There Is No Accounting For Carbon
They are often patronisingly labelled bean counters by those who envy the charisma and exciting lifestyles of accountants. However, carbon counter could become the new label as accountants face up to the challenge of accounting for sustainability in greenhouse gas emissions within their organisations’ management and financial reporting systems.
Unlike double-entry bookkeeping there are no agreed standards, disciplines, measures or policies for carbon counting, reporting and auditing. As a result, corporate social responsibility and environmental reporting have become marketing opportunities for corporations to flaunt their green credentials without having any material impact on their business operations and competitive position.
Traditional financial reporting details the financial costs but not the associated carbon impacts. The challenge for accountants is to devise the measures, mechanisms and disciplines to report upon the carbon impact of their organisation’s activities, for example:
- If a $1m has been spent on travel, what has been the associated carbon emission impacts?
- If a $1m is forecast to be spent on travel, how can the carbon impacts be mitigated?
- How do we fully account for all the energy consumed in the production and delivery of a product or service across the whole end to end process?
More Than Just Accounting
Embedding in an organisation the ideas and practices of accounting for sustainability provides a broader challenge than just traditional just accounting. The energy management aspects encompass a whole range of issues including:
- Culture – real acceptance by the whole organisation that reducing climate change emissions is not only a public good and socially responsible, but can be compatible with longer term financial stability. Day to day behaviours and decision making must be guided and informed by publicised standards of corporate ethics and beliefs in climate change sustainability.
- Physical infrastructure – installation of the equipment to measure and mitigate climate change emissions. This may encompass the replacement or scrapping of carbon and energy inefficient equipment, the installation of additional metering of energy usage, carbon sequestration and other post emission clean-up technologies.
- Business case – development of a compelling strategic and financial rationale for any investment required to build the infrastructure and account for sustainability. Being cheap and dirty may no longer be a sustainable business strategy for any organisation, including its suppliers. The potential material up-front investment must be presented not only in financial terms, but also in a longer term strategic context encompassing the impacts on the organisation’s brand and values. These non-financial considerations will also need to be expressed in a way that enables a fair evaluation alongside the traditional financial criteria and tools of hurdle rates, payback periods and discounted cash flows.
- Management systems and processes – the formulation of energy management policies setting out the rationale and commitment to energy management, the objectives in terms of carbon reductions and an implementation plan. Any such plan must also be supported by processes to monitor energy usage in order that timely management interventions can be made to reduce energy usage and minimise environmental impacts.
- Financial management information – the development or enhancement of activity based costing systems to attribute the true financial and emission impacts of energy usage to the appropriate products and processes.
- Procurement – organisational boundaries have become increasingly fuzzy as activities are outsourced and the supply network becomes more integrated in the whole process of product development and the delivery of customer value. For an organisation to embark upon any programme to become climate change responsible, it must encompass the whole supply network and not get caught out by the inadvertent use of sweat shops and dirty chimneys.
- Programme management – bringing about any change efficiently and effectively, especially one where the time span is likely to measured in years rather than months, requires a degree of forethought and planning. The scope of change required to embed and operationalise an energy management policy cuts across an organisation’s functional silos. A cross-discipline approach is therefore required, where accountants, engineers, marketers and buyers will need to collaborate and talk a common language.
The Role of Consultants
Consultants, as part of an integrated team with in-house personnel, can play a pivotal role in kick-starting and facilitating the whole process of becoming more energy efficient by:
- Designing the energy management programme by setting out the objectives, phases, activities, interdependencies, time-frames, roles and responsibilities required to bridge the gap between the current and future states.
- Programme management to ensure that milestones are met, that activities are properly planned, resourced and carried out and the right balances are struck along the way.
- Stakeholder management to ensure that all stakeholders are identified, engaged and their expectations actively managed.
- Facilitating a collaborative and knowledge sharing work environment for those both directly and indirectly involved in the programme.
- Providing technical expertise not only with regard to the mechanics and techniques of implementing an energy management policy, but also with regard to specific inputs that may be required with regard to, for example, new technologies, management processes and the development of energy management and accounting policies.
The Role of Accountants
An energy management policy can provide a unique opportunity for accountants to expand their influence by engaging with the disparate parts of their organisation in its development and implementation. Such a policy, having the objective to improve the efficient use of energy consumption and reductions in emissions, will require the monitoring of performance measures and a strategy for interventions to manage the outcomes. Although energy management is not a new concept, the emphasis has altered from a cost management perspective to one of greenhouse gas emissions and social responsibility. In addition, the challenge for accountants is to develop the skills, competencies and a similar set of generally accepted disciplines and measures that enable greenhouse gas emissions to be accounted for in a way that is comparable with that used for more traditional accounting.