Accounting

for climate change

How management accountants
can help organisations mitigate
and adapt to climate change
Accounting for climate change

1. Overview
Climate change poses a major risk to the
global economy possibly shrinking its
output by 20%, according to the 2006
Stern Report. Given the likely effects on
Contents habitat, resource availability and
consumption, every organisation will be
1. Overview affected.
2. Climate change as a strategic business imperative Tackling climate change is not just a
3. Barriers to change question of doing the right thing.
Businesses have a duty to their
3.1 For the organisation customers, employees and crucially, their
3.2 For the finance team shareholders to deliver long-term value
and to manage risk. In other words,
4. The management accountants role
sustainability has always been a
5. Best practice: management accountants and climate change
fundamental strategic goal.
6. Acknowledgements Managing and mitigating climate change
must be embedded in our decision making.
When it comes to capital expenditure and
investment decisions, for example, it is vital
that we apply the principles of sustainable
procurement and consider long-term implications embed sustainability into normal business
financial, environmental and social rather than just life. Failure for management accountants
short-term costs. to get involved now, when key decisions
are being taken in areas like carbon
Management accountants have a key role to play trading and compliance with new climate
in driving sustainable strategic and operational change related regulations, could result in
decisions. But CIMAs research shows that even far higher costs, lost opportunities or
where finance teams are engaged in climate reduced competitiveness.
change related activities, it has often been on an
ad hoc basis. CIMA and Accounting for
Sustainability (A4S) have conducted
This must change. Management accountants are
an international survey of almost 900
equipped with tools and techniques that can ensure finance and sustainability
businesses understand the scale of the problem, professionals. CIMA also carried out
come up with viable solutions and ensure they are in-depth interviews with experts in
properly implemented. They have a pivotal role in leading companies. This has helped
providing business intelligence to support strategy us understand best practice in this
and influence decision making. area as well as identify opportunities
for the management accountant to
Without the rigour and commercial acumen of the
become more involved.
finance function, it may prove impossible to truly
Sustai i s
nabilit s i
y is s o
now a u n
core e
consid s m
eratio a
n from i k
the n i
board t n
to the o g
shop
floor. o p
Our u r
financ r o
e c
busin l e
ess o s
partne n s
rs g ,
play a -
pivotal t b
role e u
not r t
only m
integr i
ating d n
sustai e
nabilit c t
y i h
e
 This report makes a
The results of
equall compelling case for
CIMA and
y every organisation to
Accounting
ensure that its finance
critical for
team is at the heart of
part Sustainability
its climate change
they strategy, whether
s (A4S)
play in thats complying with
international
ensuri new regulations,
survey of
ng the almost 900
mitigating its
finance and
organi environmental impact
sustainability
sation or adapting to new
professionals,
recog circumstances. Senior
and CIMAs
nises decision makers
case studies
should understand the
in a illustrating the
value that
timely role of finance
management
way, accountants bring to
in climate
the the issue; accountants
change
risks themselves should be
projects, can
and be found at
clear about how to
opport make the case for their www.cimaglo
bal.com/susta
unities involvement and what
inability
prese skills they can bring to
nted bear.

by This report covers

climat four main topics.
e
chang
e in
the
day to
day
cours
e of
runnin
g the
busin
ess.

David Smith
CEO
Jaguar Land Rover
Businesses an
how busines
what it needs
Barriers to cha
financial persp
overcome them
The managem
role skills, to
that can be ap
 companies mi
climate chang
Best practice
organisations
management
embed a rigor
climate chang
operational de

|2|
Accounting for climate change laggard
on
climate
change.

2. Climate change as a strategic Th

business imperative er
e
Research has is
shown that one of stif
the most important f
reasons companies co
fail is that they miss mp
colossal external etit
changes.1 Thats a ion
definition that can to
easily be applied to se
climate change. Like cur
any risk, however,
e
there are upsides
fun
and downsides.
din
Research carried out g
by the Carbon Trust for
and McKinsey2 in pr
2008 suggested that oje
tackling climate cts
change could create an
80% of respondents think
opportunities for a d that the finance function
company to increase de should be involved in
its value by up to mo climate change initiatives.
80% if it is well nst
positioned and rati
proactive. But up to ng
65% of value could a
be destroyed if the co
company is poorly mp
positioned or a
elli
ng return on ch
investment in an
climate change ge
management .
can be difficult. W
Strategic, long- or
term goals also se
play an ,
important part on
in ensuring e
continued in
commitment to fiv
the longer-term e
sustainability re
journey. sp
on
Management de
accountants are well nt
versed in risk s
management and sa
have the skills and y
techniques to cli
support long-term m
strategic decision at
making, so it was no e
surprise that 80% of ch
respondents to our an
survey think finance ge
professionals have a is
key role to play here. no
t
Although 56% of our
on
respondents feel
th
their organisation is
eir
committed to
or
mitigating climate
ga
change and a third
nis
believe that climate
ati
change is integrated
on
within the overall
s
business strategy of
ag
their organisation,
en
63% agree that their
da
organisation can do
at
a lot more to reduce
all.
its environmental
Ju
impact.
st
Only 38% say 58
their business %
is well of
positioned to re
deal with the sp
impacts of on
climate de
nt
s feel climate Accounting for climate change
change is of
central
importance to
their But there remain key questions, even
organisation. for those organisations that are taking
action and adopting a strategic context
That perceived level
for climate change, particularly in highly
of importance makes
competitive markets or periods of
a huge difference
economic uncertainty when funds are
and citing
scarce. What are they actually doing
sustainability as a
and why are they doing it?
strategic goal also
overcomes some of Many organisations are looking only at
the financial return the compliance issues with respect to
questions on climate climate change reporting on and
change gaining assurance over historic activities
management. There in order to comply with regulations, risk
will always be management and customer expectations.
projects that can But managing the risks of climate change
deliver a better and exploiting its opportunities also
return, says Richard requires a focus on performance. Its not
Shore, Controller just about measuring environmental
Global Marketing impact or setting up a paper recycling
and Sales at Jaguar initiative in the office; its also about
Land Rover. But our fundamental changes to operational
commitment to activities to deliver real and sustainable
deliver on long-term change.
targets embedded
into our strategic That more radical approach demands
goals is dependent that climate change action has senior
on such projects sponsorship. And expert and
so they will get the authoritative balancing of long-term
support and funding. value against short-term costs can
create sustainable value for both
shareholders and stakeholders. (as
demonstrated by Jaguar Land Rovers
sustainability governance structure.
See full case study at
www.cimaglobal.com/sustainability)

