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The cost of greening business

Author: ICAEW Insights

Published: 26 May 2023

There are no hard and fast rules to making a business more sustainable, but a tailored and holistic approach to sustainability that meets a company’s strategy and aims will pay in more ways than one.

Sustainability quickly became the buzzword of the 21st century as companies large and small acted to promote their ambitions to become net zero and laid out their eco-friendly credentials. 

Quickly, though, it became clear that there is no one-size-fits-all approach to greening a business. Depending on the size, sector and nature of a business, making a company sustainable can range from fairly straightforward to hugely complex. What is clear, however, is that there is a cost attached.

The question of how much is very much a case of ‘how long is a piece of string’? It all depends on how much of a priority sustainability is for a business, the programmes in their sights and the depth of their pockets.

Luma Saqqaf, CEO of Ajyal Sustainability Consulting, says: “There is no doubt moving towards sustainability comes at a cost for businesses. That cost depends on what you want to do, what shifts you want to make and over what period of time.”

It can be a question of sourcing products from local suppliers, which in turn will lower transport costs, boost local jobs and local businesses, to as complex as overhauling products and raw materials. However, Birgit Breitschuh, a partner at consultants Oliver Wight EAME, warns that there may be unintended consequences in this, too. 

“Certainly, sourcing more locally will reduce the carbon impact through lower transportation costs. However, there are often hidden money and energy costs from bulk buying, such as the cost of the warehouse space and heating consumed while it is all stored for long periods, or even obsolescence. Sometimes, when companies look into it, they find it was not only poor for sustainability, but also not such a wise financial decision in the first place,” she says.

There are, however, some early quick wins most companies can make. Chris Fuggle, Global Head of Sustainability and a Partner at Mazars, says: “When considering the cost of becoming more sustainable in general, there are many small things that could be done with a limited budget, such as switching to renewable energy, reducing plastic and paper usage in the office, reducing business travel, adding more meat-free options in catering, and engaging with stakeholders to identify waste reduction opportunities.” 

There is no single rule for implementing a sustainability programme. It can be as complex or as simple as a company wants it to be. The starting point for any business leader is to identify which environmental, social and governance (ESG) issues are critical to their company because of the impact, risk or opportunity. 

Some changes companies can make need not be expensive, but will require behavioural shifts. Beatrice Tanjangco, Senior Climate Economist at Oxford Economics, says: “For example, if a business is more labour-intensive, this might mean considering employees’ whole carbon footprint and offering cycle-to-work schemes, and changing travel behaviours to reduce the impact of commutes.

“Beyond energy use, businesses will want to consider the full scope of emissions they are responsible for – this means looking across the supply chain. This could mean shifting to business practices that are more sustainable or working with sustainable suppliers, changing packaging, and working with a circular model to minimise waste, which can help reduce costs rather than increase them.”

Mazars’ Fuggle says the process shouldn't be confined to the boardroom alone. “To gain a balanced view requires engagement with internal and external stakeholders, an examination of upcoming regulation for their markets and likely engaging with external consultants with the experience of the relevant topics and/or sectors. 

“Once the senior leadership team has a good appreciation of the topics, they can work together to understand how they could impact each area of the business in order to assess the options they have available – this may include changes to products and services, business model, processes, policies, and governance practices.”

Breitschuh concurs. “It is important to look at everything end-to-end. For instance, working through your suppliers and supply chain can have a huge impact on improving your greenness, and it is important to have a thorough look at the total costs of your purchasing decisions and not just on the headline amount.”

Government backing

The US government and European Union have just announced billion-dollar investments into sustainability programmes to achieve their net-zero goals and attract inward investment. Although the UK government has been criticised for being slow to financially back sustainability programmes, some grant funding is available.

Fuggle says: “As a result of the increased publicity around the importance of tackling climate change, the UK government plans to allocate billions of pounds in grant funding for sustainability initiatives through ‘innovation competitions’. These grants are exclusively available for initiatives determined by the government and have strict eligibility criteria and application deadlines.”

Oxford Economics’ Tanjangco says: “Many governments offer incentives to reduce emissions. Countries like the US and in Europe offer programmes to upgrade buildings and improve energy efficiency. Similar programmes are available in the UK, including the Social Housing Decarbonisation Fund, Home Upgrade Grant and Public Sector Decarbonisation Scheme

“For businesses, installing solar panels can have tax benefits. For example, the installation of energy-saving materials and heating equipment has a zero-rated or reduced-rated VAT. Businesses can also claim capital allowances when they buy energy-efficient items such as electric cars.” 

She adds: “Companies can also look for available local government schemes to support energy efficiency improvements. Overall, as the cost of transition falls and banks start to incorporate ESG into decisions, access to investment for funding the green transition is becoming easier and cheaper.” 

Fuggle also points to the UK research and development (R&D) regime, which offers corporation tax relief or cash repayment in the form of tax credits. As from 1 April 2023, companies engaged in qualifying R&D activities have been able to claim an enhanced cash benefit for each pound spent, assuming they are classified as R&D intensive businesses.

To qualify for this, companies should have undertaken a project that is aiming to achieve an advance in science or technology, working to resolve scientific or technological uncertainty and the solution is not easily found by someone competent in the field. 

“In terms of the qualifying expenditure, costs within an R&D tax relief claim need to be of a ‘revenue’ nature rather than ‘capital’. Eligible costs for R&D tax relief include staff, subcontracting, consumables, software, trials, prototyping and independent research,” Fuggle says.

Although arguably tougher for smaller businesses with fewer resources and cash, the cost of greening a business should be viewed not just as an investment for the future of a company but also the planet. Clients and consumers – particularly the next generation of consumers – are keenly focused on where products and services are sourced and what damage they are doing, inadvertently or otherwise, to communities and nature. If companies don’t wise up to this factor, then they may quickly find they no longer have a business to make sustainable.


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