Climate change: the role of the finance professional

Survey results

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Survey results

Contents Background and survey objectives

3

Summary of key findings

4

Findings in detail

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Methodology

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The Chartered Institute of Management Accountants (CIMA), founded in 1919, is the world’s leading and largest professional body of Management Accountants, with 171,000 members and students operating in 165 countries, working at the heart of business. CIMA is the first choice for financially qualified business leaders.

CIMA aims to help organisations to consider climate change in a strategic context and integrate sustainability issues into their long-term decision making process. Management accountants have a key role to play in this process, providing vital business intelligence to support strategy, drive performance and influence decision making.

For more information about CIMA, please visit www.cimaglobal.com

The Prince’s Accounting for Sustainability Project (A4S) was launched in 2004 to help organisations tackle the challenge of sustainability.

A4S works with businesses, investors, the public sector, accounting bodies, NGOs and academics to develop practical guidance and tools for embedding sustainability into decision making and reporting processes.

For more information about A4S please visit www.accountingforsustainability.org

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Survey results

Background and objectives CIMA (The Chartered Institute of Management Accountants) and The Prince’s Accounting for Sustainability Project (A4S) believe that finance professionals have an important role to play in ensuring organisations consider climate change in a strategic context and integrating sustainability issues into their long-term decision making processes.

In August 2009 CIMA and A4S conducted a survey. The main objectives of the survey were: •

to understand if, and to what extent, the finance function is involved in climate change projects;

•

to explore areas finance professionals could be involved in;

•

to explore the attitude towards finance teams being involved in climate change projects; and

•

to understand the barriers to finance being involved.

883 finance and sustainability professionals from across the globe completed the survey.

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Survey results

Summary of key findings Nearly nine out of ten senior business professionals believe that business has an important role to play in managing the effects of climate change (88%), and that active engagement will not only help mitigate any associated risk, but could also unlock significant business opportunities (73%).

Although over half of the 900 international finance and sustainability professionals believe that their organisations are committed to mitigating climate change, many acknowledge that more could be done to reduce their environmental impact (63%). The fact that over half of the respondents state that their organisations do not see climate change as a strategic priority, with one in five saying that climate change is not on their organisation’s agenda at all, seems to support this.

Despite nearly three quarters of respondents believing that actively engaging in tacking climate change offers significant business opportunities, nearly half of the respondents either have or plan to scale down environmental initiatives as a result of the downturn. In contrast, however, 6% felt that the financial crisis had resulted in increased focus in this area, with a quarter saying there had been no change in their focus.

Compliance and conformance were the main drivers for climate change initiatives, with just 29% saying that competitive advantage or performance alone were the primary drivers (although this varied considerably by region).

CIMA has long emphasised the key role finance professionals have to play in ensuring organisations consider climate change in a strategic context and integrating sustainability issues into their long-term decision making processes, a view also supported by Accounting for Sustainability.

An encouraging 80% of respondents agree that the finance function should be engaged in climate change initiatives, however currently only a third are involved in a formal or structured way (with an additional 36% involved on an ad hoc basis). Interestingly, more sustainability specialists expected finance to be involved than finance respondents did. Some reasons given for the finance team’s lack of involvement include insufficient communications taking place between different teams (57%) and not having time to get involved in climate change initiatives (40%). This lack of sufficient communication is highlighted by the following difference of opinion between finance and sustainability professionals. 17% of respondents (24% among those in sustainability roles) feel that the finance team is just not interested in the climate change agenda.

But unsurprisingly, finance respondents are more likely to think the reason they’re not involved is that the ‘corporate responsibility team has not consulted with the finance team’. Whatever the reasons, there is clearly a need for the two teams to collaborate better to drive the climate change agenda, combining their skill sets to deliver clear and commercially viable sustainability goals.

The majority of respondents felt that management accounting tools, such as cost benefit analysis and investment appraisal, could be usefully adapted to help manage environmental impacts. This is encouraging news for the management accountant who is pivotal in embedding climate change in a strategic context by providing vital business intelligence to support strategy.

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Survey results

Findings in detail General perceptions and strategy

Do you agree or disagree with the following statements?

The majority of respondents agree that climate change has an impact on business costs, opportunities and management.