Compelling external forces

Detailed (and, increasingly financially
modelled) evaluation of the risks and
opportunities around climate change
should compel organisations to act
and act in a more structured and
strategic way. External forces are also
pushing climate change up the business
agenda.

New regulations, driven by co-ordinated

legislative efforts on a global scale, are
perhaps the most visible factor. A new
Global Deal in late 2009 should crystallise
the regulatory framework for the longer-term. Costs, such
as changes to the tax regime or carbon trading, will
become more tangible and more material to profitability.
That massively increases the need for vital business
intelligence and demands the use of management
accounting tools.
Investor expectations have also changed. Already there
are demands for clearer and more reliable reporting of
the risks and costs around climate change reporting
that management accountants are uniquely placed to
provide. Indeed, one company we visited had been told
Attitudes and
responses to
climate change
by one of their institutional investors, we
have a standard policy of not supporting
the reappointment of the Board unless
companies are doing certain things in the
sustainability realm. Furthermore, the
Goldman Sachs Sustain report, released in
May 2009, shows a correlation in carbon
intensive industries between carbon
efficiency and valuation multiples,
illustrating the increasing influence of
green credentials
on a companys market capitalisation.
Shareholders want to know whats being
done, says Chris Harrop, Marketing

My business is well positioned 59% Director at Marshalls Plc. A third of our

to deal with the impacts shareholders are signed up to view
of climate change Carbon Disclosure Project material.

46% Employees and customers may not be so

My organisation has
implemented initiatives for
adapting to climate change
47%
My organisation has
implemented initiatives for
mitigating climate change
ruthless in their demands for detailed
77% evaluation but they still want to know there
is commitment and rigour behind climate
change activity. It is fruitless trying to
implement strategies if people are not aware
of the reason why, and the benefit to be
obtained, from these strategies, says one
81% respondent to the CIMA survey. Finance
should first be allocated to education of the
masses and then the overall buy-in will
manifest itself with the desired results. This
kind of finance involvement is demonstrated
in the Punch Taverns case study, which can
be read in full at
www.cimaglobal.com/sustainability

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Organisations m
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change is a n
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1 Bregory P. Hackett and John Evans, Why Companies Fail: And the
Information Imperatives to Help Ensure Survivability, Kalido White Paper, 2007 s
2 Climate Change- a business revolution? Carbon Trust & .
McKinseyCompany, www.carbontrust.co.uk

O
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x
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le of the www.cimaglobal.com/sustainability).
benefits The 36% of respondents who have cut
from back on environmental programmes
investing during the downturn may be missing
in steam out on opportunities for long-term cost
valve savings from projects ostensibly
technolog designed to further a sustainability
y is strategy.
demonstr
ated by
Compass
managem
ent
accountin
g team to
their NHS
Trust
client (see
case
study at
|3|
|4|
Accounting for climate change perform
ance
alone
was the
What it means on the ground primary
driver
Primary drivers for implementing climate (althoug
change initiatives h
regional
ly the
Both conformance and performance percent
age
ranged
Competitive advantage/performance
from
14% for
Compliance/comformance Australi
an
Other 6% respond
ents to
64% for
Dont know 2% Chinese
ones).
0% 20%
But in many cases, its not as simple as
drawing such clear distinctions.
Our survey showed
compliance and Carbon
conformance to be is raw
significant drivers for material
climate change and
initiatives, with just energy
29% saying that and they
competitive both
advantage or
cost money,
explains Chris Compliance/regulation, driving obligated activity

LOW
Harrop, Marshalls.
extent of carbon
We all need to be Understanding
Low hanging fruit; energy
and waste measurement,
Investme
energy t
saving as much footprint, implications,
reporting, benchmarking, employee more eff
engagement/education of opera
money in the current and required actions
driving behavioural efforts supply c
economic downturn
as possible. More PERFO
people are actively RMANC
seeking E/COM
environmentally and PETITIV
socially beneficial E
products, so ADVAN
TAGE
consumers are
pushing, too. And Source: CIMA
both government
and key The
stakeholders are degree of
pushing us to reduce adoption
carbon footprints, for some
sectors
improve ethical
may have
sourcing,
been
responsible sourcing
influence
and improve
d by the
biodiversity. So, we
early
either get with it or it
recognitio
will hit us in four or n of the
five years and the likely
costs of value
implementing then creation
will be far, far higher. opportuni
ties or
CIMA has found that
value at
companies are at
risk3
vastly different
calculatio
stages in their
ns made
sustainability
by
journey, often driven
manage
by the historic
ment
degree of regulation
accounta
of their business, nts.
stakeholder and Clearly
consumer pressure, the
innovation and opportuni
sometimes the ties to
personal ideologies exploit
of their CEOs. The their
range of motivations skills in
and benefits sectors
often depends on only now
the sophistication of facing up
an organisations to the
approach. risks,
costs and
Stages of adoption benefits
of climate change Accounting for climate change
action are huge.

