hfma sustainability presentation

SustainabilityThe implications for NHS finance

21st January 2010

KPMG LLP

1© 2010 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. This document is confidential and its circulation and use are restricted.

KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative.

Agenda

10.00 Sustainability – what is it and why should we care?10.15 What we need to know10.30 The policy context10.50 Everything carbon11.10 Coffee11.30 Implications for the finance function12.00 It’s not all CO2

12.20 Measuring up12.40 Help!

© 2010 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. This document is confidential and its circulation and use are restricted.


SustainabilityWhat is it and why should we care?



What does sustainability mean?

Question:



Sustainability

vs.

Sustainable Development



“Sustainable development is development that meets the needs of the present without

compromising the ability of future generations to meet their own needs.”

Gro Harlem BrundtlandOur Common Future



The five principles of sustainable development

Achieving a sustainable economy

Ensuring a strong, healthy and just societyLiving within environmental limits

Promoting good governance

Using sound science responsibly

UK Government



UK priorities for sustainable development

Securing the future: The UK Government’s sustainable development strategy

● Sustainable consumption and production

● Natural resource protection and environment enhancement

● Sustainable communities

● Energy and climate change



YOU (AND 6 BILLION OTHER PEOPLE) ARE HERE



“If everyone in the world consumed natural resources and generated

carbon dioxide at the rate we do in the UK, we’d need three planets –

not just one − to support us.”

WWF



What we need to knowThe issues, the facts and a (very) quick look at the

science behind it all



The issues

The greenhouse effect

Greenhouse gases (GHGs)

Carbon emissions

The impacts of climate change



The greenhouse effect

Kiehl, J. T. and Trenberth, K. E. (1997).



Greenhouse gases (GHGs)

Water vapour Methane Carbon Dioxide



Carbon emissions

Mak Thorpe



The impacts of climate change

The climate is already changing…

● Rising temperatures

● Higher sea levels

● Extreme weather

● Plants and animals

…and significant social and financial costs



The policy contextGlobal aspirations, national aims and the NHS

Carbon Reduction Strategy



A global climate agreement?

“the lowest level of ambition you can imagine”Lumumba Di-Aping, chief negotiator for the G77

group of 130 developing countries

“a death warrant for many of the world's poorest children”Lydia Baker, Save the Children

“The city of Copenhagen is a crime scene tonight, with the guilty men and women fleeing to the airport.”

John Sauven, executive director of Greenpeace UK



In the UK: The Climate Change Act 2008

● An 80% cut in greenhouse gas emissions by 2050 *

● A 26% cut by 2020 *

● The creation of carbon budgets

● The Committee on Climate Change

● Powers to introduce emissions trading schemes

* against a 1990 baseline



Carbon emissions in the NHS

● 18m tonnes of CO2 per year

● 3.2% of UK carbon emissions

● An increase in carbon emissions of 40% since 1990

● The largest public sector contributor to UK carbon emissions



Where do NHS carbonemissions occur?

Question:




NHS Carbon Emissions: Carbon Footprint Study, 2008.




0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

CO

2 Em

issi

ons

/ Mt C

O2

Pharmaceuticals

Medical instruments / equipment

Business services

Paper products

NHS freight transport

Other manufactured products

Manufactured fuels / chemicals / gases

Food and catering

Construction

Information and communication

Water and sanitation

Waste products and recycling

Other produrement

NHS Carbon Emissions: Carbon Footprint Study, 2008.



Saving carbon, improving health

The NHS Carbon Reduction Strategy for England

● Reduce carbon emissions by 86% against 2007 levels by 2050

● As a first interim target, reduce emissions by 10% by 2015

● Start to act now



NHS Carbon reduction targets



What do you need to do?

● Carbon emissions are now a Board level issue

● Understand your carbon emissions and how you can reduce them

● Produce a sustainable development management plan –and monitor its implementation carefully

● Develop more use of renewable energy

● Make decisions based on whole life cycle costs

● Get everyone on board



Everything carbonCarbon footprinting, carbon management and the

Carbon Reduction Commitment



Carbon footprints

● Boundaries

● Completeness

● Methodology

● Accuracy

● Audit

● Skills and expertise



Carbon management

Understand Plan Do Monitor Report



The CRC Energy Efficiency Scheme

● Buy and surrender allowances

● 6,000MWh/pa ≈ £500k

● CO2 emissions £12/tonne +

● League tables

● Recycling of payments

● Starts in 2010/11, i.e. now!

● Pay from 2011/12



What have you done so far to prepare for the CRC?

Question:



Why is the CRC a risk?

