ACCA - The global body for professional accountants

We hear from Scottish companies unlocking the economic benefits from investments to reduce their carbon footprint – and it hasn’t done their social credentials any harm either

This article was first published in the July 2012 UK edition of Accounting and Business magazine.

In tough economic times, few businesses see reducing their carbon footprint as a top priority. Yet those that do report a ‘triple bottom line’ payback. This means they benefit from improved environmental and social credentials, as well as the economic gain from reduced energy costs and additional income from the low-carbon electricity they generate.

Edinburgh-based event management company Maximillion is an enthusiastic campaigner for green good practice after investing more than £100,000 in energy-efficient systems. These include a wood pellet boiler that powers its office and warehouse, solar panels, rainwater harvesting and energy-efficient lighting and central heating systems. Not every measure needs to cost the Earth though. The company has installed a shower to encourage people to cycle to work and trains its staff in energy-efficient behaviour, such as turning radiator thermostats down before opening windows and only switching on the lights above them.

‘That £100,000 investment sounds like a disproportionately large amount of money for the size of business that we are (eight staff), but we’re saving about £11,000 a year and 114 tons of carbon,’ explains Maximillion managing director John Strachan. ‘It’ll take us about 10 years to pay back our investment, so it’s quite a slow burn in terms of return. But it’s not just about pounds and pence.’

Spin-off environmental and social benefits include gold award accreditation in the Green Tourism Business Scheme (the UK’s national sustainable tourism certification scheme) and staff loyalty. ‘They enjoy working for us because of our green credentials,’ Strachan says.

Economic benefits include low to no energy bills, very small landfill taxes and free PR because of the company’s reputation. ‘But, most importantly, we get green sales,’ Strachan adds. ‘Sales from organisations that are looking to partner and engage with a supplier that has a reputation for sustainability – that’s where the payback is.’

Environmental consultancy Sustainable Opportunity Solutions (SOS) helps companies improve their financial and environmental performance and recently advised a metal fabrication business that installs gates for blue-chip clients, including Royal Bank of Scotland.

SOS managing director Paul Adderley, an accountant who began his career at PwC, says: ‘The business has 15 employees and installed a 50kW solar photovoltaic system (which generates electricity) of about 200 panels on their factory roof. In just two months, and despite the wet April, the system has generated nearly 9,000kW hours of virtually carbon-free electricity – enough to supply three average-sized UK homes for a year.’

Cash benefits

The resulting lower-energy bills and income from the government’s feed-in tariffs (pre-March 2012) – paid by electricity suppliers for the low-carbon electricity companies generate – is predicted to add around £11,000 a year to the company’s bottom line. There are also reputational and staff engagement benefits. For example, seeing the solar kilowatts add up seems to have a positive impact on staff’s views of low-carbon practices.     

These additional benefits help to justify the up-front investment, which here was financed by an Energy Saving Scotland small business loan. This is an unsecured loan of up to £100,000 over eight years at 5% interest. These repayments will be mostly covered by the annual income from the solar system installed by the company.

For Scottish Leather Group – the UK’s largest leather manufacturer – investing £6m in the industry’s first and only thermal energy plant in 2010 has unlocked huge savings and new opportunities with world-class luxury brands. The company – which comprises four leather manufacturing subsidiaries and a technology company based in the west of Scotland – now produces much of its own power and energy from waste, and is winning significant new business from its ‘low carbon leather’ offering.

‘To us, it was a simple matter of “do or die”,’ explains Gordon Ross, managing director of SLG Technology.  ‘Leather manufacture is a very waste-intensive business, and we were acutely aware that as our business continued to grow, there must be a better way to deal with all this waste. We’ve had to lead the way in this business in order to continue working with some of the world’s best-known brands, from Aston Martin cars, Emirates airlines and Vertu mobile telephone handsets to luxury cruise ships, hotels, restaurants and many more. All very exacting customers with an increasing focus on sustainability.’

Alex Smith, an assurance senior manager at PwC, advises a range of companies across the energy and utilities sector and urges clients to think creatively about how they can add value in the renewables space. ‘One of my clients is a coal-mining company who are sitting on quite a large landbank,’ she explains. ‘They realise coal is dirty and isn’t going to last forever, so part of their strategy is to capitalise on their landbank. This includes some quite high land created by their coal bungs and restoration landscaping. Infinis (one of the UK’s leading generators of renewable power) were looking for sites for wind turbines and have rented land from them. It’s about spotting that opportunity and looking further down the line at where you can benefit.’

Low-carbon credentials

The Edinburgh Centre for Carbon Innovation is a collaboration between the University of Edinburgh, Edinburgh Napier University and Heriot-Watt University to promote the development of low-carbon skills, products and services. Director Dr Andrew Kerr says the demands of customers are driving more and more businesses to improve their low-carbon credentials.

‘The carbon metric is useful for demonstrating an efficient company,’ he suggests. ‘If a company has very low carbon it’s generally a very efficient company, so if you’re looking to drive down costs in the supply chain, look for a carbon-efficient company.’

Kerr urges organisations to get away from the idea that sustainability is incidental. ‘If you’re a good business making sensible commercial decisions and thinking things through, carbon and renewables are part of that, and there are lots of tools out there to support you,’ he says.

This is echoed by Craig Vickery, head of ACCA Scotland, who points out that auditing a company’s carbon footprint – so-called ‘carbon accounting’ – is increasingly becoming part the annual financial audit. ‘Serious carbon and environmental accounting can make a big difference to a company’s bottom line – for example, by helping them find efficiencies and enhance their planning for risk,’ he says. ‘Sustainability policies need to be embedded into everything a business does. Reporting needs to mirror this and that’s why ACCA believes that corporate reports should provide investors, businesses and the public with the big picture of an organisation.’

The contributors to this feature took part in Reducing Your Carbon Footprint – The Renewable Energy Way, a joint ACCA, CIMA and ICAEW event on the cost benefits of low-carbon strategies.

Victoria Masterson, journalist

 

Last updated: 20 Mar 2014