Traditional financial tools and strategy will underpin green ambitions
Helenne Doody, Sustainability Specialist, Chartered Institute of Management Accountants (CIMA)
CIMA supported this survey because we are interested to learn whether sustainability is becoming integrated within local government. Thousands of our members work within the public sector and it is important for us to get a better understanding of how the green agenda is affecting their role and the organisations they work for.
Local authorities have a vital role to play in taking the lead on ‘going green’ and are uniquely placed for encouraging local action for reducing carbon emissions and responding to climate change. The survey results have been positive in this respect. It is clear from both the ‘quick survey’ and the ‘main survey’ that green issues are of importance to local government, and the majority of respondents felt that their council is committed to going green.
However, in digging a little deeper, the survey results generally reflect what we are seeing in the private sector. Although environmental issues are becoming increasingly important, and there is a lot of talk about ‘going green’, this talk is often not translated into action. Few organisations, in either the public or the private sector, have really integrated sustainability into strategy, and fewer still are involving the finance team.
One reason for this may be a lack of real understanding as to what ‘going green’ actually means, both for the local authorities and for individuals. The main survey highlighted that the majority of respondents feel that their local authority does not have a clear understanding of the green impacts of its current or future operations. Without a clear understanding of impacts it is difficult to identify appropriate actions. In terms of individuals, the quick survey showed that less than two thirds feel adequately informed about green issues.
A contributing factor may be that there is little consistency as to who leads on green issues, both at a strategic or operational level. In a significant number of cases there appears to be no senior officer responsible for steering direction of green issues at all. It is important that all organisations have a clear vision in relation to green issues and related objectives should be incorporated into the council’s overall strategy. Equally important is communication of strategy and objectives throughout the organisation, and regular updates on progress towards meeting the objectives. Although 62% of councils report regularly on sustainability performance internally to staff, 38% do not. Yet the key enabler rated with the highest overall importance was ‘engaging and involving employees’.
Almost two thirds claimed to have green targets embedded within business strategy and in overall corporate targets, but only about half felt that their councils were tracking and measuring sustainability within the wider strategic performance process. A further 15% planned to do so.
Strategy should be the starting point. Measurements and targets will play an important role, but metrics will have little value unless they are in demand to support strategy and long term decision making. Likewise, unless sustainability reporting is demonstrating measured progress towards implementing a sustainability strategy, it is largely just a backward-looking compliance or public relations exercise.
Survey respondents agree that strategy is a key enabler to going green, with 88% believing that is important that green initiatives are embedded in corporate strategy. Organisations should be more forward looking and think about how to adapt their strategy to make sustainability part of day-to-day operations. Finance professionals have a key role to play in this process, providing vital business intelligence to support strategy and influence long-term decision making.
When making capital investments, including those relating to ICT processes and technologies, it is important to consider the long-term implications – both financial and environmental – and balance these with short-term costs. Finance teams should be involved in such capital investment appraisal exercises, applying tools such as whole-life costing and looking at the entire value chain.
The main survey showed that only 17% of local authorities are currently using whole-life costing processes when assessing best value procurement options. The majority use a combination of quality and cost, but 15% are still making decisions based on ‘lowest cost’ alone, with no consideration being given to environmental impacts.
In the Cabinet Office’s document on ‘Greening Government’s ICT’ Finance Directors have been tasked with assuring that the environmental consequences of procurements are fully evaluated.
Yet in the small percentage of cases where whole-life costing is being applied, there is limited involvement of the finance team. Making investment decisions based on long-term impacts may be a challenge for finance directors, who are often faced with short-term budget pressures, particularly in the current economic climate. It is important to encourage a change in mind set, from the top downwards, so that decisions made are based on the best long-term financial return and the lowest environmental impact, even when this may mean a greater up-front investment.
Culture and insufficient budget and resources were seen by survey respondents as the top two key barriers to successful implementation of green initiatives. It is important that a more long-term view is taken when making procurement decisions and up-front investments will need to be made. However, many ‘quick wins’ have also been identified - actions that do not cost any money but that save money. Implementing quick wins are an ideal start in the journey to going green. They will help to build momentum and motivation, as well as contribute towards reducing costs and the council’s carbon footprint. Seeking cost savings and efficiencies were seen as another key driver of green initiatives.
Although the finance team do have involvement in procurement decisions, they surprisingly have very little involvement in activities such as tracking performance measures, preparing carbon footprint calculations, carbon accounting/budgeting and sustainability reporting. CIMA would like to see this situation change over time, with organisations making better use of the skill sets of finance professionals. Traditional financial tools and techniques can be applied to these new and challenging issues.