What concrete actions are firms taking to tackle climate change in 2009? This week Paul Dickinson, CEO of Carbon Disclosure Project, has addressed this question by offering a daily "sneak peek" at the results of this year's CDP Global 500 and S&P 500 Reports, ahead of their September 21 launch in New York.
Backed by 475 institutional investors with assets of over US $55 trillion, Carbon Disclosure Project surveyed 3,700 of the world's largest corporations to discover how business is managing its climate change risks and opportunities.
Today Matt Arnold and Liz Logan, both partners with PricewaterhouseCoopers in the area of U.S. Sustainability and Climate Change, provide insight into why firms should be preparing to monetize their carbon emissions.
Each year, voluntary reporting to the Carbon Disclosure Project reveals how steadily climate change issues are reaching the C-suite. Many companies comply with environmental regulations, promote energy efficiency or work to substantiate the eco-friendly positioning of their brands, but more are beginning to assess long-term strategic objectives as the prospects increase for comprehensive climate change legislation in the United States.
We believe a federal system to cap greenhouse gas emissions undoubtedly would affect the U.S. economy, although the impact would vary by industry, region and company. To determine how climate change could affect individual companies, business leaders must look at the nature and size of the existing and future regulatory impact and its reliance on environmental performance as a component of business strategy. Both assessments require a fundamental understanding of greenhouse gas emissions.
Because the risks related to greenhouse gases are increasing and a price would be set for emissions under a cap-and-trade system, many companies are asking us how they can do more to understand the risks and take advantage of the opportunities. Overall, they want to increase their knowledge of which facilities and processes have the highest intensity or the largest volume of emissions and use that information to make management decisions. In general, the objectives are to monetize the value of saved emissions and to prepare to meet new reporting and disclosure standards expected amid growing investor concerns.
To meet these objectives, we are seeing industry leaders moving away from complex, point-in-time spreadsheets and databases toward smart systems, which can identify important fluctuations in emissions levels as the business flexes and changes. With new and agile Web-enabled tools, managers are beginning to see how they can improve the quality of their environmental reporting and present more meaningful information to the C-suite. With more efficient methods to collect emissions data, senior managers will be better equipped to implement value-seeking activities -- from finding ways to drive down energy and supplier costs to smarter tax planning and allowance trading, to corporate valuations.
The second objective -- preparing for more rigorous reporting and disclosure standards -- is a reflection of the legislative and regulatory activity at the federal, regional and state levels. Many U.S. businesses are already subject to regulation of greenhouse gas emissions at the state or regional level, and many investors are considering the risks of investing in companies that either are participating in a cap-and-trade system or may be subject to future legislation.
In May, the Climate Disclosure Standards Board announced proposals to include climate change data in companies' financial reporting, with the view that "this cannot happen fast enough if the world is moving towards a low-carbon economy. At the same time, the U.S. Securities and Exchange (SEC) has indicated it will review existing environmental disclosure requirements as early as this year to determine if more specific guidance for disclosure is needed.
The level of preparedness your organization should achieve to monetize carbon depends on the nature and size of the future regulatory impact on the business and how much the business strategy relies on environmental performance. This strategic assessment ultimately drives your company to produce the quality information that management and investors demand. With efforts in Congress to regulate greenhouse gas emissions, more businesses are taking this step to ensure they are prepared.
Liz Logan is an assurance partner at PricewaterhouseCoopers with over 20 years of experience consulting with both public and private companies on accounting, auditing and compliance matters. Matthew Arnold is a principal at the global advisory firm in the area of Climate Change and Sustainability.
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