Understanding & Implementing Energy Efficiency in Small to Medium Enterprises

Topic 01: The Role of Accountants in Energy Efficiency

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The Role of Accountants in Energy Efficiency

Be familiar with the roles that accountants can play in improving energy efficiency for client organisations as well as their own. Improving energy efficiency is a means of directly enhancing competitiveness. By adjusting processes and/or investing specifically in the production process, multiple and durable direct advantages can be achieved, for example: reduction in energy, raw material and operating costs improvement of production control and product quality In addition, major global benefits associated with energy efficiency measures include: reduced consumption of natural resources such as water and energy decreased pollutants at local level (air, water, waste) and globally (CO2). It is often surprisingly difficult to initiate EE projects, even when implementing such measures is highly profitable. Effecting energy-saving changes frequently requires additional incentives to shift management and stakeholder inertia. Many businesses today are embracing the process of change. By raising awareness of key stakeholders, they are increasing confidence in the advantages of energy efficiency measures and reaping the substantial benefits of reducing energy consumption. Energy conservation measures within the SME sector often realise extensive opportunities for financial savings significantly greater than commercial interest rates. The SME sector is highly diverse with respect to geographic location, industry status, ownership / tenancy of site and type / size of premises. Experience has shown that generic one-size-fits-all energy efficiency initiatives are rarely effective if directed at the SME sector as a whole. Customised solutions based upon meaningful segmentation of the SME market are more likely to succeed. Accountants, with their diverse range of SME clients, are in a strong position to assess individual business circumstances and provide specific energy efficiency advice. Similarly, business managers can leverage their intrinsic understanding of their own operations to identify opportunities for improvement. Accountants can play a number of roles in relation to energy efficiency. These include: Evangelism Anyone can play the role of the champion or change agent within an organisation and accountants are no exception. Indeed accountants are often ideally placed to promote sustainability within organisations because they are typically viewed as conservative (rightly or wrongly) and therefore suggestions from this quarter may be

considered more seriously than from other parts of the organisation. From an external perspective, in the SME sector accountants may be one of only a handful of external advisors to an organisation and are therefore uniquely positioned to influence their clients from a sustainability perspective. Opportunity identification Accountants are often at the forefront of planning and strategy decisions for both their own organisations and those of their clients. Therefore accountants are well versed in both the operations and financial realities of organisations. With a good knowledge of potential avenues for cost savings and revenue promotion from sustainability initiatives in general, and energy efficiency in particular, accountants have the opportunity to identify potentially fruitful areas that others may miss. In addition, armed with the overall knowledge of an organisations activities, accountants are well placed to determine those activities which best align with the organisations strategy and capabilities. The following sections of this course outline provide an number of examples of EE opportunities. In addition, external websites such as sustainabilityadvantage can provide an indication of the broader benefits of adopting sustainable practices, including savings that may be less obvious, such as increased staff retention. Advising on building a business case A common theme from research in relation to EE is that while a business case usually exists, it may not be appropriately constructed and a profitable opportunity missed. Accountants, with a deep knowledge of financial modeling and communication are ideally placed to help more operationally-minded personnel create compelling documents and presentations likely to obtain executive support. Contractor and government liaison Accountants may also provide a role in the communication phase of an EE project by becoming an important liaison point between external parties and internal champions. This role enables accountants to both ensure that respective operational obligations are clearly understood as well as maintain appropriate levels of fiscal discipline in terms of revenues gained and costs incurred throughout the process. Implementation assistance Accountants may also be engaged in the implementation phase, especially when the EE project involves significant equipment upgrades. In such cases accountants may participate or drive the tender process and review necessary contractual arrangements.

Success quantification A crucial but potentially overlooked role of accountants is quantifying the outcomes of the project. This is critical not only as a method of evaluating the levels of success achieved and comparing them against expectations, but also for providing impetus for further EE projects. The rational actor A further, but less sharply defined role of the CPA might be described as being the rational actor. The need for this role arises as one of the findings of EE implementation reveals that many profitable opportunities are not realised. A potential explanation for this phenomenon is Institutional Theory, articulated by DiMaggio and Powell (1983). According to this perspective, rather then acting as rational economic actors, organisations engage in isomorphic behaviour, that is, they mimic the actions of those who are considered to be leader, regardless of whether these actions are beneficial for the organisation. As DiMaggio and Powell (1983, p. 147) explain: Bureaucratization and other forms of organizational change occur as the result of processes that make organizations more similar without necessarily making them more efficient. The authors describe three types of isomorphism: 1) coercive isomorphism that stems from political influence and the problem of legitimacy; 2) mimetic isomorphism resulting from standard responses to uncertainty; and 3) normative isomorphism, associated with professionalization (such as the accounting profession). While a detailed discussion of this theory is beyond the scope of this training, the key implication is that organizational attitudes towards the (non) implementation of EE projects may be the result more of fashion than of sound economic analysis. The accountant can therefore play a key role in grounding each phase of an EE project within an appropriately rigorous financial structure. These phases are not discrete, but ideally form part of an overall virtuous cycle as depicted in the following diagram:

The EF Virtuous Cycle