Let’s Get Practical: Setting up the firm for Non-Financial Accounting
July 20, 2023
Why would your practice start getting ready for non-financial accounting?
In a nutshell, organisations want to reduce their emissions (for many reasons). To do that, they need to know where their emissions are coming from in the first place - that includes the emissions from your clients, SMBs they buy from. Then organisations can start making informed decisions, supporting SMBs to reduce for the benefit of their own low emission supply chain or rewarding companies who already have by procuring from them, over others who aren't doing anything. That's the world that's coming - in many ways, we have no choice but to do this.
The only way it's ever going to work is if every business understands their carbon emissions to an auditable standard and shares that information. Sumday believes the only way that happens, is if SMBs can access support to start carbon accounting properly (and support isn't yet another self input carbon calculator).
It may sound like an impossible ask - every business, carbon accounting...
Imagine if every business had to report on their finances, in line with complex standards, submitting auditable information to authorities every year where there were significant consequences for getting it wrong. Imagine if entire markets relied on this data to make decisions on who to invest in and forecast the impact of those decisions💡- sounds like tax time, sounds like financial reporting?
That impossible obligation is totally normal and it's the accountants making it possible - let's use the existing professionals, support networks, systems and processes to do the same with non -financial accounting - starting with carbon. That's where your team comes in!
Where to actually start
Accountants are ready, businesses need help - but often the starting line is a little blurry. And that’s no surprise, much of this is new or at least it’s in the spotlight for the first time - so let’s get practical!
Every firm is different, clients are different and strategic objectives are too, of course. We're asked the following questions often, so this guide is meant to help the team think about how they may get started - today.
What are the ESG related services the firm is actually going to provide?
We're not going to over complicate this one - many firms are best placed to start here:
“We provide carbon emissions assessments to our clients - calculating their footprint to an auditable standard, in line with the GHG Protocol and preparing a summary report on the findings.”
This is the first step for most businesses and it's essentially pure accounting, there's a standard to follow, they're not perfect but you disclose your professional judgement and you can prepare work papers as you would with any other engagement and hopefully, you'll likely have access to most of the data required to get started.
“We provide advisory services to help clients identify how they would like to be reporting on their impact long term, we identify the mandatory obligations they may have.”
For example, this might include a simple footprint in line with the GHG Protocol for smaller clients, aligning with GRI, reporting against GRI publicly, understanding whether the TCFD framework is relevant, or identifying any legislation or evolving standards that currently apply or may apply in the future. Accountants can help with the businesses roadmap before assisting with the preparation of the report.
“We provide advisory services to help clients prioritise the changes that result in emission reduction, through both a carbon and financial lens”
What are the hot spots from the emissions assessment, what could reduce the total, what is the scope of that project or what technical input is needed to define it, what would it cost, do we have the budget, what is the ROI, are there any tax implications - think of a client buying EVs, changing packaging providers that are lower emissions but they are more expensive and so on. Could they invest in higher cost options with lower impact but increase prices, with a compelling impact story consumers truly value - what are some scenarios and how do they affect the numbers? What changes will impact savings (lower fuel, lower electricity, fewer inputs etc)? Emission reduction comes back to accounting quicker than most people realise.
“We provide advisory services to improve the ESG data collection process - so you are ready to report in an increasingly accurate way.”
Think setting up or improving accounting systems to better capture activity data, capturing data from different departments in an auditable way for the first time, preparing a table of inputs the company will need, where they sit, who is responsible for delivering them and by when, identifying technology that can help streamline this. This may be part of the emissions assessment service or for clients aligning to new frameworks for the first time, this may be a valuable stand alone offering at the start.
You don’t have to be ready to prepare a Net Zero Strategy for every Fortune 500 company to get started and have a valuable offering. The net zero transition needs to bring everyone along, not just those big enough to be first out of the tent - advisors have a huge role to play in an equitable transition. You may be surprised by the clients who truly care about this stuff - and there’s not a formal compliance obligation in sight.
Setting up the team
The above services might sound good but how does the firm deliver?
The biggest success factor we’ve seen (by far) is allocating enough resources to the project to allow it to succeed.
Unsurprisingly, firms that are willing to invest in staff training and who kick off a few pilot assessments, often create a profitable climate service offering quite quickly, whereas firms that try to provide the service off the corner of their desks tend to lag behind.
Thankfully, finding staff that are passionate about this area is rarely a problem - staff at all levels are often very enthusiastic about being part of a climate focused service. Like with any accounting or advisory work, assigning staff from a range of levels also works well and allows tasks to be allocated more efficiently.
This is a structure we have seen work well - every firm will be different and this is just here to spark conversation about what is optimal for the team:
A new department or team within business services, business advisory or consulting - ESG Accounting Department
A Partner or Director leading the team and driving this as a priority.
A Manager or Senior Manger supervising, managing workflow and reviewing emissions assessments.
Around two mid-level accountants preparing assessments and associated workpapers.
Junior accountants or bookkeepers doing the carbon bookkeeping allocations for each assessment.
Identifying at least one auditor interested in the space who can be ready for increasing demand for climate disclosure related assurance services.
