Isra-Mart srl:Carbon Trust: Finance directors underestimating energy efficiency returns

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Major businesses are wasting at least £1.6bn annually because they continue to undervalue the financial returns gained from investing in energy efficiency.

That is the conclusion of a paper published today by Carbon Trust Advisory, the business arm of the Carbon Trust, which found that finance directors typically estimate the average internal rate of return from energy efficiency projects to be less than 20 per cent, when in fact it is closer to 48 per cent.

This is four times the minimum level demanded by most senior finance officers, while the average three year payback on energy efficiency measures also meets the requirements of eight out of ten finance directors, the Trust said.

"The business case for energy efficiency is clear and compelling. Few other investments get anywhere near that rate of return," said Hugh Jones, managing director of Carbon Trust Advisory. "Yet our data suggests big businesses are leaving around half the investment opportunities on the table and continuing to waste billions of pounds on unnecessary energy use every year."

Simple changes such as upgrades to heating and lighting, energy-saving policies and staff training would comfortably save £1.6bn each year, Carbon Trust Advisory added.

In part, it blamed the "landlord-tenant divide", whereby landlords have little incentive to make buildings more energy efficient because tenant companies reap most of the benefits through lower energy bills.

But it also warned that energy efficiency was still regarded as a low priority in many organisations, echoing recent research by Deloitte which found the vast majority of firms were failing to embrace carbon reporting standards.

Sandra Rapacioli, research and development specialist at the Chartered Institute of Management Accountants (CIMA), said that financial departments should play a bigger role in promoting and implementing green targets.

"Organisations around the world must wake up to the fact that sustainable business makes good business sense and that accountants are critical when it comes to driving such projects forwards," she said. "With their considerable skill-sets, accountants are able to apply the necessary financial and commercial rigour to develop clear and measurable carbon reduction goals, facilitate effective implementation and provide credible business reporting."