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How to green the books

6th Feb 2024
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Accountants are the most trusted outside advisors most small businesses have. This leads to conversations about far more than just “the books”.

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Good accountants can use this advisory time to lock in strong relationships with their clients. And a big issue coming down the pipe for businesses is some sort of accounting of their carbon emissions.

Why accounting for emissions is on the up

There is currently no regulatory requirement for smaller firms to audit or report on their emissions.

But both customer demand and regulatory pressures may change that in coming years. Already many companies voluntarily report on their emissions, a necessary step if they wish to market themselves as carbon neutral or gain accreditation as a “B Corp” or similar. And even if the UK never moves to legally require emissions reporting, other jurisdictions your client sells in might move to.

So accounting for a company’s carbon footprint could well give it a competitive advantage over its peers. And being able to help them with it could give you an advantage too.

This makes the case for at least thinking about potential emissions reporting clear.

Understanding Scope 1, 2, and 3 Emissions:

Not all emissions fall into one basket. The most recognised standard breaks emissions down into three “scopes”.

Scope 1 Emissions: These are direct emissions produced by a company’s own activities and assets. Examples include emissions from combustion in owned or controlled boilers, furnaces, vehicles, and chemical production. For a professional service firm these emissions might be very low – for a manufacturer these could be quite high.

Scope 2 Emissions: These involve indirect emissions resulting from the generation of purchased energy. For most businesses, this includes electricity and heat purchased from external sources.

Scope 3 Emissions: This category encompasses all indirect emissions not covered by Scope 2 within a company’s value chain. This includes emissions from suppliers, employee commuting, and business travel. There are very few firms that don’t have some Scope 3 emissions – but accounting for them can be extremely difficult, requiring for example surveys of employee commuting methods.

Low-cost approaches to emissions auditing

Emissions accounting is not simple, and without some care an SME can spend a small fortune on accountants to be told things they might already know.

But there are some low-cost or free moves they can make early to get an idea of their carbon footprint.

Energy Efficiency Audits: Businesses waste a lot of money and energy heating or cooling offices inefficiently – a Green Alliance report estimated the overall wastage at around £60m annually. An audit of onsite energy efficiency is thus a great first-step for a huge variety of firms. The upfront cost could easily pay for itself in savings.

Online Calculators: Numerous online tools and calculators are available to estimate carbon footprints based on industry-specific benchmarks. They aren’t perfect, and don’t claim to be, but these tools can provide a preliminary understanding of emissions and serve as a starting point for further analysis.

Engage with Suppliers: Firms with extensive supply chains should send out a few questions to their main suppliers about their own footprint. What they learn might not change anything immediately – but the more information they have the better.

Check in on commutes: Smaller firms might already have a good idea how many of their staff drive to work. Offering a salary sacrifice EV scheme and bike parking gives those employees an option to make that commute cleaner.

Make sure employment records are on the cloud: Some smaller firms still rely on paper-based or desktop-based employment records that would make data analysis on things like commuting or computer usage quite difficult.

Accountants will play a vital role in guiding businesses through the complexities of emissions reporting – as they do with all the other complexities of business currently. Getting across this topic will be essential for the entire profession going forwards.