3 reasons your accountant is crucial to your sustainability goals
What exactly has your accountant got to do with climate change? Aren’t they just there to crunch the numbers?
Actually, your accountant has more influence on your sustainability activities than you might think.
A good accountant is a trusted advisor for making informed decisions about risks and opportunities, and there has never been a greater long-term risk than the climate emergency.
The climate crisis is completely changing the business landscape, not just physically through rising temperatures and extreme weather, but by transforming the marketplace and the rules and regulations businesses have to follow.
A good accountant should be able help to you navigate this changing landscape, and make the most of the opportunities ahead, in three key ways:
Accounting is no longer just about pounds and pence
It’s no longer acceptable to be just a ‘financially’ sustainable business; you need to be environmentally and socially sustainable as well. This combination of the economic, the environmental and the social is what’s known in sustainability circles as the Triple Bottom Line. You may be more familiar with the phrase People, Planet, Profit – it’s the same thing.
The Triple Bottom Line concept (Credit: The Green Accountants, taken after Dalibozhko& Krakovetskaya, 2018)
Whilst we measure the economic (profit) part of the Triple Bottom Line in pounds and pence, how do we go about measuring environmental (planet) or social (people) performance? For that we need different metrics.
Counting carbon
One of the most popular metrics for measuring your environmental performance is carbon accounting. This is way of quantifying your contribution to climate change by calculating how many tonnes of greenhouse gases your business emits (also known as your carbon footprint).
In the simplest terms, your carbon footprint is made up of three things:
- The greenhouse gases you emit directly through operations you own or control (e.g. the gas you burn in your boiler or the diesel burned in your vehicles). These are what are known as Scope 1
- The greenhouse gases you are indirectly responsible for through your energy use (i.e. the emissions associated with generating the electricity you consume and transporting it through the grid to your site). These are known as Scope 2
- The greenhouse gases you are indirectly responsible for through all the other upstream and downstream activities your business relies on (e.g. business travel, staff commuting, the materials you purchase, the waste you dispose of, transporting your products to the end customer and so on). These are known as Scope 3
Scope 1, 2 and 3 greenhouse gas emissions (Credit: Net Zero Group, taken after Greenhouse Gas Protocol)
As you can probably tell from the diagram above, measuring all of this activity accurately is no easy task. Doing it to a decent standard requires data from a lot of different sources along with a robust process for calculating and reporting it all.
This is where a good accountant can prove invaluable – especially when you get to the more complex Scope 3 emissions, which can be partially calculated using the expenditure on your P&L Statement. That’s why we’ve developed a unique Green Bookkeeping system that creates financial records ideally suited to carbon footprint measurement.
The accounting profession is set to play an increasingly important role in not only providing these sorts of services, but also deciding how carbon accounting standards are developed alongside conventional financial reporting.
“You don’t get to a well-developed model of carbon accounting and reporting without the accountants being involved. The issues around capturing carbon emissions in your supply chain are methodologically bread and butter for accountants”
Richard Barker, Professor of Accounting at Oxford University
If your accountant isn’t getting up to speed on all of this now, they aren’t doing their job properly.
Get ahead now or fall behind (part 1)
But wait, isn’t this sort of thing just for large companies?
Not anymore. While it’s only mandatory for large businesses in the UK to report their carbon footprint (for now at least), no business is immune to the rise of carbon accounting.
Why? The simple truth is that SMEs account for half of all greenhouse gas emissions from UK business. Given that the UK has set a target to achieve net zero greenhouse gas emissions by 2050, we can’t get there without every business doing their bit.
What’s more, as large businesses progress towards their climate goals – and many of them are chasing targets much sooner than 2050 – their attention is increasingly turning to the impact of their supply chain (i.e. their Scope 3 emissions).
The carbon footprint of a typical supply chain is well over ten times the size of a company’s direct operations. That means if a buyer wants to get anywhere near net zero, a lot of the hard work will fall on its suppliers. If you’re a B2B business, that means you.
