“Light touch sustainability” could encourage more businesses to develop a strategy

The gulf between the haves and have-nots raises concerns about the readiness of UK businesses to meet future environmental targets and capitalise on sustainability opportunities. Recent research reveals that while 69 per cent of surveyed companies have a formal sustainability strategy in place, nearly a third were lagging in having one in place.

Having a well-defined sustainability strategy is not a luxury but a necessity in terms of competitiveness and long-term viability.

However, the UK survey by global consultancy group RSM revealed that 76 per cent of respondents believe that sustainability provides an opportunity for their business. This sentiment underscores the growing recognition of sustainability as a driver of growth and innovation.

The RSM UK report shows 59 per cent of businesses believe their sustainability strategy will continue to generate value in the future.

Challenges in strategy development

One of the areas undermining strategy development is the complexity of data collection and reporting, particularly concerning Scope 3 emissions. The survey reveals 57 to 59 per cent of businesses collected data for Scope 1 and Scope 2 emissions, but fell short on Scope 3 emissions, that is emissions generated by their customers. Only 30 per cent collated data for these emissions.

This discrepancy points to the difficulties businesses face in tracking and managing indirect emissions across their value chains. "The responsibility should not just sit with the company in question; it should be a collaborative effort involving all stakeholders." the RSM report says.

Confusion over the myriad of sustainability reporting frameworks has also held business back. The survey indicates that businesses use an average of 2.9 different frameworks for reporting sustainability data, highlighting the lack of a universally adopted standard. This fragmentation can lead to inconsistencies in reporting and difficulties in comparing sustainability performance across organisations.

IoD calls for a light-touch approach

While comprehensive sustainability strategies are crucial, the IoD maintains that small businesses should not be burdened with cumbersome compliance. Jonathan Geldart, Director General at the Institute of Directors (IoD) advocates for "developing a light touch sustainability reporting framework for SMEs”. "This approach acknowledges the unique challenges faced by smaller enterprises and aims to make sustainability reporting more accessible and manageable for them,” he says.

The IoD's proposed framework could help bridge the gap for the 25 per cent of businesses planning to create a sustainability strategy in the next 12 months, as indicated in the RSM UK survey. By providing a simplified yet effective reporting mechanism, more businesses could be encouraged to develop a sustainability strategy.

Geldart says support for the development of a sustainability roadmap and strategy could unlock private capital and the UK's economic potential. "The UK needs to regain and accelerate its position of leadership in the transition to a net zero future," he says.

Sustainability strategy promotion on the rise

Meanwhile, the RSM UK survey reveals that 28 per cent of respondents promoted their green credentials, with an additional 51 per cent planning to do so in the next 12 months.

However, as regulations around environmental claims and over-reach become more stringent, businesses must ensure the veracity of their sustainability strategies and outline the steps to achieve their targets. The RSM report cautions "the danger of inadvertently greenwashing becomes a real concern".

The role of accountants in sustainability strategy development

Accountants are well positioned to support businesses in developing and implementing effective sustainability strategies.

Accountants can support clients with:

Data collection and Analysis: Provide guidance in developing systems for collecting and analysing sustainability-related data, including emissions across all scopes.

Reporting framework: Given the array of reporting frameworks available, accountants can guide businesses towards the most appropriate standards for their needs and industry requirements.

Financial planning integration: Support the integration of sustainability goals into overall business strategies and financial planning, ensuring that sustainability initiatives are aligned with broader business objectives.

Risk assessment and management: Help businesses identify and mitigate sustainability-related risks, as well as capitalise on opportunities in the green economy.

Performance measurement: Develop key performance indicators to measure and track progress towards sustainability goals.

Sustainability opportunities for accountants will be explored at the IFA International Conference Online on 7 November 2024.