Sustainability

Can your Finance Team save the planet?

Like many others, I have spent this Christmas break with friends and family and taking some well earnt rest from work and school runs. As the new year approached it was only natural to reflect on the things I had read about that had left a lasting impression on me in 2017: endless Brexit related non-news, North Korea, Paradise Papers, crypto-currencies, Teresa May running through fields of wheat all swam close to the surface.

 

However, the one thing to which my mind kept coming back to was the environment and climate change. The scientific community are certain that we humans are causing catastrophic damage to the planet, and politicians are starting to respond to the growing clamour from the general public. President Trumps withdrawal from the Paris agreement generated a backlash that seems to have galvanised the sustainability movement.

 

The more I read into the subject, the more I realised that the largest contributors to pollution are the more affluent nations. And the plan of these countries is growth – keep growing demand, invest in growth. The plan for all the other countries in the world? Put simply, catch up and attain the lifestyles of the richer countries. Consumption is set to continue to grow.

 

The aim of most businesses I come across is also to grow, whether it is to sell more or to increase profits. As they employ people, and very often our pensions are invested in these businesses, then it seems obvious why we set down this road of driving growth - successful and expanding companies hire more people and deliver more profits. It also follows that growing companies consume natural resources, have increased fuel consumption and produce more waste.

 

I once asked Alistair Darling, former Chancellor of the Exchequer, where all this economic growth was taking us and could it continue forever. He simply replied that governments don’t make long term plans, they seek to win the next election. This is undoubtedly helped by boosting jobs and profits.

 

Alternative views to the measures of success, namely GPD and quarterly earnings, are becoming more common. Check out the recent video by Jason Hickel on BBC Viewsnight where he talks about the need for economic “planned de-growth” and the damage economic growth is doing. The Financial Times has recently suggested we move away from using GDP as a meaningful measure of progress, which was designed to keep track of “things you can drop on your foot”, and towards more future focussed methods such as “wealth accounting”.

 

So where does this leave business? Is business in the cross hairs if we want to limit consumption to help save the environment? How can they capitalise on “wealth accounting”.  It turns out that finance may be the key holders to the future.

 

There is a growing school of thought that businesses that reassess their existing business models and embrace sustainability will be the businesses of the future. Just head on over the Accounting for Sustainabilty (A4S) page.

The A4S are championing the recommendations made by the “Task Force on Climate-related Financial Disclosures”, established by Financial Standards Board, which has recently published recommendations on the disclosures which companies can make in their annual reports to support sustainable business models.

"It is not necessarily a choice between making money on the one hand and ‘doing the right thing’ on the other.  On the contrary, once it is recognized that ‘business as usual’ is unsustainable it follows naturally that those organizations which start to develop resilient business models will be the ones that succeed."

HRH The Prince of Wales

 

The A4S have set out an agenda whereby finance take a lead and sign up to a commitment to champion the adoption of sustainable and responsible business models. Finance are custodians of the annual report, and are adept at creating measures and reporting against them. The finance profession is perfectly placed to influence and be the champions of sustainability, whilst also ensuring the commercial viability and success of the company, to create the businesses of tomorrow. They have been publicly supported by over 100 company CEO’s so far and have some great case studies which I recommend you check out.

 

"Our definition and understanding of performance must move beyond traditional financial metrics"

Robin Stalker, Chief Financial Officer, adidas Group

 

There have also been several encouraging reports of success from taking a pro-active approach to sustainability. One of my favourites was “Plan A” at M&S, where they decided to invest £200m to meet their sustainability goals. Surprisingly, and with the support of finance, they not only made the business more sustainable, but also generated  net savings of £185m and became the world’s first carbon-neutral retailer. Amazing!

 

Reporting on the story, ICAS reporter Matt McGeehan wrote (emphasis is mine):

“It is wrong to assume that operating sustainably must mean increased cost. In fact, applying the green agenda drives innovative solutions that can reduce cost. Accountants should not leave sustainability to someone else. Measuring, monitoring and driving the net benefit from sustainability initiatives should be a core part of our job description.”

 

Puma has developed an “Environmental Profit and Loss” report and there are several other great examples such as Unilever and L’Oreal.

 

2017 ended with a the latest series of Blue Planet, a firm family favourite. Among all the interesting sea life based facts, it also covered the shocking amount of plastic in our seas and oceans. The UK alone uses 12 billion plastic bottles per year, and we recycle only about half of them. Bonkers. It may seem like a daunting issue to tackle, but every small contribution helps. Up and coming ski clothing manufacturer, Planks, recently launched a ski jacket made out of recycled plastic bottles. Good on them! How will other UK businesses adapt to deliver on the recent governments pledge to eliminate all avoidable plastic waste by 2042?

 

ICAS have also reported on several other successes, and there are plenty more initiatives around creating sustainable business models, such as becoming a certified “B-Corp” and developing the aim of delivering a “triple bottom line of People, Planet and Profit”, with leaders such as Sir Richard Branson publicly supporting the case for sustainable business.

 

ICAS have also recently launched a competition asking for essays based on how the accounting profession can evolve to contribute to the creation of a more sustainable society, and there are awards up for grabs by finance teams who can demonstrate how the role of the finance function has been key to building a sustainable organisation.

 

For businesses seeking to secure financial investment, there is also a growing number if Impact Investors such as Palatine. Techcrunch say that over $13bn in impact investments have been made to date, and speak very positively about the financial performance and positive impact these investments have made.

 

So, as I look to 2018 and beyond the next election and Brexit, I am optimistic about the prospects for business as I have every confidence that the finance community will rise to this challenge to help influence and navigate business to a successful and sustainable future.

 

Ask yourself and your management team what objectives and KPIs can you establish around sustainability, investigate if you can sign up to the A4S pledge or become a certified “B-Corp”, and consider if your business is helping to deliver the UN Sustainable Development Goals (described as a purchase order from the future). Create your own “Plan A” and then we can all run through fields of wheat for generations to come.

 Follow Chris Astle on Twitter and LinkedIn.

 

© Chris Astle, January 2018