CIMA25 M 201025 May 2010

Carbon and SustainabilityCarbon and Sustainability Considerations for Accountants

Jan Fitzgerald

Sustainability and accountants

Sustainability and AccountantsSustainability and Accountants

What is Sustainability?What is Sustainability?

Sustainability doesn’t just = EnvironmentEnvironment, Social, Economic

What is Sustainability?What is Sustainability?

Sustainability doesn’t just = EnvironmentSocial, Environmental, Financial inter-relatedHolisticLong-termLong-term

What is Sustainability?What is Sustainability?

Business case for sustainabilityBusiness case for sustainability

What’s in it for me (and my business)?

Decreased costsDecreased costsIncreased revenuesIntangible benefits

Decreased costsDecreased costs

Resource efficiencyWaterEnergyPaper

Packaging

Waste

Staff

Staff absenteeism and turnoverStaff absenteeism and turnover

Feel good factorIndoor Environment Qualityy

LightingFresh airFresh airElectro-magnetic radiationColoursColoursChemicals (VOCs)

W k t ti t t fitWorkstations, carpets, retrofit

Productivity gains plus health benefits

CH2 benefitsCH2 benefits

Increased revenuesIncreased revenues

New service opportunities, where you’re in the same market you’ve always been but you ‘green’ your service offering, resulting in more customers New market opportunities – how could you tap into a completely new and different market through sustainability related products and services? But beware Greenwash!

IntangiblesIntangiblesR t ti h tReputation enhancement

Increased staff satisfactionIncreased staff satisfaction

Better community relationsBetter community relations

Improved customer relationsImproved customer relations

Better ability to recruit staffy

Future supply chain security

Wal MartWal-Mart

Wal-Mart

walmartstores.com/download/4055.pdf

NestleNestle

Greenpeace campaign against Nestle for using palm oil from Indonesian rainforestsWhat’s wrong with palm oil?

Deforestation of rainforestsHome of orangutanDigging up peat

http://www.youtube.com/watch?v=VaJjPRwExO8

Digging up peatNestle agreed to stop sourcing palm oil from Indonesian rainforestsIndonesian rainforests

ReportingReporting

GRI (Global Reporting Initiative)

Generic framework as well as sectorGeneric framework as well as sector supplements

I t t t d l l t i di t fImportant to develop relevant indicators for your business

Link reporting to planning, to close the loop and make sense

In summaryIn summary

Sustainability is about thinking of broader issues for your organisationIts about costs and benefits – but looking at TRUE costs and benefitsMake sure it’s embedded, not an add-onAccountants have a pivotal role to playAccountants have a pivotal role to playBe your company’s sustainability champion!

Carbon price considerations for accountants

Why a carbon price?Why a carbon price?

To address climate change

Is it really happening?

Science speaks for itself

IPCC errorsIPCC errors

Business costsBusiness costs

Even without a specific carbon price climate change is going to cost g g gbusinessesEnergy and infrastructureEnergy and infrastructure

Resources

Tourism

M f t iManufacturing

Food processing and related businesses

Insurance – business premiums rose 6.4% last year!

What is ‘carbon’?What is carbon ?

Carbon dioxide = Co2

6 greenhouse gasesg gCarbon dioxide equivalentCarbon = Co -eCarbon = Co2-e

Therefore… “carbon” = all 6 greenhouse gases

6 Kyoto Greenhouse Gases6 Kyoto Greenhouse Gases

Source: DCC NGA Factors November 2008

Why carbon trading?Why carbon trading?Seen as most efficient least costSeen as most efficient, least cost

Ability to set targets AND priceAbility to set targets AND price

Carbon tax = price only, outcomes not guaranteed

Energy efficiency only part of the solution

Offsets not enough

Carbon Trading responsive to change in circumstances

How does carbon trading work?How does carbon trading work?Set targets (‘cap’)Set targets ( cap )

