How do finance and environmental experts reduce business risk?

Finance as a profession is losing certain responsibilities as technology begins to take over certain tasks, and we believe that this puts finance professionals in a unique position to add further value into the organisations in which they work.

This transition from information to impact has not happened overnight, but it has taken organisations a lot of time to adjust and begin using the unique skills of their finance department to create redefined value for their stakeholders.

Even though a key role for finance professionals is to identify material risks to the business, ESG materiality has often gone unnoticed and it is due to pose a huge risk.

The reason why it has often gone under the radar is quite simple. It’s complicated and requires a lot of logistical changes which a lot of businesses don’t have the time, means or motivation to achieve.

But, it’s still something you will need to resolve eventually. 

Whether that be due to upcoming regulation, expectations from customers and workers, or because the risks to your supply chain have become too great, it is something that needs to be handled sooner or later.

Why involve experts in the process?

While we believe that finance experts will have the knowledge and capabilities to guide ESG related changes within an organisation, some of the skills required to comprehend and provide solutions will fall on scientists and subject matter experts.

Of the 17 SDGs, 7 are directly related to the environment and each require innovative logistical overhauls which will need specific solutions depending on the issue at hand.

While the calculation of environmental impacts sits naturally within the finance function due to the numbers, interpretation and reporting, it's unlikely you will be able to do this with any level of scientific accuracy on your own. 

While this is definitely dependent on your sector and the scopes that you’re planning to report, the hard science behind the environmental impact will rarely be an acquired knowledge within your finance team, and you will need to seek out that expertise.

What are some examples of business climate impacts?

While the necessity for direct involvement by experts will  depend on your business and operations, it is impossible to tackle these individual issues without the research and tools that they have brought to the table.

1. We can look towards the electricity and utility usage of your business and buildings you operate from. You can switch to renewable energy sources, improve insulation or air flow and cut down on your use of heating or air conditioning.

2. There is also your digital usage, which includes calculating the server use and data storage that your business requires. This also involves tracking emails and online tabs, to cloud storage and video calls.
   
   While it might seem like a small contribution to the environment at first glance, it adds up for every person you bring into your organisation, plus contractors and freelancers.
   
   
3. As for the most difficult issues of dealing with waste (water, plastic and landfill) or improving the sustainable viabilities of your manufacturing process, you will require more hands-on and specific solutions from experts within the field as the methods can entirely depend on your sector.

Although most carbon regulations are restricted to certain industries for now, businesses will be required to start falling in line with requirements for the 2050 net zero goal, with carbon offsetting not being considered a viable solution.

What are the risks for an SME?

The biggest risk of all for an SME that doesn’t report its sustainability metrics is quite simple, it will be left behind.

If you are able to evidence your metrics to larger businesses, you can communicate to them that you are a trusted source for the materials or services they need.

A business is nothing without its supply chain, and policies are beginning to reflect that, while customers are actively acknowledging it too.

As an example from earlier this year, Germany’s Supply Chain Due Diligence Act has set a powerful level of precedence in advance of COP26, with predictions of the UK government considering similar actions with commitments to cut carbon emissions by 78 percent by 2035.

What tools to use?

If you operate with a large business, we recommend that you look into the TCFD, and make use of their frameworks. 

Though, it should be noted that larger organisations should make more of a keen interest in working with scientists and experts in each of the following areas of improvement.

If you’re part of a small, medium or micro-business, Profit Impact is able to help you with our own resources, education and training, but we also suggest that you check out the tools on SME Climate Hub if you wish to do it yourself.

While the choices of frameworks are quite overwhelming, we can also give suggestions based on our experience throughout the course of a first meeting depending on your sector or industry.

We also need to stress that while the frameworks are useful, they are only a guide and it will be up to you and your organisation to actively calculate and report regularly to evidence what you have been doing.

Conclusion

"Climate change is a constant threat to the global economy and humanity more broadly. Business must do our part to address the problem in our own operations and in the way we work with our supply chains. That is the focus we need to create a better future."

- Ruth Porat, CFO of Alphabet and Google.

Even if you feel that your small business might not have the time or resources to consult with climate experts on your operations, we hope that this blog was able to make you understand the necessity of such collaboration when possible.

Service-based SMEs might not feel the need to do so immediately, but we believe that considering these things sooner than later will give you a competitive edge, especially as we see larger businesses taking firmer steps along their supply chain.

At Profit Impact, we collaborate with Will Richardson (Green Element and Compare Your Footprint), who support us with the environmental science knowledge that falls outside of our team's expertise.