Sustainability = Risk Management

The word sustainability is spread across every branch of business now but still for many it is poorly understood.

For some it is about the environment, for others it is about corporate social responsibility (CSR) or finance and for many it is just another variable that is being forced into business. In reality it is about managing risk.

Jae Mather, Director of Sustainability at chartered accountants, HW Fisher & Company explains that the greatest risks are ones that are being taken without knowing it or those that are not within ones control to manage. Simply put, sustainability is about bringing those unknowns into places where they can be better understood and therefore managed. The physical environment is undergoing tremendous change that is leading to ever increasing demand for finite resources which is slowly starting to impact upon all businesses everywhere.

I say slowly because we’re really just at the beginning of the changes that are on the way. This ultimately will affect businesses by pushing up electricity, gas, fuel and other utility costs, while at the same time it may also affect supply chains as well. In 2012 gas and electric bills typically went up by 9 per cent and these types of rises are expected to become more the norm. Businesses also are beginning to understand that their brands can be at risk if they do not have positive environmental associations.

In addition the commodities that so many industries rely upon (including things like coffee, corn, sugar, wheat and coco) have gone up in price by around 147 per cent since 2000. 33 commodities lost 70 per cent of their value over the course of the 20th century, but in the last 10 years their prices have, on average, tripled. This is a paradigm shift. It is what some are saying is the most important event since the industrial revolution.

It is usually much easier and cheaper to reduce costs then it is to generate extra profit, especially in the market that were all in now. Some estimates are that it can often be 1/10 to 1/20 the cost to save a pound than it is to generate that pound through profit. That said; most companies are still focused on selling more product or service or reducing costs in other ways.

This is why energy saving has really not taken off to a great extent within the SME world. Many if not most of the large businesses have begun tackling energy issues due to legislation like the Carbon Reduction Commitment (CRC) and the Carbon Disclosure Project. In addition a number of public sector organisations and large businesses like M&S and others are cascading sustainability throughout their supply chains.

SME’s are now in a position where sustainability is not going away, this is not a fad that will pass, it may however reduce in significance in the short term but the UK’s legislated requirement to reduce carbon emissions by half by 2027 and 80 per cent by 2050 will undoubtedly lead to a raft of legislation that will cascade down throughout all aspects of the economy.

In the immediate term sustainability is about tacking these issues so that they move from threats to opportunities. There will be climate change billionaires and in reality many of the most exciting innovations are as usual coming from SME’s. This is where the accountancy world needs to feature. The job of accountants is to help their clients manage their finances. If energy, supply chains and brand management are not included in this process then the accountancy world is letting its clients down and they will no doubt look to other industries to solve these problems for them.

Accountants are well placed to help manage these issues as they are in trusted positions that have ready access to both current and historic data. Accountants are also in a position where monitoring and reporting are additional services that can be easily integrated into the service offering.

To put it simply, sustainability is about business common sense, it is about managing utility spends and reducing costs, it is about reducing the impact on the environment and exposure to negative PR. Sustainable business is just good business common sense.

“It’s better to be disruptive than for someone else to disrupt the business for you.” KP Singh