What do you call these advisors come climate heroes?
Everyone loves a good title, here are some examples:
Carbon Accountant / Consultant / Advisor
ESG Accountant / Consultant / Advisor
Climate Accountant / Environmental Accountant
How do you price this work?
The fixed fee vs hourly charge rate debate has been going on for years now in the accounting industry. Either approach can work well and both have their own inherent risks. Each firm is best placed to understand their own risk appetite and client expectations to make a call on this.
We do find that with a new service like carbon accounting, clients generally have a preference towards fixed fee engagements, or hourly charge rate engagements with a fee range estimate, until they have a better understanding of how much it is likely to cost. But as always, this depends on the firm and their relationship with the particular client.
Whichever approach is taken, many firms do tend to make low recoveries on initial pilot assessments. However the learnings will be invaluable and help you set up a fee structure based on the complexity involved in assessment for various clients. Accounting firms are experts at systemising services and we notice that efficiencies and expertise generally come quickly.
How do you market this service?
SMB client's may not be banging down the door for this service right now, but often they don't think of their accountant as the person who can provide the service in the first place. We’re here to help with this, Sumday advisors will soon have access to a brand new toolkit and support from our copy and design team is available now - here are some ideas:
Update your website to include the services you’re providing - we’ve probably all lost count how many websites talk about an ESG offering but it’s not at all clear what the firm or company can tangibly deliver. Rather than a website on the world of ESG, be specific on what you can deliver as a valuable service to clients, so they can understand the value and what it means for them.
Announce the new service offering through a blog, social media and newsletter to clients.
Consider hosting a webinar to discuss your service, giving clients an opportunity to ask questions (be up front that you may not have all the answers, nobody does!) and Sumday accountants can join you if you prefer.
Set up a meeting with clients who you know will be most impacted by changes in ESG requirements - consumer facing companies, agriculture, forestry, mining, funds, tourism for example.
Upskilling the team
Accountants already have the skills to deliver this work - it’s very similar to financial accounting. But of course, many teams are still getting their head around the existing and evolving standards.
Step one is ensuring your team understands what is included in the GHG Protocol - the most widely adopted carbon accounting standard. This 200 something page document includes concepts that will be familiar to most accountants. The World Resource Institute (WRI) who maintains the GHG Protocol also produce some more detailed calculation guidance, however the standards are still evolving so they aren’t always as decisive as the accounting standards you would be used to.
Sumday provides an 18 part course on the GHG Protocol designed for advisors. The team should finish this with confidence in how to go about preparing an emissions assessment. It’s self paced, online, includes worked examples, templates, videos, additional reading and delivered by our co-founder Lindsay, a CPA qualified accountant who has experience running a firm that delivered carbon accounting services with an academic background in sustainability and natural resource economics.
Staying up to date
Things are changing quickly and accountants are front and centre as high level frameworks morph their way into the accounting standards we all know and love (kind of).
Sumday keeps the team updated within the learning library. Our technical advisory support team is available for technical help and even the occasional vent. Our CAs and CPAs love getting to know the teams and are there to build confidence and answer queries that come up along the journey.
"The whole team at Sumday have been friendly, knowledgeable, and willing to help at every turn. It has been great to have support from such passionate individuals who believe in what they are doing" - Emily, Sumday Certified advisor.
"[The Sumday team are] enthusiastic, approachable and generous, their willingness to share their time to work through the course and complete assessments has been appreciated." - Michael, Sumday Certified Advisor.
Using technology to help prepare the assessment
No surprises here - we recommend using Sumday to prepare emissions assessments for your clients. It’s not a carbon calculator you simply send your clients to and you don't just hard code some data into platform and wait for the magical calculation. Your firm is adding value to your clients, bringing the same rigor, transparency and trust to this process as your clients expect from financial accounting.
Sumday provides the non-financial accounting platform and database you need to do this work. Your clients will have a subscription (just like Xero, Quickbooks or MYOB) and your work will show in client dashboards - giving them a beautiful platform to visualise the assessments prepared by your firm.
Here's a sneak peek of the next release - you can start now with the Sumday beta, you'll just be using your favourite tool for part of the assessment for a little longer (beloved Excel- Sumday style) 💜
Do I have to understand the carbon credit market in detail?
No. We often see people getting lost in the world of carbon credits. There’s an enormous amount of work to do for most businesses before they are lining up to buy offsets. The world is moving beyond a target of “carbon neutral” which required a carbon footprint calculation and the purchase of offsets - into a world where stakeholders want to see reduction year on year.
Some clients will still want to offset their emissions and you can refer them to those who do that - you don't have the be an expert yourself. We're certainly not and that's why Sumday doesn't sell offsets or make formal recommendations on where to buy them.
Under the Science Based Targets Initiative, the preferred approach is to reduce emissions where possible (ideally at least 90%) and obtain high quality removal offsets to apply for any remaining emissions (ideally a maximum of 10%).
Still have questions?
We’re here to chat anytime, whether you need help from a CPA or CA with carbon accounting experience, a designer or copywriter to market your service or a tech guru to go through any burning data questions - we’re all more than happy to jump on the phone or send an email whenever you need.