Adopting sustainable practices is now an important business exercise for many SMEs. But is there a need to ensure environmental systems are correctly reported on? And how should this be done?
Sustainability is now a much more typical part of company operations. A few years ago offering insight into the impact of a company’s sustainable practices would have been managed by specialist consultants, or perhaps the marketing and communications team. But with greenwashing being more readily called out, it’s clear that some companies are keen to be more transparent about how they are adopting and using environmental practices. And so sustainability is fast becoming something which might better sit within a financial report.
Regulations are changing too. New frameworks in the UK and EU now require that sustainability disclosures are audited and financially integrated, moving them beyond a ‘nice to have’ option. And this isn’t just for listed companies; with the newer Climate-related Financial Disclosure (CRFD) regulations more businesses – including SMEs – are being caught in this net. The direction of travel is clear: any sustainability data can and should be analysed in the same way as financial data.
Implementing sustainability reporting
This can feel like a big step – there’s a significant gap between focusing on being carbon neutral by 2050, and actually measuring your current carbon footprint with hard, auditable data. Understanding the financial impact can be a powerful tool though, especially when it comes to reporting on sustainable practices such as saving on energy costs through more efficient practices, reducing waste, and tackling the gender pay gap. Critically it can be useful to discuss your plans with your accountant who will be able to offer guidance into what can and should be considered.
Why it matters
As well as ensuring transparency and compliance, there are other benefits of adding some financial analysis to your sustainable practices:
- Investment – if you’re seeking funding, investors and banks are beginning to embed sustainability risks into valuations and lending.
- Customers and suppliers – other business who may be part of your supply chain, or who may be considering working with you, may be screening your sustainability credentials. And being able to show data could improve your competitive advantage.
- Regulation – your industry and sector could well be seeking more concrete, audit-assured data.
Xero supports sustainability reporting
To echo this trend, Xero has recently shared that it’s working with Sumday to help users better track their carbon footprint. If you’re using Xero for your company accounts, you’ll have 12 months free access to Sumday’s carbon accounting tools, helping you better understand your environmental impact.
To discuss any aspect of your financial reporting, or if you’re considering using Xero, please get in touch with our friendly team.