3 Research carried out 3. Barriers to change

by the Carbon Trust
and McKinseyCompany CIMA is keen to understand why
in 2008 looked at the
likely impact of finance professionals arent more
transition to a low involved in climate change
carbon economy. Those
with significant risk and management in many organisations
opportunities tend to and why more organisations arent
reflect those sectors taking concrete steps to manage,
which now display a
high degree of adoption mitigate and adapt to climate change.
Worryingly, only 29% of respondents
to our survey agree that climate
change poses a significant risk to
their organisation.

There is not enough being done to raise

the profile of this within the business, said
one respondent. We have started to bring
our thoughts on to climate change, but only
for new business not for current
operations, said another. A third summed
up one of the biggest barriers to action:
Other priorities push such issues to the
back seat.

For the finance team, this creates a two

layer problem. First, will the
organisation and its people commit to a
rounded and forward thinking view of
climate change? And second, will they
see the value in applying management
accounting skills?

On the latter question, there is cause

for optimism. A key barrier to taking
climate change seriously is the need
for discipline and robustness around
the measurement of the problem,
something that the finance function
can bring to the issue.

And although on a global basis,

finance teams are least likely to
have a formal role in climate
change policy implementation
(30% in our survey), in some
countries finance professionals
are more deeply embedded.

So while in the UK its 44% and

Ireland just 23%, in China finance
functions are more likely to have a
formal role in implementation, according to our
survey.
We discovered several further key barriers to
both acceptance of the need for action and of
the role management accountants can play.
3.1 For the organisation
Hearts and minds
Too few employees consider the subject worthy of
attention. Senior managers are very supportive of a
strong sustainability agenda. [But] middle and junior
managers want to focus on their day job and see it
as a side issue, said one respondent. We are
compliant with all environmental laws but with no
financial benefits to the organisation, unless there
are legal reasons for making any adjustments or
improvements there is no reason to improve,
commented another.
Understanding the issue
Our biggest problems are identifying a globally
4
recognised reporting framework , getting the correct
measurements in place for the key contributors; the
relative impact factors for each source of emission; and a
place to disclose our results publicly, said one respondent
to the CIMA survey. In one FTSE 250 company, capital
investment is dedicated to growing the top line. The
finance team told us that cost saving
opportunities didnt get the same
prioritisation.
That means projects with a return on
investment (ROI) of 40% could have
been overlooked because they didnt
boost revenue.
The main problem is cost
A common barrier is the belief that these
initiatives are too expensive: 60% of
respondents believe that adapting to the
impacts of climate change will raise
costs. If we increase our costs to
accommodate climate change issues
the customer simply moves business,
said one respondent. Efficiency,
economy and value for money drive
decision making, said another. This will
be the benchmark against which
sustainability will be assessed.
4 See CIMAs letter, in conjunction with the Princes
Accounting for Sustainability project and other
accounting bodies, to the political leaders attending
COP15, calling for a single set of universally
accepted standards for the measurement, reporting
and monitoring of greenhouse gases.
www.cimaglobal.com/sustainability

|5|
|6|
Accounting for climate change Accounting for climate change

Finance are trained to think

short-term. Climate change
Current economic climate
is a long-term issue.
Teamwork and communication
And in the wake of q p
a global credit u o
crunch and a n
recession, its r d
hard to find the t e
right balance e n
between short- r t
term expectations s
of customers and o
investors, and the f s
actions needed to a
assure long-term r i
continuity and e d
success. While a s
there had been no In many cases,
change in focus, however, there had 31% of
28% are scaling simply been no
down attempt to even
respond
sustainability establish a role for ents felt
projects and a finance: 31% of that the
further 8% feel respondents felt that
they will get no
corpora
the corporate
approvals for new responsibility/climate te
projects. change team had respons
simply not consulted
Management ibility/
with the finance
accountants climate
team. The majority of
instinctively see long-
this group also felt change
term benefits but are
that there is team
aware of short-term
insufficient
priorities. Said one: We
communication
had
should be proactive in
between different simply
tackling this issue in
teams. not
the long-term it should
lead to a lower cost Unsurprisingly, consult
base which is beneficial finance respondents ed with
to all businesses. But in are more likely to
the
the current economic think the reason
climate, the sole focus theyre not involved is finance
of my company is to that the corporate team.
stay in business. responsibility team
has not consulted
Lack of external pressure with the finance
team. Whatever the
Perceived high costs
reasons, there is
and need to focus on
clearly a need for the
short-term returns
two teams to
means that without
collaborate better to
commercial pressure to
drive the climate
address climate change agenda,
change, its hard to combining their skill
justify. Most of my sets to achieve clear
clients place little and commercially
importance on climate viable sustainability
change initiatives goals.
their only
concern is the Lack of time
bottom line cost to
themselves. Id The main
find it hard to reason
generate business
and be competitive (given by
if I placed too 42% of
much importance responde
on this issue, said
one survey nts) for
respondent. finance
teams
3.2 For the finance team not giving
more
than ad hoc support to Lack of interest (but on whose
climate change part?)
initiatives is that they do
not have sufficient time It seems there are those who remain
to get involved. We to be convinced of the potential
have no spare resource opportunities around climate change
availability, even if we initiatives: 17% of respondents (24%
were contacted, said
among those in sustainability roles)
feel that the finance team is just not
one finance
interested in the climate change
professional. Another
agenda. The finance department,
added: This is often
being led by the management, have to
seen as an add on to an
stand on the side of the corporations
already full
interests and pay more attention to its
overall strategy [than to environmental
sustainability], said one respondent.

