How will environmental pressures such as SECR reporting impact finance teams in the future?
The climate crisis is one of the biggest challenges facing humankind. Reducing our burden on the planet and moving towards a sustainable way of life is an increasingly vital responsibility we face. Businesses are no exception, and modern organisations are under growing pressure to adopt environmentally responsible practices.
Legislation, such as the recently introduced Streamlined Energy and Carbon Reporting (SECR), is just one example of the increasing pressure for businesses to lessen their impact on the planet. However, changing regulation is not the only aspect finance teams need to be prepared for. Read on to find out what SECR means for your business, as well as other ways environmental pressures will impact your finance team in the future.
SECR came into effect in April 2019, but beginning in April 2020, affected businesses will be required to submit their first annual report. SECR regulation replaces and extends the previous Mandatory Carbon Reporting (MCR) guidance. It requires companies to provide annual reports detailing their energy usage and efficiency along with their greenhouse gas emissions. The scheme is intended to simplify environmental reporting and, by requiring businesses to be transparent, aims to prompt companies to look closer at their environmental credentials.
SECR does not apply to everybody, but if your business meets two or more of the following criteria then — with a handful of exceptions — you will have to comply. This includes businesses with:
• More than 250 employees
• Annual turnover of more than £36m
• Annual balance sheet above £18m
The new reporting requirements will undoubtedly have an impact on finance teams. Of course, the burden will be less for those businesses that already have a reporting structure in place, but businesses that don’t will need a sound financial plan for setting one up. The administrative costs of an additional process are an obvious consideration, and you should be prepared for the upfront cost of this.
However, SECR and any other future environmental regulations in store for businesses should be seen in a wider context. Abiding by this new legislation is an investment that makes sense not only for our environment but for businesses as well. Understanding your energy usage through regular reporting will help you identify unnecessary costs and make adjustments to your organisation's practices. Being energy efficient and resource savvy guarantees long-term financial savings.
New regulation will not be the only element that changes the financial landscape of business. According to Business in the Community’s new Responsible Business Tracker, environmental issues are seen as a main priority by over a third of UK businesses. It is clear that companies will increasingly be making environmental choices of their own volition, further integrating the environment into company decision making.
This reflects the growing priority of the British consumer to buy ethically and sustainability. Research published by inRiver last year indicated that nearly two-thirds of young UK consumers would be put off a purchase by its environmental footprint.
Finance teams should be prepared for this change in values to impact their monetary decisions. Making processes more sustainable and obtaining resources more ethically will likely mean an initial financial hit. New technologies, equipment upgrades and changes to infrastructure carry inevitable costs, while switching to greener suppliers and establishing new partnerships will take time and money.
The costs associated with going green will be more manageable if you are prepared. Factoring environmental costs into budgets and adopting an innovative and flexible approach will help. Again, it is important to remember that the higher costs involved in upholding environmental standards is money invested rather than lost.
Financing the future
The destruction of our natural environment is a serious threat to future prosperity, and businesses must be prepared to adapt greener models or else risk their future — in more ways than one. As we have seen, finance teams in particular should be braced for the cost that environmental pressures can impose.
Undoubtedly, the future of business is green. The good news is that through forward-thinking and financial planning, your company won’t just withstand environmental pressures but actively flourish.