ESG, clean energy, and the need for reliable data

There is no "opt-out clause" for management accountants on environmental, social, and governance (ESG) information, says Association Chair and CIMA President Paul Ash, FCMA, CGMA, in this final podcast in an FM series on ESG. Ash describes how his formative years led to developing businesses focusing on environmentally clean energy and real-time measurement of emissions. Ash says management and public accountants both need to deliver on ESG compliance, and collaboration with engineers and architects will enable businesses to create workplaces in line with their ESG goals and protect workers' health.

What you'll learn from this episode:

• What has driven Ash's pursuit of clean energy and reliable emissions data.
• Management accountants' opportunity to lead on ESG reporting.
• Why ESG compliance is an issue for both public and management accountants.
• The potential of clean coal and nuclear technology.
• How ESG encompasses creating a healthy workplace for employees.

Play the episode below or read the edited transcript:

To comment on this podcast episode or to suggest an idea for another episode, contact Oliver Rowe, an FM magazine senior editor, at Oliver.Rowe@aicpa-cima.com.

Transcript:

Oliver Rowe: Welcome, Paul. Perhaps we could start off with the question of how did you get into clean energy and why a passion for the pursuit of carbon net zero?

Paul Ash: Well, Oliver, from an early age, being born and bred in inner city Birmingham, then a heavily industrialised city in the mid-1950s, a world where we produced our gas from coal, walking to school in the winter in a thick, yellow smog, suffering from asthma. It was very easy for me to see that the way we were treating our planet, and indeed ourselves, was unsustainable. I was lucky to be born into a relatively well-off middle-class family and we had summer holidays at the seaside, and later every year, on a farm in Pembrokeshire. So from an early age, probably from about ten or 11, I had developed to love the countryside, fresh air, and my first love, farming.

Despite this, I spent much of my career in industries that were anything but. However, without treading those paths so I would not have been able or fortunate enough to be able to know how to build a business that produces clean, on-site energy for the farming and growing sector in the UK, which is my principal business today. And nor would I have known just how poor our collection of data and reporting on carbon emissions is, which, in turn, has led to my new venture, Emerge Earth.

Rowe: And how has your professional career and the lessons you've learned from it influenced your thinking about finance in relation to sustainability and ESG issues?

Ash: Well, my early career as a management accountant took me in many different directions. I trained and qualified in the glass manufacturing industry with United Glass — UG — an extremely high energy user. That was in the late-'70s. So, again, I saw first-hand the damage we were doing to our environment and how difficult it would be to change consumer behaviour to demand more environmentally friendly products, and as a consequence, manufacturing processes.

Even now, I wonder how many of us consider the damage we are doing to our environment by buying our alcohol in glass containers and drinking it from a glass. At UG, we were the first to introduce recycled glass, but the process of removing the impurities from recycled glass involves heating it even more than you need to heat the base raw materials. So while we're saving on raw materials, such as sand and soda ash, we were punching a much bigger hole in the ozone layer as a result.

In the '90s, I worked with British Gas and with Greenergy, in its early days. We were the first producer of biodiesel, which while being clean at nose level, again involved more refining than standard diesel. Most buses in the UK now use biodiesel, but the trade-off to cleaner air in our cities is, again, the bigger hole in the ozone layer.

Rowe: Thank you, Paul. You mentioned Emerge Earth. What are the goals you're hoping to accomplish as CEO of that company?

Ash: Well, Emerge, to give it its full title — Emerge stands for Emissions Monitoring for Environmental Regulation of Generators of Electricity. We intend to transform the current global environment agencies' regulatory procedures and processes for on-site greenhouse gas emissions testing, which at the moment, involves taking on-site physical tests on the day once every three years. That means all of the data you see today on carbon emissions is based largely on historical data and estimated.

Given this, being in the thick of it in my business, it is hard how we will hold producers of harmful emissions to account when we do not have the means to produce reliable data. This, of course, is a huge problem for our profession, both as management accountants and auditors, as we all begin to learn and understand that we are all dealing with what are largely estimates based on historical data. Emerge has been founded to provide the solution to this.

By collaborating with developers, we will automate the capture of greenhouse gas emissions data through the development of bespoke technological testing equipment and software. We will automate the testing, reporting, and regulatory processes relating to greenhouse emissions data through the development of bespoke software and we will develop real-time reporting and analysis of carbon emissions data through artificial intelligence and robotics. We're still at the very early stages of this process and it will take time to achieve, but I believe it is essential that if we're serious about reducing our carbon footprint, then we should invest in delivering real, verifiable data.