Reasons why the finance function is

not currently involved or only
involved on an ad hoc basis

role rather than being part of someones job profile. i s

n
Lack of specialist knowledge or skills a a
The second most b
populated reason (38% i
s
cited it) was that l
e
finance does not have i
n
the specialist t
s
knowledge and skills to y
support decision e
making around climate
p
change. For example, t
while just 18% of r
h
sustainability o
a
specialists didnt know f
t
how carbon pricing e
might affect decision s
making, it is higher s f
among finance i i
respondents (nearly o n
half). n a
a n
Short-termism c
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hough most The finance team There is insufficient
do not have communication
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might argue with sufficient time teams
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that hypothesis,
climate change
37% of initiatives
The finance team is not
respondents to
interested in the climate
CIMAs survey change agenda
Finance do not
broadly agree. have the relevant
knowledge and
No fit with role of finance skills Other

Finance is
focused more on
short-term
budgets and
targets

The climate change

agenda does not fit
with the role of
finance

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 |7|
|8|
Accounting for climate change
4. The management accountants role
Areas that finance is, or could be, involved in
Accounting for climate change
Changes to regulations
might crystallise this as The finance team bring the
a financial and risk right rigour to ensure that
management issue. we are not just doing it
For example, at the because it feels like the right
moment, there is a lot thing to do.
of ambiguity regarding the introduction of Dominic Burch
the UK Carbon Reduction Head of Corporate
Commitment (CRC, now Communications Asda
known as CRC Energy Efficiency
Scheme5) 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% dont know.
C ge performance 29 26
a measures/KPIs
r
b 30 31
o Sustainability reporting (external)
n
Integration of financial and climate change 30 30
management information systems
f
o 31 26
o Carbon accounting/budgeting
t
p Monitoring compliances with climate 32 30
r change policy and regulation
i
n Preparing the business case 32 30
t for climate change initiatives
c
Sustainability reporting (internal) 34 44
a
l
c Whole costing/Life cycle 36 30
u
l assessment calculations
a 38 33
t
i
o
n

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r
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l
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c
h
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n
 a
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majority of e n
respondents x c
believe finance p e
will be involved e
between
83% and 66% c r
dependant on t e
the activity. s
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l e
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f o
o c
r o n
m o
c p t
a a estimate the carbon pricing implications of
r n business decisions (although companies
b i outside the UK were much more likely to do
o e so). We do a return on investment analysis
n s with any capital project, says a sustainability
. manager at a global consumer goods company.
w But the cost of carbon does not get factored in
O e except maybe on a few ad hoc cases.
v
fairly
0%
traditional
20% roles
around
40% climate
change
60% (see
chart,
80% above).
For
100%
example,
the most
Adhoc
common
formal
Formal
role is in
whole life
At the moment, finance
costing. In
has a formal role in
the more
developing,
cutting
implementing,
edge
monitoring and/or
areas
reporting on climate
such as
change in around a
carbon
third of organisations.
footprint
The CIMA survey
calculatio
showed that
ns,
management
tracking
accountants are
climate
typically employed in
change KPIs where likely to
theres perhaps less be
well understood embedde
metrics, the finance d.
teams appear less likely www.cimaglobal.com/decisionmakin
to be involved. g

