The sustainable CFO: How to account for the environment

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One of the more unseemly concepts in economics is the ‘negative externality’. Essentially, it’s a fancy term for a cost imposed on a third party. All manner of pollution – water, noise, air, light – are negative externalities.

Negative externalities are, as the threat of anthropogenic climate change will attest, quite common in commerce. Clearly, to paraphrase the famous American scientist Barry Commoner, we have compiled a record of serious failures in recent technological encounters with the environment.

And on the surface, there would seem to be an ineluctable tension between management accounting and the environment. Surely an emphasis on minimising costs can’t coexist peacefully with sustainability, which centres on internalising externalities?

But according to Richard Carter, head of finance and sustainability at Suffolk-based brewer Adnams, the antagonism is entirely misconceived. Carter, one half of Adnams’ sustainability team, has helped turn the Adnams into a “zero waste to landfill” business.

At its simplest, sustainability is a cost saving. Carbon, water, waste: these are all proxies for cost, Carter explained. “If we can reduce those things, we’re reducing costs in the business. It’s that simple.”

Adnams is extremely resource-intensive, using something like 15 gigawatt hours of energy every year and 80 million litres of water. “It’s no secret what’s happening with the cost of energy, it’s rocketing. Water is inexpensive, but we’re in one of the driest parts of the country, our annual rainfall is on par with that of Jerusalem. We have to be careful with our use and the water companies restrict us. If we can’t use water, simply put we can’t make any more beer.”

Carter is passionate about the environment, but he’s crystal clear that Adnams’ motivations are economic as well. It isn’t a social enterprise, it’s a hugely ambitious business making beers, spirits and running pubs and hotels. And, like any head of finance, he’s tasked with doing more with less.

Adnams cost base is particularly affected by the changing climate. “We’re seeing warmer, wetter summers,” Carter told AccountingWEB. “That means we’ve got a higher level of nitrogen in the barley we use to make beer, and it creates lower yields. So we’ve got to buy more barley and then the cost of a pint goes up.”

Cutting costs

Sustainable cost savings aren’t just about space age tech. “There are a number of ways to cut costs ethically,” said Michael Wilks, the finance manager at Winnow Solutions, a tech company focusing on food waste.

“Just looking around my desk I can see that most of our furniture is second-hand and reconditioned – cheap and ethical while being exactly as good as something expensive and unethical. Energy efficiency is another example – our Plumen bulbs give the same effect as incandescent bulbs but with a fraction of the electricity usage.”

Environmental initiatives have a tendency to create externalities, too -- but positive ones. LED lights, for instance, have a cost saving in terms of electricity, but then create ancillary benefits. LEDs burn cold, making temperature control simpler. They last longer, so there’s no need to shut down a warehouse aisle and get the cherry picker out to change them.

You can go much bigger than just light bulbs and furniture, though. Adnams’ distribution centre is constructed with zero-carbon ‘hempcrete’ and it’s sedum roof helps collect rainwater, saving a million litres of water every year. The eleven-year-old distribution centre saves Adnams over £50,000 a year in energy bills. “It’s already paid for itself.”

More than just raw materials, both Winnow and Adnams have seen the benefits of sustainability cascade down to employees. “Our people are our greatest asset, but they’re also our greatest expense,” said Wilks.

“One of the most significant things we can do to improve our bottom line is to get more out of our people and to attract the best without having to pay bankers’ salaries. Study after study has shown that people are happier and more productive in ethical, purpose-led businesses.

“Staff retention is greatly improved in an ethical business, and recruitment is far easier and therefore cheaper. This gives your bottom line a tremendous boost, and more than makes up for any extra expenses you might pick up in driving ethical change within the business.

The bottom line

When sustainability is bracketed alongside costs and business resilience, the link to the finance function becomes common sense. And as the climate changes, cost pressures will rise and the strategic role of the FD or CFO will have to adapt.

Finance professionals often talk of financial and operational gearing, Carter said, but it’s high time to consider what he sees as “environmental gearing”. That is, finding new, efficient ways to squeeze more out of a business. “In 2016, our production output increased by 14% when our energy usage increased by just 4%.”