Rowe: Thank you. And as the new chair of the Association of International Certified Professional Accountants and the new CIMA president, how do you plan to drive sustainability accounting and ESG reporting in the profession?

Ash: Well, first of all, we need to understand that ESG reporting was not of our making. We don't own it, and we don't have exclusivity to it. We do, however, have an extraordinary opportunity to take the lead on it. We must first learn to collaborate with others on the collection of reliable data, as I have just discussed on environmental data. But we also need robust data on the societal and governance aspects also, both of which are also unfamiliar territory to us as management accountants. We are, however, best placed to deliver the reporting on ESG, but it is not our role as a profession just to report on the historical data.

Our role as management accountants has always been about what is occurring in our businesses today, to ask questions of our management, and to help deliver right solutions in the thick of the problem. There is also a major role for us to play on compliance. Investors are no longer interested in how much profits you make, but whether those profits have been made in a way that meet their values, ethics, and vision for the future of our planet. So for public companies and private businesses that raise funds in the capital markets, they will no longer be able to simply say that we are ESG-compliant. They will have to prove it.

Rowe: Thank you. And how are you drawing on your career experiences? You've talked about those already, but how are you drawing on those experiences in what you're hoping to accomplish at CIMA and the Association?

Ash: I've always found that my qualification, it has always enabled me to work in multiple sectors and in many different countries. I promoted it before I qualified and had recruited and mentored many students and members. My roles as chair of the Association and president of CIMA are both a natural consequence of what I've always done and an opportunity for me to help improve our profession and maintain it as relevant today as it was 100 years ago. And I'm not just talking about management accounting, but public accounting, also, which my role as Association chair embraces.

Both sides of our profession need to be on the same page on compliance and how we achieve that compliance. Both of us lose if our stakeholders, the businesses we serve are judged to be noncompliant on ESG, and we will quite rightly be held to account both as management accountants and public accountants if businesses fail to comply with their ESG goals on our watch.

Rowe: Thank you. And looking into a crystal ball for a moment, where do you see sustainability accounting and ESG reporting going say in the next five years?

Ash: Well, things are going to move very quickly. Much of what we're currently discussing is low-hanging fruit in the markets we operate in. But we all need to enter markets that are unfamiliar to us. Global warming is not confined to the territories we currently operate in. We must follow up and secure our presence and influence in China and be prepared to enter Russia and South America also. With regard to the production of energy, we also need to have an open mind. We lose more than 40% of the electricity we generate by producing it centrally and distributing on a wide basis, compared to producing it where it is needed, which is what my business does.

We need to embrace clean coal technology. We still have a lot of coal on the planet, and it remains the most efficient, high-impact source of producing electricity. Just hold your hand over a lighted gas flame or oil flame. Then put it over a piece of burning coal and you'll see why. We have the means to burn it safely and cleanly.

Nuclear energy is another source where we can do more to improve its use and dispose of the waste materials cleanly. We can also use nuclear safely for on-site production of electricity by installing micro nuclear plants to produce the energy where it is required rather than several hundred miles away. These are just a few things that I think that we need to embrace as a profession and promote.

Rowe: And within that development, what do you see as the role for management accountants, and finance leaders, and finance teams?

Ash: Well, management accountants have always been at the centre of the action on any business, and I'm highly confident that will continue to be the case. But as I said earlier, we need to learn to collaborate more, for example, with engineers and architects, to ensure that our built environment is wholly compliant with the business's ESG goals. The pandemic has also taught us much about how well we treat our workforce. We now question whether asking most of our employees to commute every day and work all day in an office is right.

But we must also question whether it is most efficient and even sustainable for our workforce to work from in what are by and large far from ideal environments, whether it's the chair, desk, table you sit at, the natural light you work in, and so on. And the impacts on the mental health of the workforce by asking them to work in isolation, even if in front of a Zoom screen, on an everyday basis. And that is as much our responsibility as reporting on the financial results.

Again, external stakeholders, customers, suppliers, and investors will all be concerned more about how you make your profits in future, not just how much.

Rowe: Thank you. And finally, Paul, why should management accountants be interested in ESG and sustainability?

Ash: Well, Oliver, I don't think that they have an option, really, because there isn't an opt-out clause on ESG. Whether we like it or not, ESG already defines us and our profession in so many ways, and we need to ensure that our learning provider partners also understand how important ESG is and how important it is to be entirely integral for students' learning and understanding of what their future role will be as a management accountant.

Rowe: Thank you. Thank you, Paul. Thank you for sharing your experience, your plans, and your insights.

Ash: My pleasure.