Building the Business case for Sustainability and Energy Reporting Software
Accuvio – Sustainability and Energy Data Software Specialists
The core of any successful sustainability programme is a set of clearly defined objectives, engaged stakeholders and supportive decision makers backed up with regular reporting on trends, and progress against targets. In the early days of Sustainability reporting, spreadsheets were common place and were adequate as the scope of reporting was manageable, infrequent and by today’s standards low key. In recent years however, this has changed significantly, with most sustainability managers in plc’s having to report on average to 4 voluntary initiatives, and 3 mandatory compliance schemes annually, to the board quarterly and management monthly. In addition, there are ad-hoc reports requested by sales teams for large customer bids and investor enquiries. This evolution requires an updated approach, and hence organisation turn to technology, and specifically Sustainability and Energy Reporting Software.
Compiling a business case for Sustainability and Energy reporting software to be put to a board or financial director can be challenging to quantify and to articulate. Therefore, in response to customer demands we have compiled this document which aims to outline some of the key components to consider when compiling and calculating the business case.
Building the Business Case Concisely
Sustainability, Carbon and Energy Reporting has evolved significantly over the past 10 years and is now far more complicated and demanding. The challenge for Sustainability professionals when asked for a business case to adopt Sustainability software to help with these increased complexities is to explain to a financial controller or board why they suddenly need a system to do what they have been doing for the past 10 years on spreadsheets. The answer is clear to people in the sector, but to others, it’s not so obvious. Often the response involves the following five answers, but in this document, we discuss how to the below five answers relate to the board or a CFO’s key drivers and concerns.
- Reporting Complexity: In 2006 Sustainability, Carbon and Energy reporting methodologies were much less complex. In 2016, the reports need to be fit for purpose for customer, shareholders, government, auditors, finance for carbon budgeting, and management for performance analysis.
- Increased reporting demands: In 2006 it was normal to have one report per year. Now quarterly reporting is the norm with the trend moving towards monthly performance reporting.
- Increasingly specific jurisdiction specific emission factors. There used to be just one main set of emissions factors, however now each country and energy supplier has their own set. Each need to be used in symphony with others.
- Higher investor focus on such non-financial data. In the past it was acceptable to release top line numbers to the investment community and voluntary investor lead communities such as the CDP. However, these reports are under incredible scrutiny and drilldown capability by company entity, division, country, and source are now the norm.
- New legislation demanding financial grade audit controls and process management. Since 2014 the Mandatory carbon reporting legislation required companies listed on the FTSE and London stock exchange to report their Greenhouse gas emissions. In December 2016, this further increases to cover any company with 500 employees or more under the EU-Non-Financial Reporting directive. Both carry fines and penalties for non-compliance.
We will now expand on these five core answers and relate them back to the five core concerns and drivers of a financial controller or a board member under the following headings:
- Board level Concerns
- Risk Mitigation
- Human Capital Maximisation
- Progressive change delivering shareholder value.
- Cost Efficiencies
Let’s start with the one most people overlook, and which is often the strongest argument;
Board Level Concerns:
a) Improved Investor Data Controls
Following the arrival of mandatory carbon reporting for plc’s in 2014, board members have been enquiring as to the origin and reliability of the Greenhouse Gas Emission data which now features in the company’s annual report. Quite often, the board are surprised to learn that proper controls and systems are not in place for this kind of data, as its increasingly important to demonstrate robust controls and auditability to investors.
There is a duty of skill and care upon the board to provide proper systems and tools to its Sustainability management teams to ensure the risk of human error is reduced or eliminated. In 2016, this is perhaps the single most common driver to new system adoption.
b) Public Disclosure Inaccuracies
In 2011 Dell infamously accidentally mis—reported its Carbon footprint due to spreadsheet error and the share price dropped by over 5% following the exposure by Wall Street Journal.
While these revelations themselves are not the source of market concern, it throws the accuracy of other annual reports into doubt as investors would question the robustness of systems and processes in place for corporate reporting.
The finance team wouldn’t be expected to prepare the financial statements using just MS Excel, so why do we expect the Sustainability team to?
c)Market and Competitive Trends
Increasingly sales team are asked by their biggest customers for incredibly detailed data regarding the greenhouse gas emissions and carbon footprint performance of the organisation as part of the procurement process. In short, if your competitors have this data easy generated for sales bids, then you are immediately behind the competition.