“This is no longer hypothetical. We have got to adapt and minimise the effects. Regardless of whether you’re a climate change sceptic or not, nobody can suggest there’s an infinite supply of oil or bauxite that’s used to make the aluminium for beer cans. These resources are going to run out and we have to find a way to adapt. Those that adapt sooner have a big advantage.”

As Winnow Solutions’ Wilks sees it, sustainability can’t happen without the finance function. “It sets the tone for the entire business – it’s the engine room, after all,” said Wilks. “It’s very easy for sustainability and ethics to be trumpeted by the marketing department in a shallow effort to build the brand, but this is seen for what it is by increasingly savvy employees and clients.

“The finance team is instrumental in shifting the focus from the next quarter’s results to a longer-term view that will automatically encourage a more sustainable and ethical approach across the business.

“The data you choose to present and how you choose to present it can raise everyone’s eyes from short-term profit to long-term sustainable growth. This selection of the stories to tell with the data is also an opportunity to introduce ethics into the conversation.”


If you’d like more information on how to make your business more sustainable, here are some good places to start:

About Francois Badenhorst


I'm AccountingWEB's business editor. Feel free to get in touch with comments, tips, scoops or irreverent banter. 


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21st Feb 2018 19:17

Interesting article though in some business entities the solutions are more difficult to implement with longer payback periods.

At work we certainly embrace the secondhand ethos (in out case the office is furnished with likely third or fourth hand items), we have been fitting light sensors into communal corridors in our communal/shared use let properties (pay back we estimate in circa 2 years) and may be considering replacing a broken gas boiler in one empty property with a ground source heat unit as prices are now more reasonable, as are air units thought not quite as efficient.

The catch is often initial costs are too high to justify but as the tech advances adoption often becomes more possible on both environmental and cost saving grounds.

My interest is partly due to my daughter's degree, she has a MA in Sustainable Development, so maybe some of her dissertation on measuring achievements re INDCs and the issues re same rubbed off on me.

We also tried a near zero carbon housing site but the 2007/2008 downturn put paid to that.

Anyway the dissertation is a great read (If you like dry reading) and a snip at £999.99 per copy. (Well I do need to recover the cost of sending her away to university in the first place, I am an accountant first and an Eco warrior second)

Thanks (2)
22nd Feb 2018 10:53

Cheers for the comment, DJKL. Yeah, I getcha, it's not always possible to pursue some of the grander solutions as the cost can be prohibitive.

But as you pointed out yourself, it doesn't need to be grand. Things like second hand furniture and light sensors. But I agree with you that it'll become easier to implement as innovation decreases the costs.

Thanks (0)
to Francois Badenhorst
22nd Feb 2018 16:13

It is like computers, the most up to date all singing and dancing cost a lot, but if you wait 2-4 years the previous up to date kit is now well down the pecking order and its development costs have been absorbed by earlier purchasers, in the main I take the same approach with cars (though have bought two brand new ones in my life) letting someone else absorb the front end costs.

Of course my father was a prophet re sustainable living well before it was fashionable, string was always untied not cut, he slit envelopes he received to make note paper
for shopping lists (a great way to keep the cost down, make a list, stick to it, no impulse buys) which he held in a bulldog clip and had a vast collection of DIY bits and pieces that would be useful one day (I now own some of these bits and pieces, they will be useful one day, honest, I will leave them in my will to my children)

Thanks (0)
22nd Feb 2018 20:05

Great article. I agree that finance can lead the way to deliver sustainable business models with a positive financial impact.
Thought you may like my article:
All the best

Thanks (0)
22nd Feb 2018 20:05

Great article. I agree that finance can lead the way to deliver sustainable business models with a positive financial impact.
Thought you may like my article:
All the best

Thanks (0)
By verb8im
03rd Mar 2018 10:00

An interesting concept which I read here in LinkedIn some years ago: disclosure in the MD&A on emissions absolute in absolute terms or in relation to Units produced, sales or some other benchmark like total payroll. Without trying to cost it out, a user can see how environmentally responsible one enterprise is in relatioon to it's competitors. Environmental consciousness could be an attractor for Talent.

In Germany the National railroad states in its advertisements that a certain train trip has zero emissions.

Clearly, CFO's can affect the environment in their choices and policies.

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