Not so long ago, a business owner would have laughed if you’d asked about their company’s carbon footprint. Such attitudes are unusual today, partly because of regulatory pressure but also because carbon accounting is proving to be good for the bottom line and investor relations, as well as for compliance, corporate social responsibility and public relations.
The Carbon Reduction Commitment (CRC) regime introduced in 2010 (now the CRC Energy Efficiency Scheme) requires organisations that consume the most energy – those consuming 6,000 megawatt hours of half-hourly metered electricity per year – to report on energy use. This data is then published in a league table.
The government is conducting a consultation exercise aimed at simplifying the CRC but the scheme is all but certain to stay and may well be extended to a wider range of organisations.
Another key regulatory change will be mandatory greenhouse gas emissions reporting for all businesses listed on the main market of the London Stock Exchange from April 2013. Announced by deputy prime minister Nick Clegg at the Rio +20 conference in June, it will be reviewed in 2015. It may then be extended to cover more companies.
The longer you put off carbon accounting the more it will cost
At its most basic, carbon accounting measures three scopes of emissions. Scope one relates to sources owned or controlled by an organisation, such as vehicles and boilers. Scope two includes emissions from bought energy such as electricity. Scope three covers indirect emissions resulting from business activity, such as waste, water and air travel. Scope three is the largest source of emissions for many companies but often the hardest to measure as it covers emission sources not owned or controlled by the company.
Carbon Trust consultant Louisa Ziane points out that carbon doesn’t just signify cost but also risk. This is particularly so for scope three since that applies to the supply chain and what happens to goods and services once sold to customers. “You may want to look at risks in different countries, such as energy prices, which might affect the cost of raw materials, or labour risks,” she says.
One of the most influential organisations promoting carbon accounting is the Carbon Disclosure Project (CDP), an independent, not-for-profit organisation that helps other organisations measure, manage and reduce carbon and greenhouse gas emissions, water use and related risks. It works with thousands of companies and with about 655 institutional investors that hold more than $78trn in assets.
The CDP is also a leading member of the Climate Disclosure Standards Board (CDSB), a consortium of business and environmental organisations that has worked with ICAEW, equivalent bodies abroad and big accountancy firms to create the climate change reporting framework. This is designed to be compatible with all existing carbon accounting and greenhouse gas emissions measurement standards, including the Greenhouse Gas (GHG) Protocol developed by the World Resources Institute and the World Business Council for Sustainable Development.
“One important thing is that it tried to move beyond just asking ‘what’s the carbon footprint?’,” says Richard Spencer, head of sustainability at ICAEW. “It’s a framework that has to be linked to regulatory and other risks, and to performance. This stuff can have an immediate effect on your bottom line.”
CDP’s chief executive Paul Simpson cites IT company Logica, which identified £10m of potential cost savings when it measured carbon use, as a good example.
There can be valuable savings for smaller companies too. Some are working on carbon accounting because their key business partners – larger companies or organisations seeking to reduce their own scope-three emissions – have asked them to do so. But many of these companies soon gain significant benefits as a result. “For an SME in this economic climate any opportunity to reduce costs is important,” Ziane points out.
Accountancy and advisory firm HW Fisher & Company has developed a range of energy and carbon audit services for clients, including SMEs. “Before we carry out the work, we give a client a rough idea of what savings could be made and what our fees would be,” says Simon Mott-Cowan, partner at HW Fisher. “In every scenario we’ve been able to save them more than we’ve charged, in the first year.”
Among the firm’s clients are London restaurant Kitchen W8 (see box right). And on a grander scale Microsoft is attempting to become carbon neutral during this financial year. It operates an internal market that charges fees to divisions of the company for carbon use, while improving environmental efficiency in data centres, laboratories, offices and air transport. The company will also share best practice with its hundreds of thousands of business partners.
“We believe that the opportunity here is to lead by example,” explains Josh Henretig, Microsoft’s director of environmental sustainability.
Sportswear manufacturer Puma has published its environmental profit and loss performance. Malcolm Preston, partner and global leader on sustainability and climate change at PwC, which worked with Puma on this, explains that the company studied its greenhouse gas emissions, other gas emissions, water use, waste and land use. Examining environmental impact all the way down the supply chain to the agricultural production of cotton, leather and rubber has helped to guide Puma’s strategy for sustainable growth. This has given it valuable risk management and competitive advantages, says Preston.
One problem some businesses face when trying to publicise work on carbon accounting or sustainability is the accusation of greenwash – empty climate change gestures. Carbon offsetting often comes in for criticism in this respect.
“Companies need to demonstrate that they’ve done as much as they can before they go to offsetting,” says Ziane. “Measurement is very important as a starting point. Then they should look at reducing emissions through energy efficiency and maybe renewables – perhaps offsetting as a final step.
“If you account properly for emissions and you’re reporting them, people can judge for themselves whether you’re greenwashing.”
Ultimately, the best reason of all to practise carbon accounting is not because it makes you look good but because it saves money, says Jae Mather, director of sustainability at HW Fisher.
“It’s much easier to reduce costs than to increase sales,” he says. “It’s not necessarily about doing everything you can, but about knowing how to get started. The longer you put it off the more it will cost.”
Logistics service provider Wincanton claims its efforts to improve environmental performance are helping it win and retain clients. It reports its carbon use to the CRC, the Carbon Trust, the CDP and the Freight Transport Association’s Logistics Carbon Reduction Scheme.
“The CRC brings [carbon accounting] to the attention of senior figures within the company because there is a bill to pay each year,” says Steve Tainton, Wincanton group energy sustainability manager. “With the Carbon Trust, you show you are good at measuring and managing carbon. If that’s important to a client it may give you an advantage.
“When it comes to the CDP we’ve had investor groups contact us and say, ‘we notice your score is this, what are you doing about it?’ Our chief executive has had letters from groups of investors saying ‘well done for your score’.”
The company is open to cutting carbon use by switching fuels or vehicles and it is looking at operational adjustments that will allow services for multiple clients to be combined. Wincanton already uses longer trailers on its vehicles, cutting emissions and delivering a 15% productivity rise and up to £400m in cost savings each year.
Case study: Kitchen W8
HW Fisher recently conducted a carbon audit on Kitchen W8, a Michelin-starred restaurant in Kensington, west London. “We will be implementing some of the recommendations immediately,” says the restaurant’s co-owner Rebecca Mascarenhas. “Restaurants are very energy-intensive. All recommendations that reduce energy consumption are of huge financial importance. From a corporate ethics point of view it’s something we do naturally, so it’s altruistic and financial. It’s quite a time-consuming process gathering the necessary data, but HW Fisher made it painless.”
The main change will be replacing the restaurant’s lighting with LED lights. “That will provide the biggest payback: in a restaurant lights are on from nine in the morning until midnight, seven days a week,” she says. “That’s a lot of light bulbs and a lot of energy.”
HW Fisher also highlighted equipment wear and tear issues. Mascarenhas says, “By using timer switches, optimising voltage and not hammering everything all the time we’ll look to have a longer lifespan for equipment and reduce maintenance and replacement costs.”