Greenhouse Gas Reporting - The IEMA/ICAEW Webinar 22nd May 2013

This article is also available as a podcast at www.susbiz.biz

For major companies, greenhouse gas reporting is due from 1st October. Today’s webinar, hosted by the Institute of Environmental Management and Assessment and the Institute of Chartered Accountants in England and Wales, laid out the key issues.

First we had a rundown of the statutory requirements from Carla Hopkins from DEFRA. The companies involved are all those incorporated in the United Kingdom and listed either on the London Stock Exchange, a European stock exchange or the New York Stock Exchange. There will be about 1,000 of these, all required to report on their annual emissions of CO2 equivalent. This covers all six Kyoto gases and all emissions throughout the organisation’s global operations. In broad terms these are the companies’ Scope One and Scope Two emissions, although the legislation does not define them in these terms. The company must also quote one or more intensity ratios and explain the methodology used to obtain the results. It is up to companies to decide which emissions they are responsible for and they can use data from other schemes such as the carbon reduction commitment or the EU ETS, although the scope of those schemes is different from the scope of greenhouse gas reporting. They may choose to use different intensity ratios for different parts of the business. From Year 2 onwards reports must show the previous years’ results for comparison purposes. Reports will be audited and the auditors must confirm that the information provided is consistent with the financial statements.

Reporting requirements are effective from 1st October 2013 and relate to all financial years ending on or after 30th September 2013. This means that many companies will already be well through their first reporting year.

DEFRA last issued guidance on greenhouse gas reporting in 2009 and an updated version of the guidance will be available very shortly - see GOV.UK.

The scheme will be reviewed in 2015 when it will be decided whether all large companies, not just quoted companies, should be brought into the scheme from 2016.

A new web-based conversion factor tool will be published on the DEFRA website shortly.

Paul Holland from KPMG spoke about data quality. He said there was a significant risk from imperfect data, that data was important and therefore it was a key task to lower the risk of poor quality data. By comparison with accountancy, sustainability reporting is in its infancy. There is a lack of controls and processes and there is no key indicator of accuracy such as a balancing balance sheet. There is no double entry, no accepted or universal methodology and so far, limited guidance. The old cliché tells us that what gets measured gets managed, but if what is measured is inaccurate then what gets managed is defective as well. Emissions generally arrive from the use of costly resources so managing emissions is a way of managing costs. There is also increasing external interest in the environmental management of organisations as we saw later in Bekir Andrews’ submission from Balfour Beatty. Mandatory reporting now provides a whole new incentive.

Coming from an accountancy firm, it’s perhaps not surprisingly that Paul strongly recommended that finance departments should work with environment departments and vice versa. There is in any case no doubt that accountants are skilled in detailed and forensic analysis of data. Their skills are complementary to those of sustainability and environmental professionals. The objectives of the exercise should be a detailed analysis of the background, identification of opportunities for improvement, emphasis on the greatest risk areas, and a critical assessment of methodologies.

There are many areas of uncertainty, particularly related to large organisations. Given that it’s mainly large organisations that will be involved this is obviously of concern. Examples were how the emissions of joint ventures should be shared out and how intensity metrics should be designed – relating to turnover, to output or what? Whatever is decided, participants should be able to stand firmly behind their methodologies. Then there’s the question of transport. Do you treat owned vehicles in the same way as leased vehicles? What about subcontracted transport? And do you account for the journey where the vehicle returns empty?

Final words of caution. Carbon reporting can take very much longer than financial reporting and time is short. There will be people involved in reporting who’ve never been involved in such activities before and will need training. Paul echoed Carla’s warning that many companies are already well into their first reporting period.

