Climate Change, we concluded that benchmarking, league tables and clear reporting enable management accountants to show exactly how their companies are doing in terms of reducing their carbon footprints.
UK company Punch Taverns found that, through a three-pronged approach, they have delivered an 11% reduction in energy consumption in their pubs, for example. ‘If you don’t measure it, you can’t manage it and it’s had a huge positive impact on the accuracy with which finance could base their accruals,’ says Stephen Allen, Head of Property (leased), Punch Taverns. ‘Better accuracy takes away all the debate about whether energy management needs to improve.’
Performance management
Measurement is critical and management accountants are well versed in applying targets, key performance indicators (KPIs) and scorecards to ensure their organisation’s sustainability strategy is delivering results.
But in our interviews and survey, only UK grocery chain Asda – where the finance team not only produce environmental targets, but disseminate them via portals to each store and use them as part of performance reviews – allied measurement to individuals’ targets and bonuses on climate change. A McKinsey study in 2007 found that only 24% of executives around the world (about 50% in the energy and basic materials sectors) say that their companies have set emission targets for operations.
By using voluntary targets, businesses have an opportunity to reduce emissions on their own terms. These targets must be credible: an experienced finance business partner has the skills to ensure that the objectives are meaningful enough to satisfy – and head off regulators who might be tempted to impose a stricter regime. (A further example of the use of sustainability balanced scorecards can be found in the Masisa case study at
Preparing business cases
Accountants should challenge, but not stifle, ideas by providing measurement and analysis of trials, for example. If new ideas around sustainability fail – and given the lack of established best practice in this area, many might – they should offer avenues through which they could become successful. ‘We have a process of trying projects in one, then five, then 20 stores, so we understand all the impacts in financial terms before rolling out to more stores,’ says Mark Orpin, Head of Energy Management at Asda. Management accounting feedback during that process is essential.
Chris Harrop. Marketing Director at UK landscaping company Marshalls, said, ‘Anybody who’s doing a three-year plan now and not factoring in energy costs, CRCs, energy trading schemes or ETS type schemes, is getting it wrong.’
Stephen Allen, Head of Property (leased) at UK pub company Punch Taverns, said, ‘If you don’t measure it, you can’t manage it and it’s had a huge positive impact on the accuracy with which finance could base their accruals.’
Investment appraisal
80% of respondents look for payback on climate change initiatives within five years or less.
Investment appraisal is the tool which most commonly brings the management accountant to the table on climate change. ‘Finance, and in particular management accounting, can provide the long-term financial pay offs for incorporating environmental control costs,’ said one respondent to the CIMA survey.
Accountants may need to adjust their investment review processes – investment decisions will increasingly revolve around carbon regulation and energy efficient technologies, which may be innovative, untested and subject to change. Only 17% of respondents to the survey fully integrate environmental considerations into evaluations of projects, whilst 48% do this to some extent. We also discovered that 80% of respondents look for payback on climate change initiatives within five years or less – which, as the long-term benefits being reaped by companies like Punch Taverns shows – may be unrealistically short.
Cost/benefit analysis
Management accountants can help a business understand the potential cost savings and revenue generation opportunities associated with addressing climate change. Many sustainability projects start out as cost reduction schemes driven by rising energy prices, for example, but that’s not the only application of cost/benefit analysis.
The finance team at Asda often use it to help their non finance colleagues understand the success of a project. ‘Non financial departments help us with a few key metrics which will drive the financial modelling; I can validate those measures and then help them formulate whether something pays back over a period of time in a way that’s very simple and understandable,’ says Nicola Hargreaves, Retail Commercial Finance Manager at Asda.
Value based management
Accountants are best placed to measure value, whether that be value at risk or a value creation opportunity. Demonstrating the value of the drivers for climate change action allows an accountant to really push the agenda. These drivers fall into four broad categories. Regulation, including both incentives or mandatory penalties; cost of carbon –which will very soon expose competitive differences; consumer behaviour – reflecting their environmental concerns; and technological advances – where proper evaluation will make the difference between sensible long-term investment and money wasted on a fad.
