Accountants play a core role in climate change adaptation. They provide analysis to underpin key decisions, adding substance to sustainability discussions.
S. Jeff Birchall
February 23, 2016
Use Analytics to Adapt to Climate Change – and Better Serve Your Customers
Sustainability has been part of MEC’s ethos and products – now a complete range of outdoor gear and equipment – from the very beginning. In 1971, Mountain Equipment Co-operative (MEC) started out with six members. In 2014, the cooperative had 4.34 million members and sales of $336.1 million.
As MEC became more sophisticated, so did its sustainability efforts. It became better able to quantify its climate-related vulnerabilities and to consider them more comprehensively. “First we started with what we had most control over internally, then we went to our supply chain,” notes Amy Roberts, Director of Sustainability.
This level of sophistication is largely made possible by MEC’s finance team working with different departments and individuals throughout the company. This collaborative effort makes MEC stand out as a business leader on climate change adaptation efforts.
How the Physical Impacts of Climate Change Influence MEC
A changing climate influences MEC in two main ways – through sales and through its supply chain.
Climate change means seasonal weather will be less predictable. These changes have implications for what customers want to buy, affecting what MEC needs to stock. Roberts identified key questions for MEC: “Will climate change hinder certain activities, or will it just change what’s available?” In other words, should MEC stop selling cross-country ski gear, or just stock it for a shorter period of time?
Climate change will also result in more extreme weather. Reports by the Canadian government as well as the Intergovernmental Panel on Climate Change (IPCC) predict more storms and droughts both in Canada and globally. MEC sees these impacts on its retail stock and source materials:
Stock in transit: As stock moves from MEC’s Canadian distribution centre to its stores, it is vulnerable to road closures as a result of flooding, landslides and snowstorms.
Stock in place: Stock at the distribution centre or on store floors is vulnerable to flooding.
Source materials: Extreme weather affects resource availability and even commodity prices. Internationally, said Roberts, “where there are droughts and the cotton crop is bad, the price of cotton goes up.”
How MEC Adapts to Climate Change
MEC embeds climate change adaptation at an organizational level rather than pursuing a separate climate change adaptation initiative. Adaptation is part of the business’s risk matrix and its operational and investment decisions. Doug Wong, CPA, CGA, Director of Finance and Administration at MEC ,described these responsibilities as being shared across the organization and maintained by the finance team through planning, reporting, and investment activities.
A core effort, related to sales and supply chain, involves an increased ability to understand weather patterns. “Weather events have direct impact on MEC,” said Wong. “As such, with recent projects such as the new BI [business intelligence] system we’re implementing or a new inventory management system we’re sourcing, we want to track and report weather across different regions. We’ve identified system capability to track weather as a requirement for the new inventory management system.”
Weather forecasting will allow MEC to better address the changing climate’s impact on sales. “We can track the weather and mirror this against our sales to make medium- to long-term decisions about how to manage our inventory and supply chain,” said Wong.
Additional adaptation efforts include building infrastructure to mitigate flood risks and diversifying its sourcing strategy when possible.
The Role of Accountants
MEC accountants play a core role in climate change adaptation, providing the analysis that underpins decisions. “They measure variables, trade benchmarks, and weigh options,” said Sandy Treagus, CPA, CA, Chief Financial Officer.
“Accountants have a fantastic opportunity, by virtue of the fact that they’re in this analytical role, to add substance to that whole discussion.”
In addition to the financial data, “we are incorporating the sustainability data, the operational data, and looking at it from a systems-wide type of analysis to assist with the decision-making,” described Wong.
That holistic view ensures that metrics are meaningful, said Treagus: “Because of their access and their interaction with every other department in the organization, [the finance team] has that broader view.”
Wong described MEC’s inclusion of weather forecasting data as a collaborative effort. Finance has worked with sustainability, operations, and the buying group. “We look at it as: ‘We’ve got a shorter season and adaptation is required. We have to make decisions about how to bring in and move the products.’” For example, accountants have facilitated discussions on the cost implications of shipping from the distribution centre or using stores as secondary warehouses.
The finance team is also closely involved in decisions around new infrastructure as MEC seeks to site facilities in areas less threatened by a changing climate. Finance reviews the payback horizon for investment, Wong explained. “Locating in reduced-risk zones comes at a higher cost, but this organization won’t sacrifice sustainability for a quicker payback.”
Training for Changing Future
MEC staff recommend two types of training to enhance accountants’ ability to work on climate change adaptation.
Training in climate change and sustainability:
“Organizations are no longer operating in silos,” says Wong. Integrated thinking is vital. Accountants will increasingly work in collaborative, cross-functional organizations. As companies embed sustainability and climate change thinking across functional areas, accountants will “need to broaden our knowledge base about business and the environment,” said Wong.
Accountant training should include real-world case studies and practitioner-led lectures on accountants’ role in climate change and sustainability. Accountants can benefit from understanding sustainability frameworks and their application to business operations. Such training “positions accountants to provide potential employers with added value beyond the typical financial format,” according to Wong.
Training in enabling or “soft” skills and collaboration:
Accountants need to be able to communicate and work with others across a broad range of disciplines and functions.
How can accountants develop a better understanding of different outlooks? Valerie Presolly, Sustainability Manager at MEC, suggested having accounting students work on cases with others, such as marketing students. “By having those worlds collide in school — because they are going to collide in the real world — students would learn the necessary soft skills.” Wong agreed: “If more opportunities can be provided for students in different business faculties to collaborate on projects, work on case studies, etc., they will be better prepared to face challenges and work harmoniously with colleagues in our connected world.”
With the right perspective, accountants and colleagues in other functions can be powerful collaborators.
Closing Comments from MEC
Climate change requires a universal response. While government policy and international agreements can create momentum, MEC believes it must advocate for action and prepare for organizational impacts: e.g. by building robust systems and collecting transparent and rigorous data.
MEC advocates pushing accountants into new collaborations with other departments.
“[Accountants] need to be able to step back, apply our skills at the organization or 10,000-foot level and get out of the silo thinking.”
Accountants must “take that collaborative approach, get a broader view of the business in the world, and apply what we are trained to do — the analytics — but also recognize that there are good methodologies and approaches in other disciplines that could be beneficial to our work as well.”
As a retail organization, MEC sees climate change directly affecting its sales and supply chain.
What is the adaptation strategy?
MEC embeds adaptation at an organizational level, in the risk matrix and in its operational and investment decisions. It tracks weather to understand how shifts — like shorter seasons — might affect inventory demands. It also considers climate risks related to infrastructure and material sourcing.
What is the current role of accountants?
Accountants at MEC contribute to adaptation decisions through participation in planning, resource allocation and rigorous analyses.
How can accountants be better positioned in the future?
MEC staff urge the accounting profession to increase training in climate change adaptation and sustainability, and in enabling or “soft” skills, such as communications, to facilitate better collaboration with non-accountant colleagues.
Warren, F.J., and Lemmen D.S. 2014. Canada in a Changing Climate: Sector Perspectives on Impacts and Adaptation. Ottawa: Government of Canada.
IPCC. 2014. Climate Change 2014 Synthesis Report: Summary for Policymakers. Available at: www.ipcc.ch/report/ar5/syr/
Explore the full list of NBS climate change resources and learn from the following organizations also implementing climate change adaptation: