Finance directors that fail to measure their carbon emissions are in grave danger of losing their competitive advantage and looking like they do not know what they are doing, the chief operating officer of the Carbon Disclosure Project (CDP) has warned.
Speaking at the BusinessGreen.com Sustainable Business Lecture on Carbon and the Future of Business Management, Paul Simpson gave a stark message to those FDs not currently measuring their carbon footprint. Carbon accounting will become the norm over the next decade, he warned, and those companies that act first to manage their carbon footprint will reap the benefits.
“From a business and investment perspective, climate change is really the first-ever predictable industrial revolution,” he said. “We know that we have to change [but] we don’t know when, how fast or which technologies. The people who can predict that are going to be the winners in a changing economy. And the people who fail to predict it and fail to understand it are going to be the losers.”
Simpson acknowledged that some FDs see the process of accounting for carbon emissions as an additional burden, but warned that investors and the public were increasingly demanding that businesses track their carbon footprint.
A commercial case
Many FDs remain sceptical about the commercial case for reporting on carbon emissions and are uncertain whether responsibility for measuring and reporting greenhouse gas emissions should fall on the finance department.
But Simpson warned that companies could find themselves missing out on contracts if they do not have emissions targets and plans in place for cutting carbon, adding that those that do embrace carbon accounting will prove more popular with investors.
“In 2002, we were working with 35 institutional investors with $4.5tn (£2.8tn) of assets,” he said, referring to the CDP’s work requesting carbon data from firms on behalf of investors. “We’ve seen that number grow tenfold now to more than 500 investors with $60tn of assets. More than half the world’s investing money is asking the companies they invest in to report this kind of information.”
Simpson added that operational efficiencies tended to follow efforts to minimise carbon, citing the example of Logica, which realised $10m worth of savings by going through the measurement process.
“Carbon reporting is becoming the norm,” he said. “Last year in the FTSE-500, 95 percent of companies were measuring and reporting on carbon emissions. So if you’re not doing this, there is a real competitive risk. Are you looking like you don’t know what you’re doing?”
Adrian Gault, chief economist for the Committee on Climate Change, warned the likelihood was that those companies that failed to measure their carbon footprint would eventually face mandatory requirements forcing them to do so.
He argued that the ability to measure carbon would become increasingly important as governments move to put a price on carbon emissions, noting that climate change legislation was likely to get tighter over the next decade.
“I would expect if anything we will move to tighter, not more low, carbon budgets and targets,” he said.
His comments were echoed by Christopher Norton, partner at law firm Hogan Lovells, who said that the direction legislation was moving in suggested mandatory reporting could happen soon.
The Carbon Reduction Commitment (CRC), for which companies had to register by the end of September, was the start of this process, he said, adding that he expected the scheme’s league table to force companies to act to curb their carbon footprint in order to protect their environmental reputations.
“There is a positive obligation on directors not just to think about financial performance, but to think about the holistic performance of their company – the impact on social and environmental issues,” he said. “I think that this, rather than financial implications, will be the driver for performance under the CRC.”
There is also likely to be legal obligations placed on FDs as a result of the CRC, which requires companies to name a director responsible for compliance with the emissions trading scheme. Given their financial responsibilities and accounting and compliance experience, this responsibility will most likely fall on the FD.
Private sector must be galvanised
However, Leo Johnson, partner at PricewaterhouseCoopers, argued that these efforts would come to nothing if companies fail to act on the carbon emissions data they collect.
He said the private sector must be galvanised to invest in low-carbon technologies by improving the returns they can realise from such projects.
He cautioned that at the present rate of growth, the world would exceed its 2050 carbon budget by 2034 and, as a result, greenhouse gas emissions must be cut by 3.4 percent per year at an estimated annual cost of $1.15tn to avoid temperature increases of more than two degrees.
“We’ve got a carbon beer belly. We’ve binged. We have carbon love-handles,” he said. “The question is: can we get back on the carbon treadmill and achieve this level of descent?”
James Murray is editor of BusinessGreen.com