The business sense of going Green

Businesses are aware of the risks of global climate change and the relationship between greenhouse gas emissions. However, it is often difficult to prioritise anything that does not affect the bottom line.

In Australia, new regulation is set to go live in July 2008, outlining a set of requirements and associated penalties around business-level carbon reporting. With this new urgency, and in order to realise many tangible business benefits, the need to act now is overwhelming.

Today, the terms climate change and carbon footprint are inextricably linked – both in everyday discourse and increasingly in the regulatory and
political landscape.

Simply speaking, a carbon footprint is the calculation of an individual’s or organisation’s unique environmental impact through their carbon dioxide and other greenhouse gas emissions. More and more, the idea of measuring and then minimising our carbon footprint is becoming a necessary objective rather
than an idealistic goal.

In Australia, regulatory changes set to go live in July through the National Greenhouse and Energy Reporting Act 2007 (NGER), are reflective of this progressive thinking. In response to both regulation and broader commercial motives, Australian businesses are being driven to embark on proactive carbon management strategies. However, the challenge for them is to find a strategy that allows them to meet requirements and expectations, while finding the optimal balance between financial performance and footprint reduction.

Why act?
Evidence suggests that adopting climate change practices makes excellent commercial sense for any industry. As well as complying with legislation, a reduced carbon footprint can eliminate unnecessary costs, streamline operations, improve asset utilisation, support great marketing collateral and overall, make a less negative impact on the globe.

Over the long term, three main drivers can be identified – regulatory compliance, consumer demand and business benefits.

However, right now, most top of mind for Australian businesses should be the regulatory requirements outlined in last year’s National Greenhouse and Energy Reporting Act 2007 (NGER). With the first set of requirements in this legislation set to take effect on 1 July 2008, the act provides a clear regulatory mandate for carbon management – and a clear set of repercussions for impacted businesses which do not comply.

The act establishes the legislative framework for a national greenhouse and energy reporting system and requires Australian businesses above a threshold to report on greenhouse gas emissions, reductions, removals and offsets, and energy consumption and production.

It aims to both decrease the complexity around current carbon reporting schemes and ensure mandatory compliance for businesses with energy production/use or greenhouse gas emissions above a certain threshold. For businesses emitting at or above this threshold, from 1 July they must measure their emissions with a view to reporting on 31 October 2008, or face fines in the vicinity of $220,000 plus an additional $11,000 per day, while risking criminal charges at an executive director board level.

In 2009, the threshold lowers to include a greater number of businesses, lowering again in 2010. It is the first step in establishing a framework for carbon taxation which will be introduced in Australia in 2010 (The Australian Emissions Trading Scheme – AETS). In this context, it is vital that Australian businesses act now rather than later to become carbon friendly (see the breakout box for more information).

Consumer demand is also a major driving factor for businesses looking to reduce their carbon emissions. With climate change top of mind, people are looking for ways to reduce individual carbon footprints – and are starting to question the carbon cost of the products they buy.

As such, the cost to businesses of ignoring carbon management could be very high. Not only is a company’s brand and reputation at stake, but there is a possibility of real financial loss – whether through a direct impact on bottom line because of decreased consumer demand or through a partner preferring to work with a more environmentally friendly business.

Conversely, smart businesses can turn this to their advantage. Evidence suggests that significant competitive advantage exists for those businesses who move now to carbon-friendly practices. According to research presented in Goldman Sachs’ Sustain report, companies that are seen to be living environmentally sustainable practices can outperform the market by as much as 25 percent.

Also, within the investment community, taking into account environmental concerns through triple bottom line reporting is becoming more and more important for institutional decision making. The Carbon Disclosure Project – an international initiative encouraging large companies to disclose information on their exposure to carbon risks – has demonstrated this trend, with 225 institutional investors who are signatories to the project, representing more than US$31.5 trillion in assets globally.

How to approach carbon management
Carbon management is about understanding how and where an organisation’s activities generate greenhouse gas emissions, in order to then minimise these emissions in an ongoing and financially sustainable way. It extends from both internal activities to the consumption of an organisation’s products, and ultimately is about incorporating an understanding of carbon data into strategic corporate decision making.

For almost all Australian companies, the idea of carbon management and the need to deal with their carbon footprint is fairly new and they are not sure where to begin. As well as the reporting requirements driven out of the NGER Act, many factors come into play – including managing public perception and impacts to brand and corporate value, preparation for the AETS, establishing appropriate boundaries over direct and indirect emissions and balancing costs against corporate social responsibility goals.

Carbon management stages
The Carbon Management Maturity Model provides a set of guidelines for organisations to determine where they are positioned in terms of their environmental strategy – and the long- term path that needs to be taken in order to optimise financially sustainable carbon management practices. It involves the following five steps:

Level One – The Basics: Internal focus on basic operations to reduce energy consumption and waste, starting with
the basics of re-educating employees about the importance of carbon management strategies.

Level Two – Company Level: Corporate level footprinting based on international standards (AGO workbook, GHG protocol, DEFRA). It involves measuring the carbon footprint of the business operations and implementing a reduction strategy around internal manufacturing improvements.

Level Three – Process Level: The extension and automation of an organisation’s carbon management so it can capture a live carbon footprint through both internal and external processes across the supply chain, for example the transportation of goods.

Level Four – Product Level: This step looks at carbon emissions from raw material origin to consumption. This enables conscientious consumers to be informed of the carbon footprint products they purchase.

Level Five – Optimised Level: The last stage means that a company has finally gathered the information and solutions required to optimise trade-offs between cost, time and carbon. This allows for the integration of carbon and financial data in corporate decision making in order to drive financially and environmentally sustainable business value improvements.

Understanding and identifying the various elements of an organisation’s carbon footprint enables the redesign of supply chains and the development of eco-friendly networks. Through a systematic and staged approach, organisations can develop long-term strategies for financially sustainable carbon management – a decisive way for organisations to minimise their complete carbon footprint now and into the future.

Today, most Australian businesses are sitting squarely at level one – implementing basic internal reductions such as turning the lights off and double-sided printing. With the NGER Act coming into effect and AETS as of 2010, it is imperative that businesses go a step beyond this and start looking at the company level, at the very least to understand what their emissions are in order to then report on them,
if required.

While the NGER Act is mandatory, it does not require all businesses to report – only those above a certain threshold. However, to understand whether a business is above or below this threshold, some level of company level emissions awareness is essential. Likewise, with the threshold reducing year on year more and more businesses will be impacted – with a view to several thousand reporting by 2010 in readiness for the deployment of the AETS.

The regulatory incentives are clear, but there are also strong businesses drivers that make carbon management a financially sustainable and smart move for progressive businesses.

And, back to the big ‘going Green’ picture, it is one important step closer to an environmentally sustainable and progressive future for Australia.