Finance and the Climate-Change Team

CIMA Malaysia is organising the Green Sustainability Conference Asia from 12-13 July 2011 at the Renaissance Hotel Kuala Lumpur, where 15 speakers will be presenting their papers on the conference theme of ‘Going green - profiting from sustainability’. At the ‘Green’ conference, delegates can expect to gain the experiences of companies that have seen successful results through their green projects and program initiatives.
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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 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, a third of respondents felt that involvement with climate-change initiatives did not fit in with the finance role.
However, in many cases, the study found that there had simply been no attempt to even establish a role for finance: 31% of respondents felt that the corporate responsibility/climate change team had simply not consulted with the finance team. The majority of this group also felt that there is insufficient communication between different teams.
Unsurprisingly, finance respondents are more likely to think the reason they’re not involved is that the ‘corporate responsibility team has not consulted with the finance team’. Whatever the reasons, there is clearly a need for the two teams to collaborate better to drive the climate change agenda, combining their skill sets to achieve clear and commercially viable sustainability goals.
Lack of interest (but on whose part?)
It seems there are those who have yet to be convinced of the potential opportunities around climate-change initiatives: 17% of respondents (24% among those in sustainability roles) feel that the finance team just isn’t interested in the climate change agenda. ‘The finance department, being led by the management, have to stand on the side of the corporation’s interests and pay more attention to its overall strategy [than to environmental sustainability],’ said one respondent. (See figure below)
31% of respondents felt that the corporate responsibility/climate change team had simply not consulted with the finance team.
At the moment, finance has a formal role in developing, implementing, monitoring and/or reporting on climate change in nearly a third of organisations. CIMA’s survey showed that management accountants are typically employed in fairly traditional roles around climate change (see figure above). For example, the most common formal role is in whole-life costing. In the more cutting-edge areas, such as carbon footprint calculations, tracking climate-change KPIs – where the metrics are perhaps less understood, the finance teams appear less likely to be involved.
Finance teams are most likely to be brought into discussions around the business case for climate change initiatives and in 44% of organisations, that is on an ad hoc basis. One reading of this data is that management accountants are needed to help sustainability experts build a more convincing case for their projects when it comes to attracting funding or top-level support. 
In Barclays, for example, there is a finance representative on the climate change team – but finance is not integrated into relevant decision making across the group. That’s fairly typical of the kind of ad hoc role management accountants play in many organisations. Qualitative evidence from the in-depth interviews also suggests that where an organisation has a strong culture of business partnering, finance is much more likely to be embedded:
CIMA’s contention is that management accountants have the skills and tools to make a crucial contribution in many more organisations and across many additional activities. Without the data they own, the analysis they can provide and the discipline they bring to planning, climate change initiatives will struggle to gain either credibility within the organisation or rigour to deliver tangible, sustainable results. Our survey shows this view is widely held: 80% of respondents said finance should be involved.
Two comments from sustainability specialists interviewed for the CIMA survey sum up the problem. ‘They do provide that great benefit of impartial validation,’ said one. But, added another, while ‘…we have a whole slew of examples where finance would be involved simply as part of their normal involvement in the capital investment programme… there is not yet any kind of global mandate for finance to help with the environmental costs and assets.’
Changes to regulations might crystallise this as a financial and risk management issue. For example, at the moment, there is a lot of ambiguity regarding the introduction of the UK Carbon Reduction Commitment (CRC, now known as CRC Energy Efficiency Scheme) in April 2010. In the CIMA survey, 60% either do not know if their organisation will be covered by the CRC, or have never heard of it. Of the 20% of the UK respondents who believe they will be covered, only 65% are prepared for compliance – 17% have some way to go, and 19% don’t know.
The vast majority of respondents believe finance will be involved – between 83% and 66% dependant on the activity. Interestingly, more sustainability specialists expect finance to get involved in this area than finance respondents do.
‘The finance team bring the right rigour to ensure that we are not just doing it because it feels like the right thing to do,’ says Dominic Burch, Head of Corporate Communications at UK grocery chain Asda. ‘It means we can’t get carried away by a wave of populism or the latest trends. These guys can ground us: is it actually delivering what we think it’s meant to be delivering?’
Carbon trading schemes will require more explicit measurement, with an increasing need for accountants to demonstrate the impact of a new financial value for carbon. Over half the companies we surveyed do not estimate the carbon pricing implications of business decisions (although companies outside the UK were much more likely to do so). ‘We do a… return on investment analysis with any capital project,’ says a sustainability manager at a global consumer goods company. ‘But the cost of carbon does not get factored in except maybe on a few ad hoc cases.’