Finance teams CIMA

are most likely to s
be brought into conte
discussions ntion
around the is that
business case for mana
climate change geme
initiatives and in nt
44% of accou
organisations, ntants
thats on an ad have
hoc basis. One the
reading of this skills
data is that and
management tools
accountants are to
needed to help make
sustainability a
experts build a crucial
more convincing contri
case for their bution
projects when it in
comes to many
attracting funding more
or top level organi
support. sation
s and
In Barclays, for
acros
example, there is a
s
finance representative
many
on the climate change additi
team but finance is onal
not integrated into activiti
relevant decision es.
making across the Witho
group. Thats fairly ut the
typical of the kind of ad data
hoc role management they
accountants play in own,
many organisations. the
Qualitative evidence analys
from the in-depth is they
interviews also can
suggests that where an provid
organisation has a e and
strong culture of the
business partnering, discipl
finance is much more ine
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.
|9|
| 10 |
Accounting for climate change
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 theres a huge variation in the
depth and extent of this involvement.
Differing levels of possible finance
involvement
Sh
Influence incr
High awarenes
Involvement
chain enviro
Cons
Financ
e
Challenge
Sustainabi
Capex ap
Complia
Source: CIMA
The diagram 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 youd 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.
5 More information on UK regulations can be
obtained from the department of energy and
climate change website www.decc.gov.uk
A t
t h
e more sophisticated Do you believe that
end, Marshalls has the following
management
developed a system
accounting tools
to report across a and techniques
range of data cubes could usefully be Business
that cover financial, adapted to
forecastin
and non-financial,
g and
carbon emission
planning
driving datasets.
The management Preparation
accountants were for the
heavily involved in move to a
the creation of low carbon
reports that utilised economy is
the business data essential.
warehouse for all of The pace of
the energy costs and change,
materials input and the
costs, because the degree of
carbon footprint is uncertainty
everything from raw around the
materials through to decisions of
the disposal of the policy
product at the end of makers
its useful life, says makes
Chris Harrop. In our
forecasting
case, the full
and
lifecycle assessment
scenario
is 60 years. (For
planning
more details see the
even more
full case study at
critical.
www.cimaglobal.co
Accountant
m/sustainability)
s need to
Skills and disciplines offer deeper
insights and
So where, more
specifically, do sophisticate
management d forecasts
accountants fit including
in? 68% of scenario-
respondents feel planning
that tools and
and
techniques such
modelling of
as cost/benefit
uncertainty.
analysis and
Anybody
investment
whos doing
appraisal could
a three year
be usefully
plan now
adapted to help
and not
organisations
manage their factoring in
environmental energy
impacts. costs,
CRCs,
energy trading schemes or ETS type schemes, is getting it Accountin trading
g for
wrong, says Harrop. schemes
climate
change
In addition, accountants can use project evaluation or ETS
technique, such as the one used at BP, the sustainability type
assessment model6. schemes,
is getting it
wrong.
Anybody whos
Chris
doing a three-
Harrop
year plan now Marketing
and not factoring Director
in energy costs, Marshalls
CRCs, energy

help your organisation manage its environmental Financial and cashflow planning
impacts?
Cost- Management accountants are best placed to
5% 8% 6%
benefit 13% 68% advise on the availability and best use of
analysis/
cash particularly where there may be
profitab
ility 5% 6% 10% 11% 68% grants or the option of collaborative funding.
forecas They can also seek out and offer advice on
ting
any tax advantages
7% 6% 13% 14% 61%
I such as the Enhanced Capital
nvest Allowance scheme in the UK, which
ment enables businesses to claim 100%
apprai first year capital allowance on
sal investments in energy saving
(e.g. equipment or on support available
to such as tax breaks, interest free
includ
financing or advice on measurement
e
of and reporting carbon emissions.
enviro
Punch Taverns has been working with
nment
the Carbon Trust in these areas, for
al
consid
example. (See Punch Taverns and
eration Unilever case studies at
) www.cimalglobal.com/
sustainability).
Environmental
cost accounting
(e.g. identifying,
tracking and
allocating
environmental
costs)
corecard (e.g. by energ
B
integrating environmental y use) 8% 5% 11% 17%
a
KPIs)
l
Transfer pricing (e.g. for
a
Whole life energy or water costs) 9% 4% 13% 15%
n
costing/
c life cycle
e assessment 8% 6% 9% 19%
d
Activity based
costing (e.g. for profiling 10% 5% 11% 21%
s
Performanc doing in terms of reducing their carbon Stephen
e footprints. Punch Taverns found that Allen
measureme through a three pronged approach they If you dont Head of
have delivered an 11% reduction in measure it, you Property
nt (leased)
energy consumption in their pubs, for cant manage it Punch
Benchmarking, example. If you dont measure it, you and its had a Taverns
league tables cant manage it and its had a huge
huge positive
and clear positive impact on the accuracy with
impact on the
reporting enable which finance could base their
accruals, says Stephen Allen, Head of
accuracy with
management
accountants to Property (leased), Punch Taverns. which finance
show exactly Better accuracy takes away all the could base their
how their debate about whether energy accruals.
companies are management needs to improve.
0% 20%
Management information
Dont know Already using this tool Not aware of this tool
There
Around 60% will
also felt that contin
whole life ue to
costing, life be
cycle conflict
assessment, ing
environmental metho
cost accounting, dologi
activity based es for
costing and the measu
balanced rement
scorecard are , and
useful. Just over differin
half saw value g
in transfer require
pricing for ments
energy or water for
costs within an disclos
organisation.
ure, of
Although enviro
respondents believe nment
that such al
management impact
accounting tools and .
techniques could be Manag
usefully adapted, ement
very few accou
organisations are ntants
currently using such special
tools and techniques ise in
for managing the
environmental provisi
impacts. But there on of
are a host of ways accura
these skills can te,
deployed.
consist
ent, comparable and
meaningful Performance management
intelligence to their Measurement is critical and management
businesses, accountants are well versed in applying
stakeholders, targets, key performance indicators (KPIs)
regulators and and scorecards to ensure their
pressure groups. organisations sustainability strategy is
delivering results. But in our interviews and
The CRC use a
survey only Asda where the finance team
slightly different
not only produce environmental targets, but
approach to the
disseminate them via portals to each store
Carbon
and use them as part of performance
Disclosure
reviews allied measurement to individuals
Project, to the
targets and bonuses on climate change. A
Carbon Trust, to
the Building McKinsey study in 2007 found that only
Research 24% of executives around the world (about
Establishment 50% in the energy and basic materials
theyre all asking sectors) say that their companies have set
for their own emission targets for operations.
form of the By using voluntary targets, businesses have
information,
an opportunity to reduce emissions on their
says Marshalls
own terms. These targets must be credible: an
Chris Harrop.
experienced finance business partner has the
With this degree
skills to ensure that the objectives are
of complexity if
meaningful enough to satisfy and head off
you havent got
regulators who might be tempted to impose a
a really strong,
robust stricter regime. (A further examples of the use

