Sustainability Blog

Sustainability Blog

Opinions expressed on this blog reflect the writer’s views and not the position of the Capgemini Group

Financial Accounting for Sustainability

Category : General
We have just had a most successful Environmental Sustainability Week which showcased some of the great work our colleagues are doing around the world. However, impressive though this is, is it enough?
It’s difficult to get up to date data but the world emitted 31.8 billion tonnes of carbon dioxide from the consumption of energy in 2010 – up 6.7% on the year before. And the world emits 48% more carbon dioxide from the consumption of energy now than it did in 1992 when the first Rio Summit took place. The only way mankind will have a material impact on emissions of this scale is by convincing “Big Business” to change its ways.
What are the chances of us doing that?

I see many encouraging signs that Industry is taking the problem with an ever increasing seriousness. The likes of Unilever, M&S and Kingfisher – all Capgemini clients – have all proven that good sustainability increases profits, not just costs. As a result, more and more CEOs are asking for positive action from their senior managers. Even the Oil Industry is asking for carbon pricing to be introduced, but with their challenge of stranded assets, that move may be less altruistic than it seems!

However, in my view real progress will only come when sustainability reporting is integrated with mainstream financial reporting and for that reason I’m rather concerned about the proposals for Scope 2 accounting introduced earlier this year. Until now, the relatively simple approach of multiplying corporate energy use by grid average emissions factors has been adopted. The problem here is that as more accurate data is available for different energy sources, average values are deemed to be no longer good enough. To counter this, the GHG Protocol, Defra and Carbon Disclosure Project (CDP) have all come with similar, but not the same, approaches. If having three methods to choose from isn’t bad enough, both want two different numbers reported, one for a location-based method which continues to use grid averages and one market-based, which reflects the energy actually bought.

Historically, “mainstream” accounting has managed similar challenges by guidance in the process with a single number in the accounts, annotated with notes if needed. This makes for much easier comparisons, both between organisations and over time.

To introduce this kind of complication at a time when interest is finally rising may perhaps offer greater accuracy but seems to me to be a backward step in terms of presentation. Let’s see how adoption amongst industry goes!

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Jonathan Tapp
Jonathan Tapp

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