CEO of Jaguar Land Rover, David Smith said, “Sustainability is now a core consideration from the board to the shop floor. Our finance business partners play a pivotal role not only integrating sustainability issues into our long-term decision-making process, but in the equally critical part they play in ensuring the organization recognizes in a timely way the risks and opportunities presented by climate change in the day-to-day course of running the business.”

Overview

Climate change poses a major risk to the global economy—possibly shrinking its output by 20 percent, according to the 2006 Stern Report. Given the likely effects on habitat, resource availability and consumption, every organization will be affected.

Tackling climate change is not just a question of “doing the right thing.”
Businesses have a duty to their customers, employees and, crucially, their shareholders to deliver long-term value and to manage risk. In other words, sustainability has always been a fundamental strategic goal.

Managing and mitigating climate change must be embedded in our decision-making. When it comes to capital expenditure and investment decisions, for example, it is vital that we apply the principles of sustainable procurement and consider long-term implications—financial, environmental and social—rather than just short-term costs.

Management accountants have a key role to play in driving sustainable strategic and operational decisions. But Cima’s research shows that even where finance teams are engaged in climate- change related activities, they have often been on an ad hoc basis.

This must change. Management accountants are equipped with tools and techniques that can ensure businesses understand the scale of the problem, come up with viable solutions and ensure they are properly implemented. They have a pivotal role in providing business intelligence to support strategy and influence decision-making.

Without the rigor and commercial acumen of the finance function, it may prove impossible to truly embed sustainability into normal business life. Failure for management accountants to get involved now, when key decisions are being taken in areas like carbon trading and compliance with new climate-change-related regulations, could result in far higher costs, lost opportunities or reduced competitiveness.

Cima and Accounting for Sustainability (A4S) have conducted an international survey of almost 900 finance and sustainability professionals. Cima also carried out in-depth interviews with experts in leading companies. This has helped us understand best practice in this area, as well as identify opportunities for the management accountant to become more involved.

This report makes a compelling case for every organization to ensure that its finance team is at the heart of its climate-change strategy, whether that’s complying with new regulations, mitigating its environmental impact or adapting to new circumstances. Senior decision-
makers should understand the value that management accountants bring to the issue; accountants themselves should be clear about how to make the case for their involvement, and what skills they can bring to bear.

This report covers four main topics.

·      Businesses and climate change—how business is affected and what it needs to do.

·      Barriers to change—and how a financial perspective helps overcome them.

·      The management accountant’s role—skills, tools and techniques that can be applied to help companies mitigate and adapt to climate change.

·      Best practice—how organizations can use management accountants to embed a rigorous approach to climate change into strategic and operational decisions.

Climate change as a strategic business imperative

Research has shown that one of the most important reasons companies fail is that they “miss colossal external changes.” That’s a definition that can easily be applied to climate change. Like any risk, however, there are upsides and downsides.

Research carried out by the Carbon Trust and McKinsey2 in 2008 suggested that tackling climate change could create opportunities for a company to increase its value by up to 80 percent—if it is well positioned and proactive. But up to 65 percent of value could be destroyed if the company is poorly positioned or a laggard on climate change.

There is stiff competition to secure funding for projects and demonstrating a compelling return on investment in climate-change management can be difficult. Strategic, long-term goals also play an important part in ensuring continued commitment to the longer-term sustainability journey.

This regular weekly column from the UK-based, 90-year-old Chartered Institute of Management Accountants, or Cima, is meant to expand and enhance the diversity of views on current issues in the financial world, which has been facing some of its toughest challenges the past few years. Cima officers and members will take turns writing the Monday column. Cima is the organization behind the Global Business Challenge, meant to test the strategic business skills of students globally, part of Cima’s vision to develop future talent, and targeting university undergraduates.