Read the report here: Management Accountants’ Role in Sustainable Business Strategy: A Guide to Reducing a Carbon Footprint
Connect with the Speakers:

Full Episode Transcript:
Adam: (00:05)
 Hello again, welcome back to Count Me In, IMA's podcast exploring the world of business from the management accountants perspective. I'm Adam Larson and today we are discussing exciting new thought leadership from IMA, which shows how management accountants are on the front lines, making businesses more sustainable. The name of the report is Management Accountants Role and Sustainable Business Strategy: A Guide to Reducing Carbon Footprint. And I'm excited as brought some of the researchers and authors involved in the project here today, including Kristine Brands, management professor, the US Air Force Academy, Arnaud Brohe CEO of Agendi, a leading consultancy for climate and sustainability programs, and Jaxie Friedman, a sustainability consultant at Agendi. Make sure to follow a link in the show notes to access the full report. Let's start the conversation. 
 
 Adam: (01:03)
 So before we can talk about reducing carbon emissions for a company or for anybody, we kind have to start talking about the drivers that kind of led us up to this point that would make companies and other folks realize, Hey, I need to start paying attention to this and can, so let's start there. Kristine, can you, can you start that off for us? 
 
 Kristine: (01:21)
 Yes. Before I speak, I have a disclaimer because I work for the Air Force. The views that I am speaking about are entirely my own and do not reflect any policy or position from the Air Force, the Department of Defense or the US government. Drivers are huge and what astonishes me is the awareness and the rising of the consciousness of people towards climate change. And they take several dimensions of clearly external and the physical drivers, which are the data behind climate change and the astronomical risk that we're facing globally as a society. And that carries over to internal drivers, into organizations that are going to be put in a position, which I predict is going to come faster than people can imagine to address that risk as well as their strategy so that they can adapt and adjust and be agile to the threats that we're all facing as a society. 
 
 Adam: (02:34)
 Arnaud, Jaxie, do you have anything to share? 
 
 Arnaud: (02:37)
 Yeah. I agree with what Kristine said. I just think that people don't realize how fast this is going to evolve. But that's critical. Basically we have 10 years to change the way we consume, the way we produce, the way we are organized as a society. We have 10 years to start thinking about how to change our mobility systems, you know, shifting from thermite combustion engines to electric cars, that's going to be very visible, but that's just the tip of the iceberg, frankly. We have, we need to revolutionize the way we consume energy in factories, the way we consume energy in agriculture. So the changes are just enormous. The drivers of course are the physical climate risk, but that's not the first drivers that companies are going to experience what we see today and taking the automotive industry as one example, to trade is that transition risk are going to affect businesses even before physical risk and by transition risk I mean, the pressure that customers, the regulators, governments are putting on existing businesses. So if you are an automotive manufacturer today, and you wanna sell your car in no way, or the Netherlands or Germany, you better be ready to switch to much more efficient cars and to gradually shift 200% electric cars. And we know that these trends are going to come here as well in the US and in order jurisdiction.
 
 Jaxie: (04:03)
 Yeah. I think it's true. What both of you guys are saying that, you know, the science is showing it's, it's more and more significant and gonna be incredibly problematic, but I also think that there's in relation to that a lot of pressure coming from businesses and consumers as well, that is really driving this action. You know, of course it's true that the science is showing that more work needs to be done. But I also think that there's more awareness around that fact. So it's not just a matter of, you know, the, IPCC reports saying that, you know, there's targets we need to hit. It's also a matter of more public awareness that's trying to push us forward. And some of that is, you know, more just reputational. So investors encouraging companies to be integrating climate into their business strategies. Some of it is regulatory like Arnaud I were just speaking about kind of the SEC regulations and how there's kind of current movement towards there being potential regulatory requirements related to climate. And I think, you know, the fact that, you know, those new SEC kind of papers have come out to suggest that we're moving in that direction, I think is gonna be continuing to intensify the speed at which climate becomes integrated, not just into sustainability functions, but across entire business operations. 
 
 Adam: (05:44)
 So it almost seemed like you needed the customer and the government regulators to say something cuz otherwise businesses probably wouldn't have done anything. 
 
 Kristine: (05:54)
 I think you're absolutely right. There's been a lot of resistance. There is pressure. There's reputational pressure as was mentioned, but the real push is to pass the regulations which the European union has done. And there are daunting proposed regulations from the SEC. And I think that that's what is necessary to close the deal.
 