A majority of organisations do look at the financial impact of climate change measures and at the environmental costs of key decisions (about two thirds in each case, according to our survey). These are obvious roles for the finance team, but there’s a huge variation in the depth and extent of this involvement.

The diagram (see figure above) shows that where finance input is low the finance team are typically involved in compliance issues and things such as capex appraisals. Where their involvement is middle of the road you’d expect to see finance challenging efficiency improvements and constructing business cases. High finance involvement would be characterised by their significant influence on the sustainability agenda and the inclusion of environmental costs and benefits for the entire value chain.
At the more sophisticated end, UK landscaping company Marshalls has developed a system to report across a range of data cubes that cover financial, and non-financial, carbon emission driving datasets. ‘The management accountants were heavily involved in the creation of reports that utilised the business’ data warehouse for all of the energy costs and materials input costs, because the carbon footprint is everything from raw materials through to the disposal of the product at the end of its useful life,’ says Chris Harrop, Group Marketing Director at Marshalls. ‘In our case, the full lifecycle assessment is 60 years.’ (For more details see the full case study at
Skills and disciplines
So where, specifically, do management accountants fit in? 68% of respondents feel that tools and techniques such as cost/benefit analysis and investment appraisal could be usefully adapted to help organisations manage their environmental impacts.
Around 60% also felt that whole life costing, life cycle assessment, environmental cost accounting, activity based costing and the balanced scorecard are useful. Just over half saw value in transfer pricing for energy or water costs within an organisation. (See figure above)
Although respondents believe that such management accounting tools and techniques could be usefully adapted, very few organisations are currently using such tools and techniques for managing environmental impacts. But there are a host of ways these skills can deployed.
Management information
There will continue to be conflicting methodologies for measurement, and differing requirements for disclosure, of environmental impact. Management accountants specialise in the provision of accurate, consistent, comparable and meaningful intelligence to their businesses, stakeholders, regulators and pressure groups.
‘The CRC use a slightly different approach to the Carbon Disclosure Project, to the Carbon Trust, to the Building Research Establishment – they’re all asking for their own form of the information,’ says Marshalls’ Chris Harrop. ‘With this degree of complexity if you haven’t got a really strong, robust measurement and reporting system, then you’re going to be all over the place. Our finance team and the systems we’ve developed give us solid comparable information.’
Business forecasting and planning
Preparation for the move to a low carbon economy is essential. The pace of change – and the degree of uncertainty around the decisions of policymakers – make forecasting and scenario planning even more critical. Accountants need to offer deeper insights and more sophisticated forecasts – including scenario-planning and modelling of uncertainty. ‘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,’ says Chris Harrop, Marketing Director, Marshalls.
In addition, accountants can use project evaluation technique, such as the one used at oil firm BP, the sustainability assessment model.
Financial and cashflow planning
Management accountants are best placed to advise on the availability and best use of cash – particularly where there may be grants or the option of collaborative funding. They can also seek out and offer advice on any tax advantages – such as the Enhanced Capital Allowance scheme in the UK, which enables businesses to claim 100% first year capital allowance on investments in energy saving equipment – or on support available such as tax breaks, interest free financing or advice on measurement of and reporting carbon emissions. Punch Taverns has been working with the Carbon Trust in these areas, for example. (See Punch Taverns and Unilever case studies 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.
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