(c) Institute of Chartered Accountants in England and Wales. Contact ICAEW for permission to reproduce this article., Energy, Environmental Reporting

How Accountants Can Help Fight Climate Change

The role of the accountancy profession is increasingly moving beyond traditional arenas of accounting, tax and finance services. Accountants are in a prime position to help clients identify potential problem areas and recommend opportunities to improve profitability and reduce costs. In light of the relentless rise of energy prices, the profession is playing an increasingly important role in drawing the subject of energy efficiency to their clients’ attention. More than simply cutting costs, achieving sustainability is a fundamental strategic goal for businesses given their duty to deliver long-term value and manage risks for the interests of customers, employees and shareholders. The pursuit of a green agenda also plays a part in presenting the organisation as responsible, concerned about the wider community, modern and forward thinking.

Energy efficiency is hardly a novel concept and a growing number of businesses are already embracing the value it brings. Nevertheless, energy efficiency has not yet taken centre stage in many businesses as some organisations are still hesitant to take resolute actions to tackle the matter. An absence of an across-the-board acknowledgement on the importance of the topic, as well as a lack of awareness about the benefits and investment returns from energy-efficient technologies is partly to blame. A survey carried out by the Carbon Trust revealed that the CFOs they questioned underestimated the returns of energy efficiency investments by around half their actual value. Compounding the situation is a lack of staff understanding of the technologies and services available to help improve efficiency as well as the difficulty accessing affordable finance.

Using core analytical and risk management skills, accountants can help organisations understand the strategic and practical implications of sustainable business practices and assist them in moving past organisational barriers. Senior management might not necessarily consider energy as a material cost to the business and hence fail to recognise the need to focus on this area. Accountants can effect a change of attitude here by demonstrating a compelling business case that fully captures the return on investment. By combining energy and business data together and translating them into financial metrics that speak to the influential stakeholders in an organisation, many accountants are already acting as a bridge between those responsible for driving sustainability within the business and the management team.

Championing a corporate green strategy is a particularly important strategic input from accountancy advisors, given the management tendency to focus on quick wins and quarterly revenues, often failing to incorporate energy efficiency investments into long-term planning. Since businesses are constantly struggling with finding the right balance between short-term returns and long-term continuity and success, they can often sacrifice long-term benefits over short-term priorities. Accountants are thus instrumental in helping their clients grasp the commercial impact of any inactions which can erode business profits in years to come.

In addition, installing energy efficient technologies, a strategic component in achieving energy efficiency may often not only result in energy savings, but also deliver productivity improvements that can make a real difference for business organisations. In other words, a technology upgrade which helps save on energy costs often also delivers enhanced capabilities. Examples range from:- a more energy efficient computer system that runs applications twice as fast; to LED replacement lighting in a hospital that also has been shown to assist with depressive patients and those undergoing chemotherapy ; to lab equipment that uses half the energy but also reduces harmful emissions; to energy-efficient manufacturing plant that also increases the rate of production. Such additional benefits come on top of energy cost savings, benefiting the bottom line of the business. Using their insight into the financial metrics, a number of leading accountants are now helping clients to capitalise on these financial gains. They are also providing valuable advice on finding the optimum tax position for green projects, government incentives schemes as well as measurement of and reporting carbon emissions (now an EU-wide requirement for larger firms).

Many energy efficiency plans have been derailed because of lack of funds. A previous survey from Siemens and the Energy Institute revealed that a substantial 88% of respondents said that banks and the financial sector were either not interested in supporting investment in green technologies or provided “little feedback”. Approximately one in ten respondents had “positive feedback” but less than 1% or one respondent had actually received finance for this type of investment. This amplifies the important role of accountants in advising their clients on the availability and best use of cash. As banks restrain their lending volumes in light of more stringent regulatory requirements, alternative financing schemes for energy efficiency investments are coming to the fore to fill the funding gap. One example is the Energy Efficiency Financing (EEF) scheme, a joint initiative between the Carbon Trust and Siemens Financial Services Ltd. This scheme aligns expected savings in energy costs with monthly equipment finance costs, effectively making the investment zero net cost or even cash positive while removing the need for an initial large capital outlay. Accountants who can offer sound and practical advice on such cost-effective financing options would be appreciated by their clients as providing value-added support, especially where a finance provider combines viability checks from an objective third party with a technologically expert global financier.

As a vital business partner, the accountancy profession has the skills, relationships and opportunity to help drive sustainable strategic and operational decisions, influence business decisions and advise on cost-reduction initiatives. Some firms have already recognised the vital role they play in supporting, promoting and introducing energy efficiency endeavours and have built advisory services on the subject into their offer. This no doubt requires accountants to arm themselves with understanding of energy efficiency in order to make the case for their involvement. By encouraging businesses to put sustainability on the agenda, but also provide them with cash-flow friendly financing tools, accountants can make a vital contribution to their clients’ operations from a financial, environmental and social perspective.

Darren Riva is head of sales, green finance, at Siemens Financial Services in the UK

This article was originally published in the January 2015 issue of economia.