Carbon Emission Budgeting: Where FP&A solutions can play an important role

Carbon Emission Budgeting

We’ve come a long way in terms of sustainability and whether it’s social pressure, regulatory intervention, or a combination of both – companies worldwide are starting to grapple with their impact on our environment. Specifically, there’s a push to reduce carbon emissions and lower carbon footprints to arrive at more sustainable business practices.

Unfortunately, this can very easily devolve into mere lip service if there aren’t real practical implications that can fit into our existing incentive structures. For example, if managers aren’t being confronted with the carbon emission data when they’re making key decisions, then it’s not going to change how things work – and ultimately the mission will fail.

How can FP&A tools help lower carbon emissions?

FP&A tools offer a unique practical perspective by integrating non-financial data (such as carbon emissions) into the world of financial planning – which is the key engine of any business. If you look at any of the tools that Apliqo builds for example (leveraging the technology of IBM Planning Analytics / TM1) the key value proposition is to enable unified planning. A unified plan is one that can harness all the complexity of varied datasets and offer a single source of truth that contains all the context that you need.

It might seem overly simplistic to suggest that mere visibility of this data is enough to sway decisions – but it actually goes much further than you think. When you pull this sustainability data out of the context of a single annual regulatory report and put it front and centre alongside all other budgetary considerations, it gains power and becomes a part of the conversation. It makes things more tangible and this is worth its weight in gold.

To illustrate this, imagine a system where every product that you have can be drilled down into all its underlying components, and each component is assigned an estimate of its carbon footprint. You can apply the same logic to marketing spend, office costs, and everything in between. It’s very similar to how traditional activity-based costing is done today.

Using the right FP&A tools, you would then have a dynamic planning tool that not only allows you to see different scenarios in terms of their financial implication but also in terms of their carbon footprint, giving you another level of analysis within the same framework.

This is powerful and sets the stage for more environmentally-friendly decisions across the whole organisation.

Tying it to incentives

Of course, this needs to be driven through the business if it is to make an impact. As humans we are driven by incentives and so to truly get the most out of this carbon emission analysis, you’d need to build it into your staff incentive structures.

Perhaps, you create a carbon emissions budget that managers must stay below in order to be remunerated well. This is a strict but highly effective way of bringing your carbon footprint down which might be a key strategic objective that you want to drive towards. The beauty is that FP&A tools like the ones that we offer here at Apliqo allow for these unique configurations that can make sense of a range of different drivers and incentives – harnessing the complexity and enabling better decision-making.

If you’d like to explore something like this for your company, be sure to get in touch today.

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