NHS sustainability implications

Sustainability
The implications for NHS finance

21st January 2010

KPMG LLP

Agenda

10.00 Sustainability – what is it and why should we care?
10.15 What we need to know
10.30 The policy context
10.50 Everything carbon
11.10 Coffee
11.30 Implications for the finance function
12.00 It’s not all CO2
12.20 Measuring up
12.40 Help!
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Sustainability
What is it and why should we care?


Question:

What does sustainability mean?


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 Brundtland
Our Common Future


The five principles of sustainable development

Ensuring a strong, healthy and just
Living within environmental limits
society

Achieving a sustainable Using sound science Promoting good
economy responsibly governance

UK Government

6

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

7

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 know
The 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

11

The greenhouse effect

Kiehl, J. T. and Trenberth, K. E. (1997).
12

Greenhouse gases (GHGs)

Water vapour Methane Carbon Dioxide

13

Carbon emissions

Mak Thorpe
14

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

15

The policy context
Global 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

17

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

18

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

19

Question:

Where do NHS carbon
emissions occur?



NHS Carbon Emissions: Carbon Footprint Study, 2008.

21


Pharmaceuticals
4.50
Medical instruments / equipment
4.00
Business services

3.50 Paper products
CO2 Emissions / Mt CO2

3.00 NHS freight transport

Other manufactured products
2.50
Manufactured fuels / chemicals / gases
2.00
Food and catering
1.50
Construction
1.00 Information and communication

0.50 Water and sanitation

0.00 Waste products and recycling

Other produrement

NHS Carbon Emissions: Carbon Footprint Study, 2008.
22

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

23

NHS Carbon reduction targets

24

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
25

Everything carbon
Carbon footprinting, carbon management and the
Carbon Reduction Commitment


Carbon footprints

● Boundaries

● Completeness

● Methodology

● Accuracy

● Audit

● Skills and expertise

27

Carbon management

Understand Plan Do Monitor Report

28

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
29

Question:

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


Why is the CRC a risk?

Finance may
New not be
Lack of involved
oversight
and review
Skills may
Requires not exist
trading Data
strategies systems Potentially
may not be unaudited
ready

Requires
cooperation …but it can be an opportunity, too.

31

Who needs to be involved?

Marketing Board

Estates You Finance

Procurement Legal

32

Why is this an issue for the Board?

● Resources

● Cost

● Cash flow “Anyone who doesn’t
get into carbon
● Reputation reduction is a mug”

John Tanner
● Risk Oxford City Council

● Potential fines

33

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

36

The issues so far…

Strategy / policy / buy-in

Reporting systems/controls
Recording/reporting issues
Early action metrics
Identifying opportunities

Investment / funding
Trading strategies

Other

37

…and some potential problem areas

Boundaries

3rd party data

Availability

Conversion factors

Technology

Estimates/restatements

Human error / typos

38

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

39

Question:

Have you developed a trading
strategy yet?


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

41

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

42

The cost of carbon

We need to include the
cost of carbon in
investment appraisals
and decisions

43

Accounting for carbon

This is a developing issue…

…so no definitive guidance yet (sorry).

(But let’s have a guess.)

44


When you purchase allowances (April?):

● Cash outflow

● Create an intangible asset

45


As you emit CO2:

● Expense to cover the cost of allowances to be
surrendered

● £12 / tonne?

● Market price?

● Establish a liability

46


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

● Derecognise intangible asset as appropriate

● Derecognise liability

47

The known unknowns

Some complications:

● How to account for recycled payments

● Accounting for losses or gains

● Allowances carried over

● Impairment

48

This is a complicated area…

…it will require time, resources
and commitment.

(And it will be audited.)

49

Before we move on…

Any questions about carbon?


It’s not all CO2
Consuming 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

52

Sustainable consumption and production

● One planet living

● Doing more with less

● Consuming and
producing responsibly

Examples?

53

Natural resource protection

● Water

● Biodiversity

● Land use

Examples?

54

Sustainable communities

● Active and inclusive

● Open and transparent

● Well designed and
accessible

… for staff, patients and
the wider community

Examples?

55

Taking action on sustainability

Understand Plan Do Monitor Report

56

Measuring up
The need for good sustainability reporting


Question:

What do you report at the
moment in terms of
sustainability?


Why report?

“As sustainability issues increasingly
move towards the forefront of
people’s minds, sustainability
reporting becomes a key form
of communication.”

Mervyn King
Chairman, Global Reporting Initiative

59

Why report?

We need to
What gets demonstrate
measured (and accountability
reported) gets done

We can show our
commitment and
publicise our
achievements

It can help to Stakeholders will
motivate staff and expect it
partners

… and you’ll probably have to
60

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

61

An example

Organisation Sustainability Report for the Year ended 31 March 2011

62

And another

63

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
65

Any questions?


Thank you!
You’ve been a lovely audience


Simon Perks
KPMG LLP (UK)
+44 (0) 7990 678 588
simon.perks@kpmg.co.uk
www.kpmg.co.uk

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.


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