Bekir Andrews from Balfour Beatty explained to us the challenges from greenhouse gas reporting facing a very large organisation. With an £11 billion turnover and 50% of activities overseas the amount of data involved is enormous. There is a wide range of sources of data and it is extremely difficult to obtain data in some jurisdictions. One of the main challenges which he identified was the issue of fugitive emissions. These do not generally come from mainstream production processes and are very difficult to track and analyse. For example, sulphur hexafluoride, one of the six Kyoto gases, is used as an insulator in switchgear. 1 kg of this gas has the same effect as 28 tons of CO2 and will persist in the atmosphere for 3,200 years. Almost as bad are the other Kyoto gases which may leak from air conditioning and refrigeration units.

Bekir spoke about managing data and the issue of baselines. As mentioned earlier, from Year 2 onwards the data has to be compared with the previous years. In a large group, corporate acquisitions and disposals can alter this baseline radically. Again he brought up the issue of training, because those who collect and verify the data must have a clear methodology and guidance documents. Quite apart from the benefit of compliance there are a number of other positive aspects to the whole process. Reducing emissions will in most cases reduce costs. It will reinforce relationships with suppliers and clients and it will enhance the corporate reputation. Nevertheless there are challenges. Fugitive gases have already been mentioned. The treatment of energy received from the landlord is different within the Greenhouse Gas scheme from the treatment within the Carbon Reduction Commitment. Electricity may be sub-metered, but heat provided from a central boiler in a communal office block will be much more problematic. There are different international benchmarks, there will be difficulties in making estimates in some areas and inevitably there will be costs involved in validation and data collection. He emphasised too, that time is short.

In summary, there’s lots to do and a surprisingly short time left for most participants. Of course, it only involves 1,000 companies and yours may not be one of them. However, by 2016 your company too may be drawn into the net. At present, unlike CRC or ETS, there are no carbon credits to buy. But have you ever known George Osborne miss an opportunity for more tax?

More details at www.iema.net or contact me at mail@anthony-day.com 

Keeping the Lights On

Back in October I predicted major power cuts on 18th January 2013. In the event, some 5,000 people in Wales lost their electricity as the result of bad weather, but nothing catastrophic happened. This weekend's weather caused power cuts for 10,000 people in Scotland and up to 200,000 in Northern Ireland. 

There are two issues here. One is the ability of the network to stand up to bad weather. The other is whether the system can cope with increased demand. 

Running out of Gas?

Saturday's papers were full of government denials that we're going to run out of gas. Apparently we have some of the smallest reserves of any country in Europe, and they are down to 10% of capacity. That's not a problem as long as gas flows into the system at least as fast as it's used up. The key issue is where we get the gas from. Yes, we still get about half of what we use from the North Sea. About 20% comes from Norway and about the same from the Middle East in ships. All our gas, whether it comes from the North Sea or elsewhere, is governed by world prices. Middle East gas - mainly from Qatar - is also governed by Middle East politics. The US is rapidly increasing its domestic production by exploiting shale gas and by 2030 could no longer need the Middle East. Who will attempt to keep the peace there then? Norway is a friendly, stable nation but its government already recognises that its gas may last little more than another 10 years. The biggest reserves in Europe are in Russia, at the end of a very long pipeline from the UK. In recent years Russia has been in dispute with Ukraine and others about gas prices and has simply cut the gas off - affecting innocent countries down the pipeline as well.

Powering the Future

In view of all this it's a bit of a worry that George Osborne has announced a policy of building a fleet of gas power stations. They are cheap and quick to build, they can react rapidly to fluctuating demand, but although they are much cleaner than coal they still burn fossil fuels and still create CO2 emissions. And where is the gas going to come from, George? Why not shale gas like they've discovered in the US? George announced special deals for "fracking" in the budget, and fracking installations which extract the gas from shale are likely to be fast-tracked for planning. (Locals will not be involved in the planning decision.) Why not? I'll tell you why not.

1. Although there has been test drilling, shale gas reserves have not been proved in the UK.
2. There are suspicions that the test drilling caused an earth tremor near Blackpool. 
3. There are fears - yet to be proved or disproved - that the fracking process can contaminate the water table. Certainly it generates a lot of dirty water which has to be dealt with somehow.
4. Shale gas, like any natural gas, is a fossil fuel and releases CO2 when burnt.