As well as competitive sales bids, the CDP, FTSE4Good, DJSI and other global reporting initiatives are increasingly used to assess how efficiently and how well an organisation is being run. These wide-ranging indicators have proven to be a very insightful view of a company’s non-financial performance as it removes market influences, and gives a good indication as to future financial performance.
d) Board Level Concerns Conclusion:
While the non-financial business case in this regard is easy to justify, the financial is a little more subjective. One approach we have observed is to consider a 10% error rate, compound that over 3-5 years and consider the impact financially to the business in terms of increased auditor costs, penalties, lost business and poor media coverage.
a) Key Person Dependence
Most organisations have a single person who is responsible for all the sustainability, carbon and energy reporting. This person has constructed or inherited the spreadsheets over the past number of years. Frustrated, and de-motivated by the onerous reporting and data chasing, they have become “pigeon holed” and they can’t easily advance their careers internally. Their external career advancement prospects are significantly impacted also, as they have spent most of their time dealing with data instead of running energy and emissions reductions projects and initiatives.
Unfortunately, this happens all too often and it can be destructive to the organisation and to the individual personally. If the person goes on extended leave or is out sick the organisation suffers exponentially higher share value losses and costs than the cost of a Sustainability Software solution. Some regard, software as an insurance policy in this regard.
An easy-to-use software platform such as Accuvio facilitates the delegation of Sustainability management and provides an instant reporting platform to all concerned. The business case for this argument can be measured in financial terms by asking – what if we stopped reporting our Sustainability for 12 months, what would it cost the business.
b) Duty of Skill and Care
With Sustainability, Carbon and Energy reports under incredible scrutiny by investors, the media and customers, how confident are you that your existing system’s calculations and emissions factors are correct and up to date? Or how confident are you that “The Spreadsheet” has no calculation formula issues, or incomplete calculations?
A mild oversight by even the most diligent person can have severe financial penalties. In 2006-2011 there was a general acceptance that this data would have a certain level of risk – however with the availability of systems such as Accuvio so accessible to companies of all sizes there is a duty of skill and care upon management and professionals alike to ensure that robust tools are utilised to deliver low risk results.
c) Data Completeness & Anomalies
In high pressure situations when nothing but 100% accuracy is acceptable, even seasoned excel wizards can fall prey to an incomplete or out of date formula. Nothing beats the reassurance of a software system validating your data, both at acquisition and visualisation stages for consistency and to identify any data anomalies that would otherwise go un-noticed. The reputational risk of error is severe.
d) Risk Conclusion:
Similarly, to Board Level Concerns, in the context of a financially calculated business case, Risk is a subjective topic. However, the cost of failure is easier to calculate based on a modest 10% failure rate over a 3-5-year period compounded. Additionally over the years the Accuvio system has helped dozens of companies find overpayments in CRC calculations which is commonplace in large organisations due to the amount of changes it has undergone since inception.
Human Capital Maximisation
Sustainability and Energy professionals are very niche and valuable at what they do. There are very few others within a large organisation that can positively affect the business by directly reducing utility costs across the business, positively support new business sales, and increase the positive profile of the business with the media and marketing.
Unfortunately, they don’t often get the chance because they are bogged down in low-level data work.
a) Unlocking more value from your team
How can staff time be optimised to drive performance towards the company goal instead of just data gathering and troubleshooting? It is essentially an operational movement of your sustainability team from the non-value add activity of collecting data, to focusing their efforts on reducing energy consumption and carbon emissions. With the information that is readily available from the Sustainability platform, the sustainability team can become laser focused on the energy and carbon emission hot spots throughout the organisation and take the appropriate action to remedy the situation.
The financial business case can be calculated on the basis of the opportunity cost. (Example: A sustainability manager with a COE of £55k p.a. spends 30-50% of their time annually on data related issues, reporting and report re-work. This instantly translates to £17k-£27k of resource waste per year per person.) In addition, a typical Sustainability professional can achieve on average 1-4% utility costs net per annum OPEX reduction if they have the capacity to work on such projects. Project such as non-capital intensive projects, from employee awareness and behavioural change to travel avoidance initiatives, transport efficiency, utility efficiency hardware retrofits etc. etc.
b) Audit Readiness:
Audits come in two forms. The first is by the environment agency to inspect underlying data and assumptions such as CRC returns. The disruption is excessive and if there are no systems in place, the penalties can be severe. Problems mainly occur when an audit happens around the time staff has changed.
The second is when a third party is invited to audit such as Deloitte, SGS, KPMG or PWC are auditing the data in preparation for annual reporting. While this audit is not required by mandatory carbon reporting legislation it is widely practiced by leading companies. Audits consume considerable chunks of non-sustainability related staff member’s time through tracing and investigating clues as to the origins of the data. . This disruption potential is often overlooked when considering the business case. All good sustainability software solutions’ will have audit screens for calculation verification, audit process workflows, change logs and robust document libraries to prevent audits becoming a resource drain. Therefore, when an audit comes around, you are fully prepared, and with a solution in place which is independently verified by SGS the audit fees are reduced by 15-30% as stage 1 of the audit can be bypassed.
c) Emissions Factor Management Costs
In 2016 the international Energy Agency started to commercialise its electricity emissions factors and now charges up to 3,800 per year for access to these emissions factors per company. In order to have the most up to date emissions factors these now have to be purchased under an annual license and unlike other software solutions where the onus is on the user to purchase and update these regularly, Accuvio purchases these in bulk and update the system on behalf of the client.
