Sustainability Reporting

The 2019 Climate Change Act commits the UK to ‘net zero’ by 2050, increasing the UK’s duty to a 100% cutback in emissions in less than thirty years. On 20th April 2021, the Government declared that it will “set the world’s most ambitious change target” to decrease emissions by 78% in contrast to 1990 levels. We are seeing Government pressure for companies to consider sustainability but there is also greater stakeholder expectation that a company is ESG (Environmental, Social and Corporate Governance) compliant, and that sustainability and net-zero carbon principles are well-entrenched within businesses. But how embedded within an organisation has sustainability really become? In many cases it has been compartmentalised, managed by a single person or perhaps a small department. To date, despite targets and incentives, this has not been regarded as a core business issue by most companies, but more as a marketing topic. It is only when something is picked up by Finance and reported regularly to the board, however, that it means it is being taken seriously. We can see this is now happening. ESG is no longer an agendato-be-discussed item at the next board meeting, but rather a ‘how are we doing?’ item. And the companies that are doing it well are reaping the results.

How do we see finance getting involved in measurement?

ESG is here to stay and, increasingly, it’s the Finance Executive’s responsibility, whilst firmly the lead of the owner or Managing Director, to identify and incorporate sustainability considerations into the budget and calculate how they futureproof the business and help grow - and not erode - the bottom line. The green metrics that SMEs are embracing are wide ranging. Finance Directors are engaging with green energy providers and collaborating with those who can advise about the cost benefits of changing company fleet to electric vehicle only, but there are also quicker wins to be had. Finance can measure the contribution recycling products (such as bricks or packaging, for example), or indeed using recycled products to reduce carbon footprint, can make to a business. These initiatives can be quantified, and this is where the role of Finance plays its part in measuring sustainability from a financial perspective.

Spend to save

Many corporate initiatives that form part of an ESG strategy will require capex investment and the Finance department needs an understanding of the risk/return ratio, probable payback periods and the less tangible and quantifiable value these initiatives will bring to the business through customer loyalty, staff retention, brand, and reputation - to name but a few. We are seeing Finance Director’s roles coming to the fore here in decisionmaking. The Finance department is sourcing necessary funding, or indeed sourcing strategic partnerships, to enable a business to become more sustainable in the way it operates. Equally, one can argue, Finance’s role has become more complex, undoubtedly requiring a new mindset and possibly new ways of reporting.

It’s what investors, stakeholders and employees want

The adoption of a ‘sustainable sustainability’ strategy is reputation enhancing but companies with demonstrable ESG practice are using their credentials not just as a creative and inexpensive marketing tool, but rather building them into the corporate narrative to secure green grants and save money too. The benefits gained by financial reporting on sustainability and ESG initiatives are real. ‘Greening’ or ‘Greenwashing’ property, estate, personnel, and corporate culture isn’t as fanciful as it first appeared on the page and companies are reporting tangible results. Investors, stakeholders, and employees - designate and existing - are saying they want to be associated with a company that cares about sustainability at a wholesome and wholesale level – a company that is collectively and concurrently looking after climate, community, and corporation. In addition to the external accolades, the churn rate among employees is reportedly lower and loyalty higher – another measure for the Finance department to consider and evaluate.

EFM CAN HELP

Environmental, social and corporate governance is a complex topic, and as enterprises assess the risks and opportunities within their existing business activities, we have the experience to support and advise financial teams on meaningful sustainability cost savings and reporting.

Get in touch – Email us at clientcare@efm.uk.com for more information or go to efm.uk.com