measurement of sustainability balanced scorecards can be

and reporting found in the Masisa case study at
system, then www.cimaglobal.com/sustainability)
youre going to
Preparing business cases
be all over the
place. Our Accountants should challenge, but not stifle,
finance team ideas by providing measurement and
and the systems analysis of trials, for example. If new ideas
weve developed around sustainability fail and given the
give us solid lack of established best practice in this
comparable area, many might they should offer
information. avenues through which they could become
successful. We have a process of trying
| 11 | projects in one, then five, then 20 stores, so
we understand all the impacts in financial
terms before rolling out to more stores,
says Mark Orpin, Head of Energy
Management at Asda. Management
accounting feedback during that process is
essential.

6 CIMA, 2006, Accounting for sustainable

development performance, J Bebbington,
www.cimaglobal.com/research
| 12 |
Accounting for climate change o
n
l
y
Investment appraisal 80% of respondents look
b
for payback on climate
I r
n i change initiatives within
v n five years or less.
e g
s s
t
m t
e h
n e
t
m
a a
p n
p a
r g
a e
i m
s e
a n
l t

i a
s c
c
t o
h u
e n
t
t a
o n
o t
l
t
w o
h
i t
c h
h e

m t
o a
s b
t l
e
c
o o
m n
m
 t
c
l a
i c
m c
a o
t u
e n
t
c i
h n
a g
n ,
g
e c
. a
n

F p
i r
n o
a v
n i
c d
e e
,
t
a h
n e
d
l
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n n
g
p -
a t
r e
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l i
a n
r a
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a i
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g
e p
m a
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n
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f i
f d
s
o
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r
r
i e
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c p
o o
r n
p d
o e
r n
a t
t
i t
n o
g
t
e h
n e
v
i C
r I
o M
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m
e s
n u
t r
a v
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o
n
A
t c
r c
o o
u
l n
t
a
c n
o t
s s
t
m
s a
, y

n
e
s e
d w
i
t l
o l

a i
d n
j c
u r
s e
t a
s
i
t n
h g
e l
i y
r
r
i e
n v
v o
e l
s v
t e
m
e
n a
t r
o
u
r n
e d
v
i
e c
w a
r
b
p o
r n
o
c
e r
s e
s g
e u
s l
a
t
i
o
i n
n
v a
e n
s d
t
m
e e
n n
t e
r
g
d y
e
c
i e
s f
i f
o i
n c
s i
e
n
t less
which,
t
as the
e
c long-
h term
n
o benefits
l being
o reaped
g
i by
e compani
s
es like
,
Punch
w Taverns
h shows
i
c may be
h unrealisti
cally
m
a short.
y
Cost/benefit analysis
b
e Ma
nag
i em
n
n ent
o acc
v oun
a
t tant
i s
v can
e
, hel
pa
u bus
n
t ine
e ss
s und
t
e erst
d and
the
a
n pot
d enti
subject to change. Only 17% of respondents to the al
survey fully integrate cos
environmental t
considerations into savi
evaluations of ngs
projects, whilst 48% and
do this to some extent. rev
We also discovered enu
that 80% of e
respondents look for gen
payback on climate erat
change initiatives ion
within five years or
opportunities accounta
associated with nt to
addressing really
climate change. push the
Many agenda.
sustainability These
projects start out drivers
as cost reduction fall into
schemes driven four
by rising energy broad
prices, for categorie
example, but s.
thats not the only Regulati
application of
on,
including
cost/benefit
both
analysis.
incentive
The finance team at s or
Asda often use it to mandato
help their non finance ry
colleagues penalties
understand the ; cost of
success of a project carbon
(see case studies). which
Non financial will very
departments help us soon
with a few key metrics expose
which will drive the
competiti
ve
financial modelling; I
differenc
can validate those
es;
measures and then
consume
help them formulate
r
whether something
behaviou
pays back over a
r
period of time in a way
reflecting
thats very simple and
their
understandable, says
environm
Nicola Hargreaves, ental
Retail Commercial concerns
Finance Manager at ; and
Asda. technolo
gical
Value based management
advance
Accountants are best s
placed to measure where
value, whether that proper
be value at risk or a evaluatio
value creation n will
opportunity. make the
Demonstrating the differenc
value of the drivers e
for climate change between
action allows an sensible
long-term investment organisati
and money wasted onal
on a fad. approach
es in this
Examples of way, see
accountants Asdas
providing value presentati
assessments can on of
be found in the CRC
case studies of regulation
Marshalls (carbon s.)
costs), Jaguar
Land Rover
(consumer
demand and
technology) and
Fife Councils
value at stake
modelling at
www.cimaglobal.com/sustainability

Change management
Accountants set the
economic scene,
quantifying the gravity
of the need for change,
and then follow up with
potential methodologies
and approaches. They
can also play a
prominent role in
helping senior
management
understand the
economic
consequences of
proposed policy,
enabling them to
participate in regulatory
policy discussions,
engage with policy
makers and
stakeholders in an
informed way perhaps
even enabling
companies to work with
public and private
stakeholders to shape
the regulatory
environment. (For
examples of
accountants helping to
shape new
 Accounting for climate change

Carbon management
One in five UK respondents to the CIMA survey believe they
will be covered by the Carbon Reduction Commitment (CRC).
A high number of these respondents feel that the finance
function will or could be involved in compliance with the CRC.
This includes traditional roles such as monitoring and
managing energy use (82%), and new areas such as
budgeting for carbon usage (78%), preparing carbon footprint
and annual emissions reports (77% and 74%), purchasing and
surrendering allowances (71%), and recording transactions of
carbon allowances and recycling payments (83%).