 Jaxie: (06:22)
 I think also, you know, it depends company to company. I think, you know, considering company culture is a really important factor. There's more and more businesses that really have sustainability within their DNA evolving as it's becoming a bigger part of our society as climate action is becoming more integrated at a public perspective. So I think in order to move the needle among kind of the mainstream body of companies, I think it's completely true that the regulatory pressure helps really push things along. But I also think it's important to acknowledge that there are many companies that have taken really huge steps in this direction before regulation was even on the table. And so I think it's important to consider that fact, I think that, you know, a lot of companies get a lot of or you know, with a corporate world in general, I think gets flack that they're, you know, the causing so much of the emissions and that they're, you know, the source of the problem, but the truth is like also, they're also a big part of the solution and they've been a real driver of innovation towards our climate solutions. 
 
 Jaxie: (07:31)
 And so I think it's important to acknowledge that I think regulation is not, it is a kind of like a compounding force, but I think even in its absence, there've been a lot of massive growth opportunities that have evolved because of companies that are really, you know, recognizing the need even without the enforcement. 
 
 Arnaud: (07:55)
 To compliment what Jaxie just said, that I would say we should stop thinking about seeing businesses as when homogeneous group there will be winners, there will be losers. You know, when we analyze climate risk with our clients, actually what we do is analyzing climate risk and opportunities. If you are an oil and gas company, of course like your future is less exciting that if you are renewable energy company does not mean that you will go out of business, but you need to reinvent yourself. You need to start, you know, investing in biofuels, investing in carbon capture. You know, you also need to think about diversification, you know, like, should you have all your assets deploy around all exploration? Probably not. Like if we read the IPCC, we clearly see that we should stop drilling oil, you know, that in the long run. So, but of course that's not the same story if you are, you know, developing alternative meat, if you are developing electric cars. So really I think regulation and businesses can go end in end, but we need to have that common goal to significantly reduce our greenhouse gas emission, simply because that's the survivor of the human species, which is at at least like the quality of life that we enjoy today, which is at stake. 
 
 Adam: (09:06)
 I mean, that's hugely important. I mean, we all kind of want to still be around on this planet and enjoy this planet for years to come. So bringing it back to since this is a podcast about all things affecting the accounting and finance world, how, what value can management accountants really bring to this process of, you know, making this important in an organization and, you know, going through it? 
 
 Kristine: (09:29)
 I think they are an essential part of the process and the progress that needs to be made. And you can look at it from the high level of their traditional role of gathering data and information and creating reports and acting on those poor decision makers. But it really transcends that they are ideally suited because they're a part of the inner, they have the tools, they've got the toolkit that they can use to create value. And that's what it comes down to, creating value in their organization. And just to name a few, there are cost benefit analysis and that's something that interface corporation in Georgia used to completely transform their strategy from profit bottom line to sustainability goals and objectives. We have the gap balance scorecard, which can be overlaid with a sustainability perspective developing a strategy map because if you're really gonna change the direction and the trajectory of organizations, you've gotta integrate this into the organization. 
 
 Kristine: (10:48)
 That's what management accountants do. And very, very importantly, the reporting is not standard financial reporting. We're focusing on non-financial metrics, sustainability metrics, so they can customize those within their organizations, do peer analysis with their industries and come up with a reporting framework where the results can be presented and then to do the capital budgeting analysis which is also tied to implementing innovation within their organizations to be able to look at new ways to do things. If you're an airline, maybe you're going to weigh everything that's on that plane. You need metrics and capital budgeting analysis to invest in that. I honestly think that the management accountants are the center of the reporting in their organizations to partner with other members of the organization. 
 
 Jaxie: (11:58)
 Yeah. I'd love to chime in and just share some additional thoughts. I mean, I couldn't agree more. I think, you know, even in businesses that maybe don't have greenhouse gas accounting directly centered within an accounting department, maybe kind of separated off to the side within a sustainability department, accountants are a critical piece of the puzzle. Like we are already, you know, with the diverse clients that we work with. Accountants are always an important part of the conversation when we start to think about measuring emissions from the entire value chain, right? When a company's emissions, tend to have the majority of impact actually coming from outside of the direct operations. And so we need to provide this gets a little bit technical, but you know, when we start to actually measure the emissions, it requires an implementation of kind of like diverse data points that are often reliant upon vendor spend figures. 
 
 Jaxie: (12:54)
 So the accountants are inherently directly connected to that. I also think when we think about kind of the shift in regulation becoming more apparent and influencing how companies are measuring their greenhouse gas emissions, accountants are the experts who knows better how to respond to the SEC than those business divisions. And so when we see regulations starting to become embedded within those kind of financial disclosure frameworks, it's absolutely critical that there be that expertise that's able to be brought into the conversation in terms of how we actually meet those regulations. And in relation to that, I think, you know, if we look at, for instance, the task force for climate related financial disclosure, it's a set of recommendations that helps to advise on how a company should strategically measure their climate risk and kind of communicate their risks and opportunities to stakeholders. 
 
