FDs unaware of CRC implementation cost

Finance directors risk increases to their annual energy bills of up to six percent from the cost of implementing the Carbon Reduction Commitment (CRC), which came into force on 1 April.

Hiring advisers and making changes to internal processes to comply with the CRC could see businesses adding to their annual energy costs for the next five years, according to PricewaterhouseCoopers (PwC)’s estimates, by failing to plan for the implementation charges.

Using the example of a business with an average annual energy bill of £500,000 that is planning its energy use for CRC compliance into 2015, PwC estimates that the cost of failing to plan for implement­ation could be more than £32,000 in 2011, rising to more than £108,909 in 2015. But it suggests that sound planning will reduce those potential cost increases to some £22,000 in 2011 and around £25,000 in 2015.

The firm says high CRC allowance prices, poor performance in the league table to be produced by those operating the CRC that will show how well or how badly companies are doing in reducing their emissions, while buying the wrong number of allowances will influence the outcome.

“2011 is when the impact on cashflow will really be felt,” says David Walters, a partner in PwC’s sustainability and climate change practice. “Businesses need to get on top of the long-term energy, cashflow and reporting requirements. Underestimating the impact will hit companies’ bottom line at a time when they can least afford it.”

Meanwhile, research undertaken in November 2009 by financial software provider SAP found that over 60 percent of British companies were not fully prepared for the CRC, and that many were confused as to who in their company would be responsible for meeting CRC obligations. It is still unclear how many businesses are captured by the CRC.

Anything between 6,000 and 36,000 has been cited by media reports, citing government sources.

“The bottom line is that the scheme will cost businesses in year one,” says PwC’s Walters. “A growing business has more energy needs. The reality is, if you want to avoid additional costs, you need to grow in a low-carbon way.”

CSR reporting is still ‘disconnected’
Despite much talk of the importance of implementing a strong corporate and social responsibility and of its reporting, most FTSE-100 firms still fail to explain their CSR activities and how they link to their wider strategy and future objectives.

A study by corporate reporting consultant Black Sun says CSR reporting is ‘disconnected’ from business strategy reporting. Its recent study found that, while 96 percent of the FTSE-100 do report on CSR in their annual reports, only 39 percent adequately demonstrate how it relates to their business strategy. Only 12 percent include it as a strategic business objective or a future priority.

More than half of respondents to the study made a commitment to CSR in their management statements, but provided little evidence of how they planned to achieve it in the rest of the statement. More than one in five businesses said CSR was an “integral part” of the business – yet supporting information was most frequently found in a separate section.

“In the future, operating in an environmental, social and economical way will be critical to building and maintaining trust and credibility,” says Sallie Pilot, director of research and strategy at Black Sun. “Our research examines if companies are demonstrating their commitment effectively and moving towards integrating corporate responsibility information within the annual report.”