External reporting
Many companies are required to include environmental
performance reporting alongside their financial
disclosures: 59% of survey respondents stated that
finance were involved, or could be involved (21%) in
external sustainability reporting. There were many
examples found where finance was involved in the
production of the external reports for their businesses,
either simply from a consolidation perspective, or in
actually producing the intrinsic figures. (See Cathay
Pacific and John Keells Holdings case studies at
www.cimaglobal.com/sustainability).

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Accounting for climate change Accounti
ng for
climate

npower: energy
saving measures.
change

5. Best accou
practice:
management
ntants and climate change
According to the
CIMA survey, nearly Among the great
half of organisations examples we found of
Asd
have a separate this holistic approach
corporate paying off, one of the a:
responsibility or most compelling is Asda. knitt
sustainability Most businesses are
ing
committee and now going after the easy
finance is wins using less energy, fina
represented on over turning lights off, being a nce,
80% of them. A third bit smarter about
of respondents
ops
packaging and logistics,
stated that the says Dominic Burch at and
committee is Asda. Where the sust
actually chaired by relationship [between
the Finance Director aina
finance and the
or CFO. This finding business] can and will bilit
was more common develop is helping us y
for international work out how we unlock
organisations than toge
the potential in the next
UK organisations. ther.
ten years
Asda is a great because it will
example of how become harder
finance can be integral and the challenge
to these cross
is going to get
functional bodies. Its
even tougher.
sustainability strategy
is delivered via a group
called the CSC
(Change Steering
Committee). The
finance team are
stewards of the
process, and pull
together materials for
management and
development of all
sorts of initiatives
including those
specifically focusing
Jagu
on delivering
ar
sustainability
Land
targets. Read Asdas
Rover
full case study which
and
gives more detail of
John
the role finance
Keell
plays in this forum at
s
www.cimaglobal.c
Holdi
om/sustainability.
ngs
There are also
case
further examples of
studie
good frameworks for
s.
sustainability
governance in the
But its up to One of the reasons Burch is hopeful is
each a general open mindedness about
organisation and finance in the organisation. At Asda
their executive we move people around different
team to apply the departments, and finance people have
skills and to be generally quite broad, says
disciplines of Hemant Patel, ACMA, Retail Finance
management Director. Our Head of Energy
accountancy to Management has moved out of the
their own climate finance area, for instance, and moved
change initiatives into core operations. Weve got lots of
in the most examples of finance people doing that
appropriate way.
That helps ensure that the
A number of
management accountants skills
survey
arent just applied to niche financial
respondents
areas of sustainability projects. We
shared with us
have ongoing relationships, its part
how they
of our business as usual activity,
overcame
says Karen Todd, Head of Planning
barriers to more and Programmes. We work as a
widespread joint management team with a
acceptance of finance representative in the non
their financial areas. So finance is
sustainability evaluating the project as it lands
agenda. then on an ongoing basis, they will
do a post implementation audit and
Use of
help to carve out the strategy as it
measurement
develops. Its not just purely about
tools Investing
in tools to allow the numbers stacking up. Its an
us to measure ongoing organic process.
electricity
consumption and R
to weigh our e
waste also a
d
helped a lot, one
respondent told
us. A
s
d
Focus on cost a
savings We have an
environmental s
committee which is
focussed on recycling, f
reduction in energy u
l
and water usage, and l
so on. But they are
driven by cost factors c
rather than climate a
change, said one s
respondent. Another e
added: I think that as
long as it is cost s
effective any company t
u
would be willing to do d
more for climate y
change.
 at
www.cima
global.co
m/sustaina
bility
Use CRC, or
other cap and
trade Finance is embedded
regulations into each of our
J
CRC has enabled operations product
discussions on this development, marketing a
agenda at board and sales, purchasing g
level, said one and manufacturing,
sustainability u
admin and so on, says
expert. Costs Richard Shore, a
charged directly to
the company
Controller of Global r
Marketing and Sales.
such as the L
climate change Finance itself is a close
levy have a knit community and most a
greater impact on people have rotated n
decision making in between the different
this economic d
finance areas. This gives
climate than non us a strong cross
quantitative functional stance and
environmental
corporate viewpoint that
issues which do
ensures finance is not
not immediately hit
the bottom line. only welcomed, but
invited into the core of
Highlight our project teams.
customer
motivations to
be low carbon
consumers
We sell plumbing
and heating
products, so if we
dont embrace the
changes we could
lose market share,
admitted one
respondent. We
need to be ahead
of all
environmental
issues to ensure
our product range
meets customer
and legislation
requirements. We
have built a
sustainable visitor
centre so that they
can see our
product offerings in
use on a day to
day basis.
Rover: successful business
partnering.
And after the easy wins? In this case, a strong existing reputation
Each of those means management accountants are
steps can benefit always part of the mix. The sales and
massively from the marketing function very much
involvement of understands the value finance brings to
management the team, that they are good
accountants, not implementers and have a structured
least in evaluating approach to process which facilitates
in the longer-term timely delivery of complex projects and
cost/benefit of the ensures that the right controls are in
decisions and place to ensure the on going processes
managing related are sustained, adds Shore.
risks that are often
Read Jaguar LandRovers full case study
hidden from less
at www.cimaglobal.com/sustainability
expert eyes. But
management
accountants come
into their own
when
organisations n
commit to the p
essential o
embedding of w
sustainability into e
business as usual r
and in delivering is
on long-term d
projects. e
di
If you are interested in sharing your own insights and
experiences in this area, we would be delighted to hear from c
you. at
Please email us at research@cimaglobal.com e
d
to
h
el
pi
n
g
U
K
b
u
si
n
e
s
s
e
s
use energy more m
efficiently and a
therefore spend n
less money on a
their bills and g
reduce carbon e
emissions. It m
provides e
companies with nt
the tools and a
advice to monitor n
and manage d
energy th
consumption e
effectively. Once whole team, companies can achieve
energy use has substantial savings and improve their
been accurately sustainability performance. The need
monitored, for accurate reporting tools and
npower works systems ensure the management
with companies to accountant is instrumental to the
help them success of any organisations
implement sustainability drive.
energy-saving
measures. With
the support of
senior