Examples of accountants providing value assessments can be found in the case studies of Marshalls (carbon costs), Jaguar Land Rover (consumer demand and technology) and Fife Council’s value at stake modelling at
Change management
Accountants set the economic scene, quantifying the gravity of the need for change, and then follow up with potential methodologies and approaches. They can also play a prominent role in helping senior management understand the economic consequences of proposed policy, enabling them to participate in regulatory policy discussions, engage with policy makers and stakeholders in an informed way – perhaps even enabling companies to work with public and private stakeholders to shape the regulatory environment. (For examples of accountants helping to shape new organisational approaches in this way, see Asda’s presentation of CRC regulations.)
Carbon management
One in five UK respondents to the CIMA survey believe they will be covered by the Carbon Reduction Commitment (CRC). A high number of these respondents feel that the finance function will or could be involved in compliance with the CRC. This includes traditional roles such as monitoring and managing energy use (82%), and new areas such as budgeting for carbon usage (78%), preparing carbon footprint and annual emissions reports (77% and 74%), purchasing and surrendering allowances (71%), and recording transactions of carbon allowances and recycling payments (83%).
External reporting
Many companies are required to include environmental performance reporting alongside their financial disclosures: 59% of survey respondents stated that finance were involved, or could be involved (21%) in external sustainability reporting. There were many examples found where finance was involved in the production of the external reports for their businesses, either simply from a consolidation perspective, or in actually producing the intrinsic figures. (See Cathay Pacific and John Keells Holdings case studies at
Best practice: Management accountants and climate change
According to the CIMA survey, nearly half of organisations have a separate corporate responsibility or sustainability committee and finance is represented on over 80% of them. A third of respondents stated that the committee is actually chaired by the Finance Director or CFO. This finding was more common for international organisations than UK organisations.
Asda is a great example of how finance can be integral to these cross functional bodies. Its sustainability strategy is delivered via a group called the CSC (Change Steering Committee). The finance team are stewards of the process, and pull together materials for management and development of all sorts of initiatives including those specifically focusing on delivering sustainability targets. Read Asda’s full case study which gives more detail of the role finance plays in this forum at
There are also further examples of good frameworks for sustainability governance in the Jaguar Land Rover and John Keells Holdings case studies. But it’s up to each organisation and their executive team to apply the skills and disciplines of management accountancy to their own climate change initiatives in the most appropriate way. A number of survey respondents shared with us how they overcame barriers to more widespread acceptance of their sustainability agenda.
Use of measurement tools: ‘Investing in tools to allow us to measure electricity consumption and to weigh our waste also helped a lot,’ one respondent told us.
Focus on cost savings: ‘We have an environmental committee which is focussed on recycling, reduction in energy and water usage, and so on. But they are driven by cost factors rather than climate change,’ said one respondent. Another added: ‘I think that as long as it is cost effective any company would be willing to do more for climate change.’
Use CRC, or other cap and trade regulations: ‘CRC has enabled discussions on this agenda at board level,’ said one sustainability expert. ‘Costs charged directly to the company – such as the climate change levy – have a greater impact on decision making in this economic climate than non quantitative environmental issues which do not immediately hit the bottom line.’
Highlight customer motivations to be low carbon consumers: ‘We sell plumbing and heating products, so if we don’t embrace the changes we could lose market share,’ admitted one respondent. ‘We need to be ahead of all environmental issues to ensure our product range meets customer and legislation requirements. We have built a sustainable visitor centre so that they can see our product offerings in use on a day to day basis.’
And after the easy wins?
Each of those steps can benefit massively from the involvement of management accountants, not least in evaluating in the longer-term cost/benefit of the decisions and managing related risks that are often hidden from less expert eyes. But management accountants come into their own when organisations commit to the essential embedding of sustainability into ‘business as usual’ and in delivering on long-term projects.
If you are interested in sharing your own insights and experiences in this area, we would be delighted to hear from you. Please email us at [email protected]
Asda: Knitting finance, ops and sustainability together
Among the great examples we found of this holistic approach paying off, one of the most compelling is Asda. ‘Most businesses are now going after the easy wins – using less energy, turning lights off, being a bit smarter about packaging and logistics,’ says Dominic Burch at Asda. ‘Where the relationship [between finance and the business] can and will develop is helping us work out how we unlock the potential in the next ten years – because it will become harder and the challenge is going to get even tougher.’