•

60% of respondents think that adapting to change impacts business costs

•

48% think that mitigation of climate change impacts will increase costs

•

88% believe that business has a role in managing the impacts of climate change

•

73% agree that tackling climate change offers business opportunities.

However, only 38% of respondents believe that their business is well positioned to deal with climate change.

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Survey results

How important are climate change issues to your organisation?

Of central importance

Of some importance

Of no importance

100%

80% 48% 58%

60%

40%

28%

46%

20%

14% 6% 0% Now

In the Future

Looking at current attitudes, 86% of respondents think that climate change issues are of central or some importance to their organisation.

Interestingly while this rises to 94% who see it as important in the future, the number who see it as being of central importance in the future falls from 58% to 48%.

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Survey results

What is the primary driver behind implementing climate change initiatives?

Both conformance and performance

44%

Competitive advantage / Performance

29%

Compliance / Conformance

20%

Other

6%

Don’t know

2% 0%

20%

40%

60%

80%

100%

Our survey showed compliance and conformance to be the significant drivers for climate change initiatives, with just 29% saying that competitive advantage or performance alone were the primary drivers (although regionally the percentage ranged from 14% for Australian respondents to 64% for Chinese ones).

Primary drivers - UK vs International Both conformance and performance

32% 50%

Competitive advantage / Performance

40% 23% 24% 18%

Compliance / Conformance 5% 6%

Other

Don’t know

International

UK

3% 0%

20%

40%

60%

80%

100%

Responses vary by region. 40% of international respondents said the main driver behind implementing climate change initiatives was competitive advantage, making it the highest response. UK participants’ most common response was both conformance and performance (given by 50%).

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Survey results

The finance function should be involved in climate change initiatives

An encouraging 80% of respondents think that the finance function should be involved in climate change initiatives.

We also asked respondents if their organisations have a separate corporate responsibility/sustainability committee. This was fairly evenly split, with 47% saying ‘yes’ and 43% ‘no’. However, the larger the organisation, the more likely it is to have a separate committee.

In the organisations with a separate committee, 81% of respondents said that finance is represented on the committee, with a third of these stating that the finance director or chief finance officer (CFO) chairs the committee.

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Survey results

Which of the following statements is most accurate in terms of your organisation?

Only 9% of respondents said that their organisation has a separate climate change strategy.

It is much more common for climate change to be integrated within the overall business strategy (33%) or for climate change to be on the organisation’s agenda, but not considered a strategic priority (31%).

Worryingly, a significant minority (1 in 5) state that climate change is not on their organisation’s agenda at all.

A common theme is that climate change is of less importance to smaller organisations (0-50 employees), with over a third of them not having climate change on their agenda.

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Survey results

Role of the finance function The majority of organisations measure the financial impacts of climate change initiatives. 64% measure cost reduction, 65% cost of compliance and 68% measured brand and reputation enhancement.

Is the finance function involved in measuring the financial impacts of climate change initiatives in terms of the following?

Of those that measure the financial impacts, 78% claim that the finance function is currently involved in cost reduction, cost of compliance and increased revenue. Finance professionals are slightly less likely to be involved in measuring the value of enhanced brand/reputation.

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Survey results

Is the finance function engaged when developing, implementing, monitoring and/or reporting on climate change initiatives?

Currently only a third of finance professionals are involved in a formal or structured way in managing climate change issues (although an additional 36% are involved on an ad hoc basis). Some reasons given for the finance team’s lack of involvement include insufficient communications taking place between different teams (56%) and not having time to get involved in climate change initiatives (40%).

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Survey results

Is the finance team involved in any of the areas listed below?

The survey shows that the finance function is typically employed in fairly traditional roles around climate change. For example the most common formal role is in whole life costing. In carbon footprint calculations and tracking of climate change KPIs, where there are perhaps less well understood metrics, the finance teams are less likely to be involved.

Interestingly, more sustainability specialists expected finance to be involved than finance respondents did.

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Survey results

In what areas could finance professionals be involved?

Of respondents who state that finance could be involved in certain areas (where they currently aren’t), 50% think they should be involved in carbon accounting on a formal basis.

When considering involvement on either an ad hoc or formal basis, the highest majority of respondents think they should be involved in business case planning for climate change initiatives (85%).

