FSN: Marks and Spencer’s environmental accounting is ‘made to measure’

Marks and Spencer's environmental accounting is ‘made to measure'

29th January 2007
Marks and Spencer's recently announced that it is to invest £200m in the next five years in order to reduce its environmental impacts. The company's 100 point eco-plan focuses on achieving “carbon neutrality”, as well as eliminating waste to landfill sites and extending sustainable sourcing. It is indicative of the growing recognition by mainstream businesses of an irreversible shift towards a low carbon economy. By 2012, the company also aims to reduce energy consumption by 25%, increase the use of renewable energy, double regional food sourcing, reduce the amount of packaging used by 25%, and restrict packaging materials to those that can be recycled or composted. But how will the company monitor and measure its progress in achieving these objectives? Niki Leahy FSN's senior writer on the environment reports.

Although there is currently no commonly agreed definition of carbon neutrality, it is most widely interpreted as the achievement of no net carbon emissions over a given period of time, as a result of energy reduction, consumption of renewable energy sources and the use of carbon offsets. Difficulties arise in calculating which products, services or operations a company regards as under its direct management.

Many of M&S's environmental initiatives announced recently build on existing work undertaken by the company to monitor, manage and report its environmental impacts. But satisfying consumer trends can bring operational and environmental best practice into conflict.

Attempts made by retailers in recent years to improve their competitiveness, (such as increasing sales floor space, extended opening hours, daily delivery schedules and the increased provision of air conditioning in stores) have increased the output of environmental impacts. Many retail managers are also measured and rewarded according to operational efficiency, which sometimes directly conflicts with attempts to increase environmental efficiency. M&S's new environmental strategy seeks to tie together operational and environmental efficiency thus ending this anomaly.

In order to achieve its environmental objectives Marks and Spencer needs to be able to set targets and measure performance. The company has already developed a sustainability framework which identifies the company's key environmental impacts and which will underpin the future strategy of action for reducing them. The framework enables the company to set out its environmental goals as well as the steps required for achieving them, and the monitoring procedures to ensure progress. The company has focused on developing metrics for its most egregious impacts, where data is already collected and monitored. M&S are also developing environmental accounting procedures which will report both normative data, (i.e. the use of energy per square foot of sales area) as well as gross totals. This ensures that both ratios and absolute values are recorded. Integrated, web based data management systems are used to track, report, evaluate and set targets for improvements on metrics used

Marks and Spencer are to focus their efforts where the environmental impacts are judged to be most harmful – and where legislation is likely to impose changes to business practice. The company already assess their environmental risks and publish their actions in managing these in the annual corporate social responsibility report. Becoming carbon neutral will require the on-going assessment of the company's entire use of energy. Output of CO2 is directly related to the type and amount of energy used and M&S has previously set annual targets for reductions in energy use. The company follow DEFRA's guidelines for measuring output of CO2 so that their carbon disclosures are consistent and comparable. The company tracks energy use in each store via a computerised system and monitoring equipment is gradually being introduced that will identify how energy can be saved.

In 2004, M&S commissioned the Carbon Trust to undertake a Carbon Management Pilot Project. This comprehensive energy audit identified a number of opportunities for reducing carbon emissions via operational energy savings in heating and refrigeration, as well as improvements to vehicle delivery schedules. Each store has an Energy Manager responsible for reporting energy usage, and stores are ranked according to their performance. All significant energy related changes are recorded, and each store participates in an energy efficient incentive scheme. Energy audits also identify where efficiency savings can be incorporated into new building design. The Carbon Trust estimates that “implementing no and low cost measures can result in a 20% saving in energy use and can have the same effect on profitability as a 5% increase in sales”,

Carbon emissions from transport are calculated using the DEFRA guideline conversion factors, (multiplying the total litres of fuel used by a factor of 2.68 CO2/litre). The company must legally collect and provide data showing annual transport distances travelled and fuel used. The Carbon Trust Pilot report identified fuel savings that could be expected as a result of investing in vehicles with higher emission standards and greater fuel efficiency, including reductions in CO2 as a result of switching to biodiesel. M&S then aligned these target reductions to changes from improved efficiency in vehicle delivery scheduling, and loading capacity. It is estimated that all food lorries are typically only half full when officially laden, and are empty 20% of their total time spent on the road.

Marks and Spencer use integrated software packages in order to manage their energy consumption data and to align this with other environmental data. They are required by law to submit information on waste generation for the Land Fill tax and 2005 waste packaging regulations. Using web based integrated data management systems M&S are able to monitor their use of energy, packaging materials and water and relate this to greater operational efficiency and improved decision making.

Marks and Spencer will work with suppliers in order to track CO2 emissions associated with the use of raw materials, manufacturing and importing of goods. This will enable the company to set targets jointly with suppliers for future reductions. The company also work with suppliers on the progressive attainment of environmental management standards such as ISO14001. M&S also source goods from suppliers who are covered by third party certification schemes. Such schemes generate environmental impact data from external audits and internal self assessment procedures. This is incorporated into M&S's product and process life cycle assessments, (LCA) which examine and calculate a range of the environmental impacts from which target reductions can be stated and measured. LCA is also related to life cycle costing, (LCC), which examines the costs as opposed to the environmental impacts over the life cycle of the product. Similar to activity based costing, LCC reveals the true costs of several business options, whereby the cheapest first cost is often not the cheapest in the long term when safety precautions, packaging and waste disposal costs are considered.

In order to meet targets for solid waste reduction and recycling, M&S already carry out extensive waste audits. These identify all the by-products that arise from business operations, which are then considered as resources for which markets and or uses must be found. Systems for forecasting when recycled materials will be available for incorporation into packaging materials are fed back into packaging design and into targets set for increasing the use recycled materials.

Finally, Marks and Spencer are also incorporating environmental risks and intangible benefits into their calculations of internal rates of return and net present values, so that these reflect indirect and as well as direct financial benefits. Such techniques calculate the benefits or costs to the company of reducing environmental risks, including reductions in insurance costs. In addition, the company are working to ensure that their accounting systems reflect the multiple benefits arising from sustainability decisions. For example, reducing the use of hazardous substances in products may reduce material costs as well as reduce the costs of permits, protective equipment, training and human resource expenses. Energy audits are used to identify where capital costs for new stores take account of anticipated energy savings in facilities budgets.

In the fiercely competitive UK food and clothing market M&S has now firmly positioned itself as a sustainable and responsible retailer, ahead of its major competitors. M&S's green strategy is set to address the key sustainability issues facing the retail sector, and its success will depend on M&S correctly anticipating that the company's green aspirations are also those of their customers. It is noteworthy that within five days of M&S announcing its new environmental strategy, Tesco committed £500m to reducing its carbon footprint, and to calculating the carbon impact and assigning a “carbon label” to every product it sells. How other retailers will follow these market leaders remains to be seen.

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