If you’re a B2C business, you’re directly at the whim of rapidly changing consumer attitudes. The demand for sustainable products and services is continuing to grow, but so is the public’s scepticism about greenwashing, so being able to back up your green claims with hard numbers is essential.
In other words, whether it’s in the form of government regulation or customer expectation, expect carbon accounting to become a mandatory requirement within the next few years. Either way, getting ahead now is crucial.
2.Traditional financial statements are on the way out
Over the last few years (and even the last few months), huge progress has been made in bringing a whole host of non-financial considerations into the kind of corporate reporting you usually find on Companies House.
You may have heard of ‘ESG’, which stands for environmental, social and corporate governance. Think about it as the information investors need for evaluating the ‘People’ and ‘Planet’ elements of your company’s performance and risk profile.
ESG reporting is no longer a niche trend. This year, nearly 20,000 of the world’s biggest companies shared their environmental data with investors through the world’s leading disclosure system, CDP, and that was a 38% increase on last year.
It’s acronym soup out there
The way companies go about disclosing their ESG performance is evolving rapidly, and unfortunately ‘ESG’ is just one ingredient in a growing acronym soup of jargon businesses need to keep up with:
- From 2023, the UK’s large businesses will have to disclose their financial exposure to the risks of climate change in line with an international initiative called the Taskforce for Climate-related Financial Disclosures (TCFD)
- This adds to pre-existing regulations such as Streamlined Energy & Carbon Reporting (SECR), which require large businesses to disclose their annual energy use and greenhouse gas emissions
- The TCFD requirements will shortly be followed by mandatory Net Zero Transition Plans, which are currently being developed by a UK initiative called the Transition Plan Taskforce (TPT)
- These regulations are intertwined with international sustainability disclosure standards currently being developed by the International Sustainability Standards Board (ISSB), part of International Financial Reporting Standards (IFRS)
- Moving further forward, we’re likely to see even more standards for other environmental issues, such as the TCFD’s sister initiative, the Taskforce for Nature-related Financial Disclosures (TNFD).
Still following?
Luckily, with a green accountant you won’t need to.
Get ahead now or fall behind (part 2)
While the above standards are targeted at large businesses and will remain voluntary for SMEs for the time being, some elements will eventually become a mandatory concern in a similar way to carbon footprinting.
Even before this happens, incorporating climate disclosures into your financial reporting on a voluntary basis will add credibility to your sustainability commitments and provide valuable information to stakeholders. It could even affect the valuation of your business if you’re looking to sell or attract investment.
3.The tax landscape is constantly evolving
Environmental taxes and tax reliefs are another constantly evolving minefield that can be difficult to navigate without a good accountant’s help.
On the one side, there are significant financial incentives to support your sustainability initiatives if you know where to look.
Take electric vehicles as an example. Electric cars, zero emission goods vehicles and electric charge points currently qualify for enhanced capital allowances, allowing you to deduct the full cost from your profits before tax. Electric vehicles also benefit from zero vehicle excise duty (road tax) until April 2025 and significantly lower benefit-in-kind tax (company car tax) compared to petrol and diesel cars.
On the other side, tax penalties for unsustainable business activities are beginning to stack up. The most recent addition to the list is the Plastic Packaging Tax, which penalises plastic packaging containing less than 30% recycled plastic.
We can expect energy taxes to evolve over the coming years to incentivise a shift to electricity (something worth thinking about if you’re considering replacing your gas boiler, for example). We also expect the tax system to adapt to the rising environmental cost of greenhouse gas emissions. Large businesses in certain sectors already have to purchase a permit for every tonne of carbon they emit into the atmosphere, but more general economy-wide taxes on carbon are not unlikely in future.
Having an accountant who can keep on top of all of this for you will help you make better informed decisions on your sustainability investments and overall business strategy. That’s why we provide our clients with nine-month reviews to identify all the ways you can improve sustainability and become more tax-efficient at the same time.
Need a helping hand?
If your accountant can’t help you with any of the above, we can. To get started on your sustainability journey, take a look at how our sustainability packages work or feel free to message me directly.
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