 Jaxie: (13:59)
 And I think, you know, that TCFD framework often talks about how do we quantify in financial terms, the actual climate risks. And I think it's really important that we recognize that, you know businesses are evolving and how they define their bottom line, right? We're moving towards this triple bottom line of considering environmental and social factors, but the traditional society it's, you know, finances are what determines value. And so when we consider that fact, I think it's really important that climate impacts be able to be translated into those financial metrics. And I think it also, you know, not just in kind of early stages of a climate reporting journey, but even later stages coming up with, you know, internal carbon prices and thinking about how you can implement smart strategies that help your business, not just measure your impact, but also start moving towards the type of kind of low impact and positive oriented future that you're hoping to accomplish. And so I think accountants are absolutely critical from early stage companies, all the way to the companies that are really acting as pioneers in this sustainability space. 
 
 Arnaud: (15:13)
 I think we need management and concern to reveal the truth about sustainable products and sustainable services. Cause there is this bias that most people think that when something is good for the climate, it has to be more expensive. And very often it's because yes, it costs more money when you buy it. You know, it's an investment, but there is a payback for that investment. And I think we need management accountants because they play a key role in the capital allocation. And if they can help business leaders understand that what they should look at is the total cost of ownership. So if you think about retrofitting, your factory, of course it's going to cost consume money. But if you model like future price of carbon, if you model the price increase that we see for oil and gas and that we will see in the future as well, especially like if your business is international, the price of gas in Europe today is crazy, it's super expensive. 
 
 Arnaud: (16:01)
 And it's not just driven by the war in Ukraine, of course, that had a major impact. But already before that, we could see prices going because there were simply more regulation and more pressure to reduce greenhouse gas emission in Europe. And they have a very high price on carbon as well in Europe, which is going to, which is already in effect in some states in the US, such as California. So if you take all those factors into consideration, you come to realize that actually investing today, it's not a cost. It's really an opportunity that you should take. And we need management accountants just to reveal that truth to the top, to show that investing today in a more efficient fleet makes sense, investing today in redesigning your supply makes sense, investing in retrofitting your factory or buying, you know, more efficient boilers for your offices. That makes sense as well.
 
 Kristine: (16:51)
 I'd like to add to that great response. And that is, there is a myth that it's more expensive if you try to become carbon neutral. And I think that the management accountants can create the business case to demonstrate otherwise and partner with others in the organizations to demonstrate that that myth is not correct. And that if you have the awareness in the organization and you're innovative, you can actually make more money and be more profitable. And that's a win-win for everyone. 
 
 Adam: (17:33)
 So that is a win-win. And I really feel like anything that really is worth it and means it, it does costs a little more upfront, but over time it's worth it. You know, things like DE&I, or accessibility and things in that route and things with decarbonization, I found the same things that you guys that you all are saying are the same things that folks who are passionate about those things are saying that, Hey, it may be something upfront, but it's gonna make us so much better in the long run. And I think that's what we're hearing. And as we've been talking about the importance of the management accountant, so let's say you're a management accountant, you've played out your case. You say, Hey guys, this is gonna go well, you need, you know, buy-in from your senior leadership to have some sort of company wide sustainability project to reduce the carbon footprint. What does it look like when you're trying to initiate that project? Can we maybe discuss that a little bit? 
 
 Jaxie: (18:23)
 You know, it really depends on the company. I also think it really depends on the governance structure and how open a company can be to new initiatives. But I think ultimately what you said is exactly spot on, you need senior leadership to be a driver of this work in order for there to be company buy-in throughout all of the different employee groups that are required to be involved in the initiative. So I do think it's really critical that senior people within the company are integrated into those conversations and in terms of kind of hitting things off. And how do you start an initiative like this? I think it's important first and foremost, whether it's internally or, you know, working with external parties like Agendi, which is where Arnaud and I come from, you know, to understand what this, the sustainability reporting landscape looks like and specifically focused on climate emissions. 
 
 Jaxie: (19:15)
 The greenhouse gas protocol is sort of, you know, the gold standard. It's sort of our Bible for lack of a better word in terms of how do we actually measure and report on emissions. And there's a variety of really wonderful frameworks that exist out there that really help to guide the process on what data do you need and how do you get from the data inputs to the data outputs? Because I think I mean, accountants who knows their way around a spreadsheet better than them? But at the same time, you know, you need to understand the full processes of what needs to be incorporated in because it's, you know, not your typical financial calculations, there's a lot of intricacies. So I think the first step is really kind of whether internally or working with external consultants to understand what information you need, what you already have and you know, how you can move forward from there. 
 
