Yogesh Patel explains how accountants can use business as a force for good and put sustainable profits at the heart of the client conversations.
It is Plastic Free July, an annual challenge where people all around the world give up single-use plastic for the month. So let’s talk about accounting for plastic.
According to the BBC, more than 78m tonnes of plastic packaging is produced worldwide every year by an industry worth circ. $200bn. That equates to 8,000 Eiffel towers in weight and the annual GDP of Greece.
More than a third of the food sold in the EU comes packaged in plastic and 510 million EU residents generate 30kg of plastic packaging waste a year. Why? Because "plastic is cheap, lightweight and adaptable" in ways many of the alternatives are not, says Susan Selke, director of the school of packaging at Michigan State University.
We all know in reality the true impact of plastic is far greater than the financial cost. Plastic is everywhere, causing long-term damage in remote parts of the Antarctic to the deepest ocean trenches.
Some individuals are motivated to play their part, baby steps and all - though too many others feel it is a drop in the ocean.
Ban single-use plastic?
In the 2018 Budget, the UK government confirmed that from April 2022 it will introduce a new tax on the production and import of plastic packaging with less than 30% recycled content.
Many environmental groups and experts are saying this is simply not enough. The AAT has taken a strong stand against plastic waste and do not believe the 30% recycled content threshold is sufficiently ambitious and certainly cannot be considered ‘world leading’ as the government has repeatedly suggested. AAT feel that the threshold should be as high as 50% by 2030 to create meaningful change.
To put this in context, the EU has confirmed that by 2021 it will ban all single-use plastic. Since 2017, Kenya has imposed severe penalties for using, selling or holding single-use plastic bags, ranging from fines of up to £40,000 to four years in prison. (Kenyan tourists before they land are advised to ‘hide those duty-free bags otherwise your holiday will end very quickly.)
India has stated that it will eliminate all single-use plastics by 2022. Mumbai went even further, implementing a complete ban on single-use plastics, from plastic bags to bottles and cutlery. Those caught will be fined circ. $350 and up to three months in jail. According to the Huffington Post, 80 businesses including McDonalds and Starbucks were fined in the first weekend.
Can sustainability become business as usual?
The UK has confirmed that it wants to go carbon neutral by 2050, though a loud lobby suggests this should be done by 2030 and that we are already in a ‘climate crisis’. But what if business played a role proportionate to its financial footprint? What if the bottom line could reward us for long term commercial sustainable thinking?
Parts of the business world have woken up to these concepts:
- Zara confirmed that all their clothes will be made from 100% sustainable fabrics by 2025.
- Victor, the fastest-growing jet charter company introduced a compulsory scheme that offsets 200% of the carbon emitted by each flight.
- Adidas is cleaning up the ocean plastic by making shoes from it. After successful trials it is looking to sell five million pairs of ocean plastic shoes, netting more than $1bn sales whilst reducing the cost of its supply chain. Their pledge to only use recycled plastics by 2024 has propelled them to go one step further with running shoes that are fully recyclable, embracing the circular economy approach.
However, for too many SMEs, the short-term cost is deemed too high. The greener alternatives are simply too expensive. For example, glass is a similar cost to producing plastic but the transport per bottle costs five times more and requires 40% more energy. Oh, and the carbon footprint is five times as much. So even as consumer behaviour is changing, and these businesses might get left behind in the longer term, the short term numbers might not appear to support sustainable behaviours.
So how can accountants help these businesses think more boldly?
As accountants, we have a unique insight into our client’s businesses, and therefore an opportunity to help them make smart, sustainable decisions.
We can help spot the changes, such as eliminating single-use plastic bags, which have a negligible commercial impact but have sustainability benefits. Whilst there are not as many tax and accounting tools available as I would like, here are a few things you can discuss with your clients now, to start making an impact.
Electric cars might not look cheap but over time they work out more economical than traditional alternatives given the huge tax advantages available. From April 2020 company electric cars will have no benefit-in-kind charges and no tax charge on the employer providing the electricity at the workplace. In addition, HMRC announced that it is possible for the cycle to work scheme to cover bikes worth more than £1,000 which includes E-bikes.
All accountants know about R&D tax credits but if a company wants to shift to a more sustainable business model, why not harness these to make the research costs more palatable. The tax credit of 33% in every £1 spent is appealing. The UK government is also supporting innovation through funding grants such as the Innovate UK Smart Grants.
Carbon accounting measures the environmental performance of a business and has a myriad of commercial benefits. It will have increasing importance and relevance for businesses given the government’s focus on reaching carbon neutrality by 2050.
Carbon accounting can be kept as an internal tool initially and over the longterm helps reduce waste, increase staff motivation and brand loyalty. Is not as hard or as abstract to measure thanks to some great work published by ACCA (see Technical Factsheet 190). ACCA has provided an entire framework on how to set targets and reduce a business’s environmental impact.
By thinking about input costs differently and helping clients take a longer-term, more strategic approach, without it being too onerous, we can help them make subtle shifts which collectively can add up to significant improvements in sustainability over time.
About Yogesh Patel
Yogesh is the founding partner of Telic, the accounting and tax specialists for those using business as a force for good. The firm believes that entrepreneurs and businesses who are solving real-world problems, have a formidable purpose and they deserve the scale they seek. Telic helps to unlock a path to growth that will drive impactful innovation.