Ac­count­ing for car­bon weigh­ing on busi­nesses

The Weekend Australian - Review - - Clean Energy - Re­becca Weisser

ROSS Gar­naut’s blue­print for a car­bon- con­strained econ­omy and grow­ing global con­sen­sus on cli­mate change science have fo­cused cor­po­rate Aus­tralia’s at­ten­tion on the enor­mous chal­lenges ahead.

While the sub­stance of the Gar­naut re­view is still up for dis­cus­sion and the Gov­ern­ment’s re­sponse is by no means set in stone, it is clear that cor­po­ra­tions will have to sig­nif­i­cantly al­ter ac­count­ing and re­port­ing pro­cesses as en­vi­ron­men­tal man­age­ment rises to the top of the eco­nomic agenda.

Cor­po­ra­tions will al­most cer­tainly face obli­ga­tions to au­dit their car­bon out­put as pro­gres­sively more strin­gent caps on green­house gas emis­sions turn the size of a com­pany’s car­bon foot­print into a sig­nif­i­cant cost of do­ing busi­ness.

It is not just smoke­stack in­dus­tries that are fo­cused on the is­sue. Strin­gent car­bon ac­count­ing will ap­ply to all sec­tors of busi­ness, not just pri­mary emit­ters, ac­cord­ing to John Taberner, a part­ner at Free­hills.

No won­der, then, that the com­pli­ance bur­den, higher in­put costs and changes to busi­ness pat­terns this will bring are en­gag­ing Aus­tralia’s best cor­po­rate gov­er­nance minds.

The chal­lenge is height­ened by the fact that ev­ery­body is to some ex­tent work­ing in the dark. De­tails of the ac­tual caps that will form the ba­sis of a na­tional trad­ing scheme are yet to be for­mu­lated, and the un­cer­tainty is cre­at­ing an ob­sta­cle to in­vest­ment.

The broad pa­ram­e­ters un­der which busi­ness will op­er­ate in a car­bon- con­strained en­vi­ron­ment, how­ever, are al­ready known. In his in­terim re­port in Fe­bru­ary, Gar­naut stated firmly that it was nei­ther de­sir­able nor fea­si­ble to seek to re­move ( cli­mate change) pres­sures ( by re­duc­ing) the as­pi­ra­tions of the world’s peo­ple for higher ma­te­rial stan­dards of liv­ing.’’

This premise lays the ground for a car­bon price sig­nal that will lead to mar­ket- driven ini­tia­tives for lower car­bon emis­sions, for de­mand- led re­form rather than com­man­dled re­form that will rely on the cor­po­rate world for the heavy lift­ing.

Sur­pris­ingly per­haps, the cen­tral leg­isla­tive chal­lenge does not lie in an ab­sence of reg­u­la­tion but in the need to har­monise and stream­line ex­ist­ing leg­is­la­tion. A plethora of reg­u­la­tions have been passed by fed­eral, state and ter­ri­tory gov­ern­ments in re­la­tion to cli­mate change, cre­at­ing a sig­nif­i­cant com­pli­ance bur­den for com­pa­nies.

Last year the Howard Gov­ern­ment in­tro­duced com­pre­hen­sive leg­is­la­tion in the form of the Na­tional Green­house and En­ergy Re­port­ing Act which re­quired a broad range of en­ti­ties to re­port each year on their car­bon emis­sions, and their pro­duc­tion and con­sump­tion of en­ergy. Fur­ther reg­u­la­tions and guide­lines un­der this leg­is­la­tion are in the pipe­line. Cor­po­ra­tions face the prospect of manda­tory green­house and en­ergy mon­i­tor­ing from July 1 and will have to re­port their car­bon con­sump­tion and out­put for the 2008- 09 fi­nan­cial year by Oc­to­ber 2009.

The knee- jerk com­mer­cial re­sponse to the prospect of the car­bon- con­strained reg­u­la­tory en­vi­ron­ment has prompted cor­po­ra­tions to boost their en­vi­ron­men­tally friendly cre­den­tials with green claims about their prod­ucts and work­ing prac­tices, some more firmly grounded than oth­ers.

But th­ese are likely to come un­der much closer scru­tiny from both reg­u­la­tors and con­sumers, putting pres­sure on cor­po­ra­tions to make sure their green brag­ging rhetoric stands up to more so­phis­ti­cated anal­y­sis.

While the pol­i­tics sur­round­ing the rat­i­fi­ca­tion of the Ky­oto Pro­to­col has in many ways been a dis­trac­tion from the real chal­lenges, Aus­tralia’s de­lay in board­ing the Ky­oto bus has left Aus­tralian cor­po­ra­tions strug­gling to catch up in the global mar­ket in emis­sion cred­its. To some ex­tent they have been ex­cluded from the tech­nolo­gies and ex­per­tise needed to deal in the world of off­sets.

Grow­ing in­vestor con­cern, how­ever, has pro­vided a press­ing rea­son for cor­po­ra­tions to come to terms with the need to ad­dress the ef­fects of cli­mate change on mar­kets. Boards have come to re­alise that they are not im­mune from the kind of share­holder de­mands faced by some direc­tors in the US, where in­vestors want in­for­ma­tion about the eco­nomic risks as­so­ci­ated with past, present and fu­ture emis­sions of green­house gas.

Since July 2004, pub­licly listed com­pa­nies in Aus­tralia have also had to com­ply with sec­tion 299A of the Cor­po­ra­tions Act, which obliges direc­tors to in­clude in their an­nual re­port any­thing which might rea­son­ably be seen to af­fect the fi­nan­cial po­si­tion of the com­pany, its strate­gies and fu­ture prospects which, in the cur­rent cli­mate, might well in­clude en­vi­ron­men­tal mat­ters.

The ex­tra re­port­ing re­quire­ments fil­ter through to other are­nas, such as the Aus­tralian Stock Ex­change’s List­ing Rule 3.1 and sec­tion 674( 2) of the Cor­po­ra­tions Act re­quir­ing pub­lic com­pa­nies to dis­close in­for­ma­tion which would af­fect share price.

A com­pany fail­ing to dis­close en­vi­ron­men­tally im­por­tant in­for­ma­tion could lay it­self open to a claim of mis­lead­ing and de­cep­tive con­duct un­der the Trade Prac­tices Act. And there is the ever- present threat of class ac­tion against com­pa­nies and direc­tors ac­cused of poor cor­po­rate be­hav­iour.

Like so much else about the cli­mate change de­bate, the long- term im­pli­ca­tions of th­ese and over­seas mea­sures are not im­me­di­ately clear. But the onus is on cor­po­rate Aus­tralia to lay the ground­work for do­mes­tic and global changes over the next few years that could fun­da­men­tally change the way they do busi­ness.

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