Keeping up to speed with the latest emissions non-Electricity emissions factors for each country of operation can be very time consuming and distracting. Accuvio’s team of emission factors research team do this on behalf of all our clients and the emission factors are automatically updated, thus removing this significant issue for our clients.
d) Calculation Methodology Overhead
Calculation methodologies change much more frequently than most companies can keep up with. Updating in-house systems, spreadsheets, or getting non-specialist software vendors to accommodate such changes can be exceptionally costly, whereas this is covered under Accuvio’s annual licence.
For the purpose of building the business case, we have noticed that the average internal cost of handling such changes ranges widely in organisation size and reporting complexity.
Examples from recently acquired clients on the new Scope 2 dual reporting standard changes to long standing in-house systems are:
- USD $120,000, and 12-18 month internal IT roadmap wait time if approved.
- £55,000 and 12 months wait time for traditional EHS system modifications.
- £39,500 for a non-specialist software development house to modify an outsourced developed in-house energy reporting tool with 3 months wait time.
For in-house set of spreadsheets to be updated and reworked for scope 2 dual reporting: 25 FTE days at COE of £9,290 in a large multi-national with 68 locations.
Human Capital Maximisation Summary:
Sustainability has become very niche and specialised over the last number of years. Expert solution providers can often provide far more elegant and efficient solutions at a fraction of the cost than in-house solutions and personnel.
Progressive Change and Delivering Shareholder Value
a) Is the size of the organisation holding the scope of your sustainability program back?
Many organisations dip their toe into Sustainability by covering the core impacts. Then, as competitors and stakeholder expectations increase, executive leadership often initiate the Sustainability program to be expanded. It can take significant time out from other energy, finance, environment, facilities team members which carries its own opportunity costs. Modern Sustainability Software can alleviate the resource bottle neck with ease and enable the company to press on with its Sustainability goals and objectives without additional headcount in most instances.
b) Are your competitors reporting to voluntary initiatives such as the CDP? (Formerly the Carbon Disclosure Project).
Occasionally it can come as quite a shock when we ask a prospective client about their CDP score and they are not sure how they compare to their competitors. The CDP is becoming more important each year as more investment institutions refer to it on Bloomberg terminals to establish an organisations environmental risk or indeed just to assess the quality of their CSR program. A sustainability software solution can bring a company from 45% score to 70%+ with little else in year 1, and will support progress into 90%+ scores with ease in year 2.
Five of the most immediately realisable monetary benefits of Sustainability Software over spreadsheets or non-specialised software systems are:
a) Data Collection In a non-automated system, this can be reduced by up to 80% following the first year’s configuration. Considering the number of people that this task impacts, this can be an extremely significant monetary saving in larger organisations
b) Version Control The most common solution in 2011 for sustainability was a spreadsheet on a shared drive which was created by one person. Various people in many buildings across the world accessed that spreadsheet and updated it with their inputs. Unfortunately, this was not always smooth and many changes were lost and several untraceable inconsistencies were introduced.
c) Data Manipulation Without a sophisticated sustainability software solution, data manipulation can be a serious resource drain. Unfortunately, sustainability data comes in all shapes and sizes from multiple management systems and databases and without the transformational and formatting power of a database engine the data can take days to process into the correct format. Following this excel wizardry, what is the degree of certainty that it’s accurate?
d) Excessive Consumption Identification: If you can see where you are using your resources, you can see where you are wasting them. Sustainability software not only shows you how your energy consumption is trending during the hour, day, month or year but it does this for many other business activities giving you comprehensive insights into where opportunities for savings exist. In the real world, limited budgets exist for exploring costs and emissions savings. It only makes good common sense to use a system to identify those hot spots which can yield the “biggest bang for the buck”. Using Sustainability software can maximise a budget’s ROI by as much as 25% in year one, or up to 15% through non-capital investment behavioural change engagement.
e) Opportunity Cost: A sustainability manager equipped with software, can achieve 1-3% utility cost reduction per year in non-capital intensive projects. Sustainability and finance staff are the two job groups that are most impacted by Sustainability reporting. Considering the value they could be adding to the business instead of spending so much time gathering and crunching raw data, what is the opportunity cost?
Sustainability and Carbon reporting are a relatively new area, and a new budget line in most companies. With the recent Paris Climate Change Agreement, and various global voluntary carbon and Sustainability reporting initiatives and mandatory compliance requirements, Sustainability is growing in importance for all.
The key to establishing a strong business case for the adoption of a software platform is by relating the operational issues to the strategic issues, and by connecting the future success and streamlining of operations to tangible differences at the strategic level for the board, investors, customers, and the company’s goals.