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Survey results

For areas where the finance function is not currently involved or only involved on an ad hoc basis, what do you believe to be the main reason(s)?

Insufficient communications between different teams was the main reason given for the finance’s team lack of involvement – 57% (31% saying the corporate responsibility/ climate change team has not consulted with the finance team and 26% saying there is insufficient communication between different teams).

Another reason given was that the finance team doesn’t have enough time to get involved in climate change initiatives (42%).

But there is a difference of opinion between finance and sustainability professionals. 17% of respondents (24% among those in sustainability roles) feel that the finance team is just not interested in the climate change agenda.

But unsurprisingly, finance respondents are more likely to think the reason they’re not involved is that the ‘corporate responsibility team has not consulted with the finance team’. Whatever the reasons, there is clearly a need for the two teams to collaborate better to drive the climate change agenda, combining their skill sets to achieve clear and commercially viable sustainability goals.

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Survey results

Do you believe that the following management accounting tools and techniques could usefully be adapted to help your organisation manage its environmental impacts?

The majority of respondents feel that all the management accounting tools listed above could be usefully adapted to help manage environmental impacts.

68% of respondents said that tools and techniques such as investment appraisal and cost/ benefit analysis could be usefully adapted to help organisations manage their environmental impact.

Around 60% also believe that whole life costing, life cycle assessment, environmental cost accounting, activity based costing and the balanced scorecard are also useful.

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Survey results

Investment appraisal Looking in detail at investment appraisal (see previous graph), two thirds of respondents’ organisations integrate environmental considerations into their projects (either fully or somewhat). Larger organisations are more likely to do this. Three quarters said that that the finance function helps prepare these evaluations.

Does your organisation integrate environmental considerations into evaluations of your corporate projects?

65% of respondents’ organisations integrate environmental considerations into their projects (to a certain extent).

Only 17%, however, fully integrate them into their corporate projects, while 26% don’t include them at all.

In a third of cases, Finance is always involved in preparing these evaluations for corporate projects, with an additional 41% involved on an ad hoc basis.

19% think that the finance function would be well placed to assist, however they do not currently.

Of respondents whose organisations do not integrate environmental considerations, 55% think that they should.

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Survey results

What would you see as an acceptable payback period for investment in climate change initiatives, such as low-carbon technology or new product developments?

40% of respondents think that a reasonable return on investment in climate change initiatives is within 5 years, and 31% think it would be reasonable within 3 years.

1 in 5 think over 5 years would be acceptable.

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Survey results

Where two alternative projects are both profitable, would a project that is more costly but significantly more environmentally responsible be selected?

24% of respondents stated that they would select the more environmental option as long as the premium was no more than 5%.

1 in 5 also said they would usually select the more environmental option even if it was more costly (as long as a profit margin still exists).

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Survey results

Carbon pricing and energy price increases Does your organisation currently factor estimated carbon prices into decision making?

A significant amount (51%) of respondents’ organisations do not factor carbon prices into decision making.

Only 26% of respondents said that their organisation considers carbon pricing and the remainder (23%) did not know.

But it seems that organisations are taking a projected rising cost of energy into account. 59% of all respondents said that their organisation currently factors estimated increases in energy prices into their decision making, with only 28% saying they don’t.

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Survey results

Impact of the economic downturn In light of the current economic situation, has your organisation responded by scaling down its focus on climate change initiatives?

Despite nearly three quarters of respondents believing that actively engaging in tacking climate change offers significant business opportunities, nearly half of the respondents either have or plan to scale down environmental initiatives as a result of the downturn. In contrast, however, 6% felt that the financial crisis had resulted in increased focus in this area, with a quarter saying there had been no change in their focus.

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Survey results

Methodology Online survey that took place week commencing 20 July for approximately four weeks.

617 finance professionals and 266 corporate social responsibility/ sustainability professionals responded. 70% of the finance professionals who responded were CIMA members.

883 interviews were completed across the following markets: UK =

482

USA =

38

China =

74

Hong Kong=

32

Australia =

41

South Africa=

37

Ireland =

36

Sri Lanka =

8

Malaysia =

7

Singapore =

9

Other =

119

With a sample size of 883 the data accuracy is ¹2.7% Copyright ŠCIMA

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