 Jaxie: (20:13)
 It's really, the first step is to measure your current impact prior to the deciding where you need to go. If a company gets too far ahead of themselves and sets a target without understanding their baseline, you know, how do you know if that target is achievable? How do you know if that target is ambitious enough? And so I think it's really critical that calculating things and calculating them correctly is the first part of the puzzle. You know, and with that, I think one area in which it's really different I think accounting has a very kind of more specific sets of rules that maybe I'm sure there's still constant evolutions, but I think there's much more of a culture in greenhouse gas, accounting of the spirit of constant improvement. We speak with our clients all the time about how it is an iterative process. 
 
 Jaxie: (21:05)
 And it's always better to measure your emissions to the best extent possible this year, and then improve upon that for the next year. So in some instances where you can't get the right data, it might be a matter of using some estimations based on what is available. And so I think familiarizing yourself, I guess, first and foremost, with how more broadly speaking one calculates greenhouse gas emissions. And then, secondly, just not being too afraid of being imperfect the first time. You obviously want accurate numbers, but at the same time, you know, it's a complicated process. And so it's really important that you not avoid the initiative entirely out of fear that, you know, your numbers like will not be the ultimate goal of where you would be in three years. Yeah. Arnaud, I'm curious if you have any additional thoughts on that. 
 
 Arnaud: (21:58)
 Yeah. I think to me first, you need to be inclusive. So you need as an concern, you need to go outside your own department. You need to involve the different functions, you need to discuss with your suppliers. You also need to discuss with your customers as some of the impact will also come from the customer side. You probably need to involve HR because, you know, your carbon footprint is also the result of the activities of your employees. So that's very broad process. I would say your goal should be that what you call a project does not be basically becomes integrated in the entire business. So I don't see like sustainability as a separate project it's really part of running a business efficiently. So you need to make sure that the risk function, for instance, one thing we try to do is working with the risk function and making sure that climate risk are being analyzed by the risk function. 
 
 Arnaud: (22:55)
 You need to, when you discuss, let's say employee travel, you should be discussing with people who are booking for employee travel to make sure that every time they book for employee travel, they think about the consequences in terms of carbon. So I feel it's a lot of sharing knowledge, you know, all the things that you learn on this project, you should share it with all the departments. So that basically the entire organization, brief carbon accounting, brief carbon reduction, because that's the only way you would be able to integrate all those best practices within your business and deliver results in the end. 
 
 Kristine: (23:28)
 I agree with what Jaxie and Arnaud said, but I think that it's extremely important to do something. Start the process, start the thinking. Definitely you need the support of the top management, but one of the lessons that I teach my students, because I've integrated sustainability accounting in my management accounting class is the power of one. And with that awareness, you can help turn the organization around to understand how critical and important this is. It needs to be a culture where everyone participates and understands what's at stake. There's a forklift driver at Interface corporation, and he knows that his job every day is to save the planet and to work efficiently so that he doesn't use more CO2 gas than he needs to use. It don't have to start with sophisticated systems. Spreadsheets can do the basic accounting and then think through it can be complex as Jaxie said. There's no question about it. And it needs to be defined in an architecture and a plan, and you don't have to do everything tomorrow. You can scaffold it and build it into more complexity until finally you're creating an ESG or a sustainability report that you can publish and share with your shareholders to demonstrate your commitment to this urgent problem that we are facing globally and show the continuous improvement and you're creating value for the organization. 
 
 Jaxie: (25:20)
 I think just one more quick thing to say off of that, Kristine, you know, I think there were some great points you addressed and, you know, in speaking to that power of one I think one of the first things is creating an opportunity for someone to take ownership of this work. It is complex, as Arnaud said, it, it requires numerous business divisions. It requires consideration of external stakeholders and identifying a specific person who has this either as their entire you know, role or as a major component of their role is a critical step forward. So identifying who's gonna be doing the work or at least kickstarting it because, you know, in order for there to be that power of one, there needs to be someone to be powerful. So I think that is important too. 
 
 Outro: (26:11)
 This has been Count Me In, IMA's podcast providing you with the latest perspectives of thought leaders from the accounting and finance profession. If you like what you heard, and you'd like to be counted in for more relevant accounting and finance education, visit IMA's website at www.imanet.org.