Issue permitsp

Reduce or buy

Trading occurs

As cap reduces, so do number of permits = higher price

Offsets permitted but from non-covered sourcesOffsets permitted, but from non-covered sources

Companies will evaluate least cost solution to emission reductionreduction

Does carbon trading work?Does carbon trading work?EU ETS some criticismsEU ETS – some criticisms

Over-allocation of permits in first periodPrice volatilityToo many offsets permittedy pWindfall gains to electricity sector

Positive aspectsVerified emissions in 2005 were 3 4% below projected emissionsVerified emissions in 2005 were 3-4% below projected emissions Climate Change and

the EU Emissions Trading Scheme (ETS): Kyoto and Beyond U.S. Congressional Research Service (2008)

Notwithstanding price volatility, producers and consumers in those markets responded rationally and effectively to price signalsLeakage restricted to 1% in several sectors (aluminium, cement, steel, pulp) (Carbon Trust 2009) In 2007, a group of environmental economists published an independent study of the EU ETS in the Review of Environmental Economics and Policy, concluding that the scheme was reducing emissions and was “by far the most significant accomplishment in climate policy to date” worldwide

Who’s covered by a carbon price?Who s covered by a carbon price?

I A t li di t ill b t 1000In Australia, direct coverage will be top 1000 emitters (at this stage), which accounts for approximately 70% of emissionsapproximately 70% of emissionsIndirect coverage = everyone!

National Greenhouse and Energy Reporting S t (NGERS) id tifi d t 1000 ittSystem (NGERS) identified top 1000 emittersNGERS requires mandatory reporting

i t f t i l l f i irequirement for certain levels of emissionsMandatory Scopes 1 & 2, voluntary Scope 3

National Greenhouse and Energy Reporting System

Approx 20Gw of electricity

GHG ProtocolGHG Protocol

Why Scope 3?Why Scope 3?

Reputex Dec 2009: 60% indirect (down from 76% the previous year) http://reputex.com.au/

UK NHS 60% indirect from procurement http://www.resource-i k/ l d /R /NHS C b E i i d lli O 08 dfaccounting.org.uk/uploads/Reports/NHS_Carbon_Emissions_modellingOct08.pdf

KPMG & Qld Government: “Carbon Outlook”KPMG & Qld Government: Carbon OutlookSME impact of carbon price through the supply chainchainAssumed $23 per tonneAverage fall in EBITDA 18 7% across a range ofAverage fall in EBITDA 18.7% across a range of businesses

http://www.industry.qld.gov.au/dsdweb/v4/apps/web/content.cfm?id=14733

Carbon Price sensitivitiesCarbon Price sensitivities

http://203.210.126.185/dsdweb/v4/apps/web/secure/docs/4045.pdf

Carbon Price Readiness checklistCarbon Price Readiness checklist

Identify your emission sourcesCalculate your emissionsyDetermine reporting liabilitiesAnalyse potential cost impacts both directAnalyse potential cost impacts, both direct and indirectIncorporate future cost impacts in profit andIncorporate future cost impacts in profit and cash flow forecastsStay updated on energy price forecastsAssess industry/competitor initiatives

Carbon Price Readiness checklist ( )Carbon Price Readiness checklist (cont)

Develop a carbon management strategyIdentify direct emission reduction opportunitiesImplement energy efficiency measuresEngage suppliersg g ppEducate employees

Establish a reporting framework

Incorporate carbon price into risk framework

In SummaryIn Summary

Carbon price seen as best method for reducing Co2-e emissionsCarbon trading seen as the least cost, most effective means to achieve thisBusinesses should identify emission sourcesBusinesses needs to address direct andBusinesses needs to address direct and indirect carbon price – 60% through the supply chainsupply chain

Pale Blue Dot

Earth, as captured by V 1 iVoyager 1 in 1990, 6 billion kms in space

Jan Fitzgerald 0439 891 331 jan@thegreenfootprint.com.au