Businesses can realise substantial savings by extending an understanding of energy consumption and carbon emissions to their supply chains argues Dr Nick Murry, CSO at global reporting platform Ecodesk.

This month mandatory carbon reporting rules for LSE-listed companies comes into force in the UK, mirroring legislative moves already in place in other countries such as Denmark, South Africa and Australia. Among these businesses, are many financial services firms who will have to measure and report greenhouse gas emissions as part of their annual reports by September 30th this year.

The obvious question many businesses will ask is ‘why’? Why is the Government imposing yet more regulation on businesses, particularly financial institutions, which are already bending under the weight of extensive regulation from governments across the world?

The answer is equally obvious but often lost in the rhetoric that typically surrounds anything to do with climate change and the environment. Measuring and reporting energy and carbon will ultimately help the government meet its emissions targets, but will also undoubtedly help improve the efficiency and profitability of businesses. Saving costs is at the core of this policy.

Although some will see regulation as more ‘green tape’, there are considerable benefits to be had from measuring (and managing) carbon and associated energy consumption; all the more interesting for Chief Financial Officers (CFOs), as energy cost savings come straight off the bottom line. What’s perhaps less appreciated is that the benefits can be substantially greater if measuring and reporting is extended to a company’s supply chain, which is where the vast majority of most financial institutions’ emissions lie.

The Greenhouse Gas Emissions (Directors’ Reports) Regulations 2013, within which the Mandatory GHG emissions reporting regulation sits, excludes businesses outside of the LSE but in reality all companies should see sustainability as a means to achieving lean goals, bottom line savings and increased profitability. This is not just about big businesses either. Any business can benefit.

So if measuring and managing sustainability has a positive impact on profitability, why are sustainability budgets wavering?

According to analyst firm Verdantix, CFOs are not prepared to invest in sustainability ‘projects’ because “right now, there’s only limited pressure to do so,” given current, relatively stable energy prices, alongside a lack of legislative requirement. An inadequate business case, in other words? This is a common theme but it fails to take account of two important considerations.

One is the need to plan for the longer term – energy prices are set to rise, and to rise substantially, with commentators predicting business’s energy costs some 50% higher by 2020, based on recent Government research cited by Edie. Regulations promoting energy efficiency and carbon reduction are also set to increase, driven by primary climate change legislation that would be hard for current or future government to retract.

The second (although obvious) is that not all sustainability ‘projects’ are the same and there is still considerable scope for cost beneficial energy efficiency gains, often with minimal investment and acceptably short pay-back periods, even in the current economic climate.

As for leveraging benefits in the supply chain; Ecodesk clients GlaxoSmithKline and ISS UK are amongst those leading companies that have already recognised this and have driven savings in their supply by gaining an oversight of supplier energy and carbon, enabling them to spot areas of waste and inefficiency and take the necessary action.

In the words of Steve Workman, Corporate Responsibility Director at leading facilities management company ISS UK; “The long term goal is to save energy but this can only really be done by measuring and reporting data on an on-going basis, not just our data but our supply chain’s data too. We are transparent in our reporting, publishing our live data to Ecodesk so anyone can see our progress. It is this level of openness, measuring and reporting that is key to tackling excessive energy use where it can be identified and we are encouraging our suppliers to do the same. The costs savings will be significant.”

It is important here to not put measurement and reporting into the same bracket as investments in energy infrastructure and equipment, which can often require a significant capital outlay. Measuring and reporting does not demand the same level of investment, yet its returns can be significant, not only in terms of costs savings but by promoting accountability, creating new opportunity and mitigating reputational and business continuity risk.

This has not gone unnoticed by banks, of course, many of which already developed sustainability strategies that include measuring, reporting and verification (MRV), at least in relation to their own energy use and carbon emissions. Institutions such as the National Australia Bank, Citigroup and Deutsche Bank all actively measure and report (there are currently 41 global financial institutions on Ecodesk) though few, if any, yet require their suppliers to report transparently in this area.

According to a Deloitte report released earlier this year, energy data is one of the key elements of understanding the true nature of a business. The report quotes Bruno Bertocci, Managing Director and Global Equity Portfolio Manager at UBS Global Asset Management who said, “Managers need to understand the latent risks embedded in their company’s business model before they become a full-blown risk.”

In the same report, Dan Hanson, managing director at BlackRock points out that: “ESG (environmental, social and governance performance) is a proxy for risk that is not priced in, and companies that better manage these risks can deliver returns with greater certainty,” This is fundamental to supply chain management too.

But business cannot meet these challenges on its own. In January, The World Bank released a statement proposing that “Governments should take a holistic approach that considers the entire supply chain, focusing on a range of policies that impact supply chain efficiency to improve national competitiveness.” Both the UK and US governments are starting to pursue this idea, getting actively involved in understanding the impact of energy and carbon on businesses and how this can aid profitability and support investment.

Of course, recognising this is one thing but actually doing something about it is another. Collating supplier energy and carbon data is an important first step, however, and something that should have immediate positive impact on reducing risk and increasing profitability.

Dr Nick Murry is Ecodesk’s Chief Sustainability Officer. Ecodesk is the World’s largest sustainability database and communication platform, providing real-time, consistent and comparable sustainability information for companies and their supply chains. It currently has over 111,000 online corporate profiles.