Accounting for Climate Change
For years, climate change has been one of those issues that businesses were happy to ignore. Green washing was big business with firms keen to be seen to be doing the right thing but not taking any action. Those days are behind us as the Financial Reporting Council says it will focus on how firms report on climate change.
Even the biggest organisations are feeling the pinch. Heathrow’s third runway has just hit the buffers thanks to a court ruling that it had failed to consider how it would impact the country’s commitments to a zero-carbon economy.
But it’s also a big deal for smaller companies. The UK’s target of hitting net zero by 2050 means every part of society and business will have to make big changes.
Most small business owners say that sustainability is already high on their agendas but at a time when businesses are facing pressures from all sorts of angles, this is another issue and potential burden which can hold the business back.
However, climate change shouldn’t be regarded simply from the perspective of doing the right thing. It will have an enormous impact on business. The University of Cambridge estimates the climate crisis will wipe 7% off global GDP. Businesses of all sizes may feel the pinch so they all have a duty to their customers and to themselves to ensure sustainability and climate risks are monitored and recorded.
The financial function will be critical to this but research from CIMA says its involvement has only really been on an adhoc basis. Short term money worries still dominate thinking at the expense of the long term.
Instead, the rigour and financial acumen of the finance team should be put to use to record these risks and help the business develop robust solutions. For that to happen, small businesses may have to build capacity within their finance team more quickly.
The old-fashioned approach of tracking income, expenses, profit and loss through Excel sheets, will not be good enough. Upgrading to the latest software, such as Xero or FreeAgent, will make it possible to keep closer track of finances, to help companies make better decisions and balance environmental and financial sustainability.
Likewise, getting advice from a specialised accounting team on how to embed sustainability into your financial calculations, will help you get ready for the green economy.
It gives you more control of your data helping you build green procurement policies into the fabric of the company. Greater visibility here can unlock savings, highlight where the business is making the most money and streamline services. If a business has to invest in more sustainable ways of working, every penny which can be dragged out of the accounts process will be invaluable.
For a variety of reasons, therefore, every business will have to look at its accounts. Software will become increasingly important as they strive to capture more information about business operations and improve their financial management. As businesses strive to balance environmental and financial sustainability, the accounts function will become even more important than it already is.