One of the reasons Burch is hopeful is a general open mindedness about finance in the organisation. ‘At Asda we move people around different departments, and finance people have to be generally quite broad,’ says Hemant Patel, ACMA, Retail Finance Director. ‘Our Head of Energy Management has moved out of the finance area, for instance, and moved into core operations. We’ve got lots of examples of finance people doing that’
That helps ensure that the management accountants’ skills aren’t just applied to niche financial areas of sustainability projects. ‘We have ongoing relationships, it’s part of our business as usual activity,’ says Karen Todd, Head of Planning and Programmes. ‘We work as a joint management team with a finance representative in the non financial areas. So finance is evaluating the project as it lands – then on an ongoing basis, they will do a post implementation audit and help to carve out the strategy as it develops. It’s not just purely about the numbers stacking up. It’s an ongoing organic process.’ Read Asda’s full case study at
Jaguar Land Rover: Successful business partnering
‘Finance is embedded into each of our operations – product development, marketing and sales, purchasing and manufacturing, admin and so on,’ says Richard Shore, Controller of Global Marketing and Sales. ‘Finance itself is a close knit community and most people have rotated between the different finance areas. This gives us a strong cross functional stance and corporate viewpoint that ensures finance is not only welcomed, but invited into the core of our project teams.’
In this case, a strong existing reputation means management accountants are always part of the mix. ‘The sales and marketing function very much understands the value finance brings to the team, that they are good implementers and have a structured approach to process which facilitates timely delivery of complex projects and ensures that the right controls are in place to ensure the on going processes are sustained,’ adds Shore. 
Read Jaguar Land Rover’s full case study at
npower: energy saving measures
npower is dedicated to helping UK businesses use energy more efficiently and therefore spend less money on their bills and reduce carbon emissions. It provides companies with the tools and advice to monitor and manage energy consumption effectively. Once energy use has been accurately monitored, npower works with companies to help them implement energy-saving measures.
With the support of senior management and the whole team, companies can achieve substantial savings and improve their sustainability performance. The need for accurate reporting tools and systems ensure the management accountant is instrumental to the success of any organisation’s sustainability drive.
Other case studies available to download at include: Asda, owned by Wal-Mart, the UK’s second largest supermarket
Marshalls, UK’s leading supplier of landscaping products
John Keells Holdings, largest listed conglomerate in Sri Lanka
Unilever, global manufacturer
Cathay Pacific, Asian airline group
Masisa, Chile, leading forest products company in Latin America
Fife Council, the third largest local authority in Scotland
Jaguar Land Rover, luxury and premium 4x4 car manufacturer
Compass, one of the largest food and support service businesses in the world
Punch Taverns, one of UK’s leading pub group
A call to action
Organisations in all sectors and of every size face crucial questions about adapting to climate change and its associated risks and regulations. The adoption of climate change as a strategic imperative will soon become critical to their overall long-term viablity.
Our survey has shown that sustainability specialists want and expect to get help from finance. But can management accountants afford to wait until their sustainability colleagues think it’s time to start engaging?
Many people seem to be confused or unclear about what their organisation is doing around climate change and the true level of involvement of different parties. A structured business planning team with strong finance representation would create more clarity throughout the system – addressing the uncertainty reflected throughout the research we carried out.
If climate change initiatives became an integrated part of the business plan, they can be accounted for in the finance department’s agendas. Integration and strategic clarity would also help overcome poor communication between different teams, which currently hampers reliable and robust climate change decision making.
With environmental issues becoming far more measurable and with increasing regulation and legislation inevitable it is time that communication and inter departmental relationships are improved. Finance professionals need to become more knowledgeable about the risks and opportunities that climate change presents, and act as agents for change in raising the profile of the climate change agenda in their organisations.
Climate change is a long-term issue, with a need for long-term solutions. Without strategic intent, organisations can at best expect to chase regulation, and at worst, be lagging behind their competitors and find themselves with an unsustainable business model.
The results of CIMA and Accounting for Sustainability’s (A4S) international survey of almost 900 finance and sustainability professionals, and CIMA’s case studies illustrating the role of finance in climate change projects, can be found at
About the Author
Irene Teng is Regional Director based in CIMA’s Kuala Lumpur office. She leads CIMA's strategy across ASEAN and Australasia, including student growth and related alliances and partnerships.



Suggested Articles

Some of you might have already been aware of the news that Questex—with the aim to focus on event business—will shut down permanently all media brands in Asia…

Some advice for transitioning into an advisory role

Global risks are intensifying but the collective will to tackle them appears to be lacking. Check out this report for areas of concern