Potentiallyunaudited

NewLack of

oversight and review

Finance may not be

involved

Requires trading

strategies

Skills may not exist

Requires cooperation

Data systems

may not be ready

…but it can be an opportunity, too.



Who needs to be involved?

YouEstates

Legal

Finance

Procurement

BoardMarketing



Why is this an issue for the Board?

● Resources

● Cost

● Cash flow

● Reputation

● Risk

● Potential fines

“Anyone who doesn’t get into carbon

reduction is a mug”

John TannerOxford City Council



Time for a short break…



Implications for the finance function

The cost of carbon, accounting issues, investment appraisal and more



The impact of the CRC on finance

● You may need to purchase allowances

● This has an immediate cash flow impact

● You may get this money back…

● …or you may not

● Big forecasting headache

● Effective communication is vital



The issues so far…

Strategy / policy / buy-in

Reporting systems/controls

Recording/reporting issues

Early action metrics

Identifying opportunities

Investment / funding

Trading strategies

Other



…and some potential problem areas

Boundaries

3rd party data

Availability

Conversion factors

Technology

Estimates/restatements

Human error / typos



CO2 allowances

Organisations need to buy allowances on a yearly basis for their estimated emissions. Unused allowances can be traded or banked for future use.

● Auction in April each year from 2011

● No limit in three-year introductory phase

● In subsequent years, total number of allowances will be capped

● Can purchase on secondary market



Have you developed a trading strategy yet?

Question:



Potential trading strategies

1. Passive – Buy allowances at the end of the year

2. Opportunistic – Aim to buy allowances when cheap

3. Cautious – Overbuy allowances at start of year

4. Commercial trader – Buy and sell to try to make a profit

5. Balanced – Buy sufficient allowances at start of year but monitor regularly for opportunities



The cost of carbon

There is a cost to carbon emissions… but what is it?

● Based on future energy usage

● Variable

● Unpredictable

● Affected by weather patterns, human behaviour, business cycles…

● Probably going to increase over time

● Likely to get expensive



The cost of carbon

We need to include the cost of carbon in

investment appraisals and decisions



Accounting for carbon

This is a developing issue…

…so no definitive guidance yet (sorry).

(But let’s have a guess.)




When you purchase allowances (April?):

● Cash outflow

● Create an intangible asset




As you emit CO2:

● Expense to cover the cost of allowances to be surrendered

● £12 / tonne?

● Market price?

● Establish a liability




When you surrender allowances (in July of the following year):

● Derecognise intangible asset as appropriate

● Derecognise liability



The known unknowns

Some complications:

● How to account for recycled payments

● Accounting for losses or gains

● Allowances carried over

● Impairment



This is a complicated area…

…it will require time, resources and commitment.

(And it will be audited.)



Any questions about carbon?

Before we move on…



It’s not all CO2Consuming wisely, preserving natural resources and

promoting social justice



UK priorities for sustainable development

Securing the future: The UK Government’s sustainable development strategy

● Sustainable consumption and production

● Natural resource protection and environment enhancement

● Sustainable communities

● Energy and climate change



Sustainable consumption and production

● One planet living

● Doing more with less

● Consuming and producing responsibly

Examples?



Natural resource protection

● Water

● Biodiversity

● Land use

Examples?



Sustainable communities

● Active and inclusive

● Open and transparent

● Well designed and accessible

… for staff, patients and the wider community

Examples?



Taking action on sustainability

Understand Plan Do Monitor Report



Measuring upThe need for good sustainability reporting



What do you report at the moment in terms of

sustainability?

Question:



Why report?

“As sustainability issues increasinglymove towards the forefront ofpeople’s minds, sustainabilityreporting becomes a key form

of communication.”

Mervyn KingChairman, Global Reporting Initiative



Why report?

… and you’ll probably have to

What gets measured (and

reported) gets done

We need to demonstrate

accountability

It can help to motivate staff and

partners

We can show our commitment and

publicise our achievements

Stakeholders will expect it



What to report?

● It depends on what your priorities are

● Show how sustainability fits into your overall strategy

● Try to understand what is important to your stakeholders

● Carbon emissions are likely to be the main focus

● Include financial and non-financial information

● Don’t just report the bare minimum



An example

Organisation Sustainability Report for the Year ended 31 March 2011



And another



Help!Some useful sources of guidance and support



Places to go for help

● Your colleagues

● The NHS Sustainable Development Unit

● HFMA, CIPFA, etc.

● Accounting for Sustainability

● DECC / Environment Agency (for the CRC)

● Sustainable development organisations

● Professional advisors and consultancies



Any questions?



Thank you!You’ve been a lovely audience



Simon PerksKPMG LLP (UK)+44 (0) 7990 678 [email protected]

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

hfma sustainability presentation

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