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| 16 |
Accounting for climate change company
in Latin
America;
Fife
Other case studies Council,
available to download the third
at largest
www.cimaglobal.com/ local
sustainability include: authority
Asda, owned by Wal- in
Mart, the UKs second Scotland;
largest supermarket, Jaguar
Marshalls, UKs Land
leading supplier of Rover,
landscaping products; luxury
John Keells Holdings, and
largest listed premium
conglomerate in Sri 4x4 car
Lanka; Unilever, global manufact
manufacturer; Cathay urer;
Pacific, Asian airline Compas
group; Masisa, Chile, s, one of
leading forest products the
largest
food and support addre
service businesses in ssing
the world and Punch the
Taverns, one of UKs uncert
leading pub group. ainty
reflect
A call to action ed
throug
Organisations in all hout
sectors and of every the
size face crucial resear
questions about ch we
adapting to climate carrie
change and its d out.
associated risks and
regulations. The If
adoption of climate climate
change as a strategic chang
imperative will soon e
become critical to initiativ
their overall long-term es
viablity. becam
e an
Our survey has integra
shown that ted
sustainability part of
specialists want the
and expect to get busine
help from finance. ss
But can plan,
management they
accountants afford can be
to wait until their accoun
sustainability ted for
colleagues think its in the
time to start finance
engaging? depart
ments
Many people seem
to be confused or agend
unclear about what as.
their organisation Integra
is doing around tion
climate change and
and the true level strateg
of involvement of ic
different parties. A clarity
structured would
business planning also
team with strong help
finance overco
representation me
would create more poor
clarity throughout commu
the system nicatio
n between different Accounting for climate change
teams, which
currently hampers
reliable and robust
climate change
6. Acknowledgements
decision making.

With environmental This report would not have

issues becoming far been possible without the
valuable insights, opinions
more measurable and
and time from a number of
with increasing
contributors.
regulation and
legislation inevitable it Special thanks to:
is time that
communication and Hemant Patel, ACMA, Retail Finance
inter departmental Director, Nicola Hargreaves, Retail
relationships are Commercial Finance Manager,
improved. Finance Dominic Burch, Head of Corporate
professionals need to Communications, Karen Todd, Head
become more
of Planning and Programmes, and
Mark Orpin, Head of Energy
knowledgeable about
Management, at Asda
the risks and
opportunities that Chris Harrop, Marketing
climate change Director, David Morrell, Group
presents, and act as Head of Sustainability, Andy
agents for change in Ackroyd, Commercial
raising the profile of Accountant, and Graham
the climate change Parlett, National
agenda in their Manufacturing Accountant, at
organisations. Marshalls Plc
Stephen Allen, Head of Property, and Emma
Climate change is Catterall, Head of Financial Planning &
a long-term issue, Analysis, at Punch Taverns plc
with a need for
David Smith, CEO and Richard
long-term
Shore, Controller Global Marketing
solutions. Without
and Sales at Jaguar Land Rover
strategic intent,
organisations can Paul Galvin, Finance Director,
at best expect to Specialist Markets, Kevin Hall,
chase regulation, Marketing Director, US Services
and at worst, be and Specialist Markets, and
lagging behind Elizabeth Hartley, Medirest Finance
their competitors Manager at Compass Group
and find Hugh Muschamp, Lead Officer
themselves with Sustainable Development, and
an unsustainable Elaine Muir, Accountant,
business model. Environment and Development
Accounting Team, Ross Spalding,
Lead Officer for Sustainable
Development and Keith Grieve,
Team Leader, Procurement and
Supply Chain Management, Fife
Council
 Dominic Burbridge, and Nick Hay, The Carbon assistance developing the survey.
Trust And last but not least to the 883
Thanks to Sara Shipton (CIMA), Sandra Rapacioli people who responded to our survey.
(CIMA), Helenne Doody (CIMA), Richard Young
(www.writerandeditor.co.uk) and Simon Davies
(CIMA) for their ideas, research and significant
contributions during the development of this report.

Finally thanks also to the Prince of Wales

Accounting for Sustainability project for their

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ISBN 978-1-85971-650-2 (paperback)

February 2010

Chartered Institute of
Management Accountants
26 Chapter Street
London SW1P 4NP
United Kingdom

T. +44 (0)20 8849 2275

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