In the short term the question is whether existing systems and existing supplies will keep the lights on in the face of this terrible weather and increased demand. (Did anyone ever predict the consequences of rising emissions and resulting climate change? Wasn't there something about unseasonable weather? Did you read that Sir John Beddington, retiring chief government scientist, says that climate change is more serious than ever?) 

The Nuclear Option

Of course planning permission was awarded last week for a new nuclear power station at Hinckley Point, but that will take at least 10 years to build. All but one of our existing nuclear plants are scheduled to close by 2020. 

And if we run out?

What will happen if the nation does run out of gas? Probably, the lights will go out. That's because it's very much easier to turn off a major gas user like a power station than thousands of individual users. Let's hope it doesn't happen, because the consequences would be horrific. Last time we had nationwide power cuts - which, incidentally, brought down the government- was in the 1970s. At that time we had no ATMs, no computers, no barcode scanners, no electronic tills, no mobile phones. Which of those would you be happy to go without? And remember, your gas central heating has electronic controls and an electric pump. You won't just be sitting in the dark, you'll be sitting in the cold as well!

Cheer up, it's Spring!  

GACSO - a forum for Sustainability Professionals

At last week’s meeting hosted by DWF in Manchester Alan Knight, sustainability director at  Business in the Community (BITC) and a founder member of GACSO, the global association for corporate sustainability officers, explained more about the organisation. This is not a body where suppliers come to pitch to sustainable professionals. It exists to allow professionals to meet, compare notes and share best practice. 

The vision of GACSO is that sustainability should be at the heart of corporate strategy. 

Sustainability professionals will guide organisations on the megatrends which shape every business. There is potential synergy between GACSO and organisations such as the Institute of Environmental Management and Assessment (IEMA) but they are essentially different. GACSO takes an overview broader than just environment. Its mission is to address the challenge of 9 billion people in the world in 2050. How can these 9 billion people have a good quality of life on our planet when we are already exploiting it at a rate which will need three planets to sustain? Nine billion people will need more materials, more food, more energy, more water and create more waste. No one has faced such a challenge before and there are no guaranteed answers, just big questions. An important question is where the people will come from to take the role of sustainability officer. The business schools may meet the demand in due course but it is still not clear what skills and competencies these people will need. Universities are already seeking relationships with GACSO in order to develop the concept of the corporate sustainability professional.

Arguably sustainability officers, supported by a team, should operate at board level and have a full understanding of finance, governance, carbon management, health and safety and supply chain issues. At the moment, because the notion of sustainability is still ill-defined, the wrong people are often appointed as sustainability officers and are frequently appointed at the wrong level or in the wrong department. 

Corporate sustainability offices are pioneers. They will be reporting to somebody who has never done their job and they themselves will be leading people whose jobs they have never done either. Compare this with a finance or engineering professional who will start at the  detail level and work through a range of roles before becoming a director. 

GACSO is an organisation of professionals and membership therefore is individual not corporate. It plans to hold regional meetings throughout the country - a safe space for professionals to talk about their job. See www.gacso.org for more information.

Enough is Enough

Last month I attended the launch of Enough is Enough by Dietz and O'Neill, founding members of CASSE, the Centre for the Advancement of the Steady-State Economy. 

Everyone should read this book. The authors quote Kenneth Boulding, “Anyone who believes exponential growth can go on forever is either a madman or an economist,” and go on to explain in detail why this is true. Of course this story has been told many times before, in An Inconvenient Truth and The Age of Stupid among many others. An Inconvenient Truth tucked its recommendations for action away among the closing credits while The Age of Stupid was a festival of hand-wringing over what went wrong. Where Enough is Enough scores is that after describing the present situation it constantly asks “What could we do differently?” and “Where do we go from here?” Most of the answers are very sensible, although I do take issue with their idea of lowering productivity to provide more jobs. Why not increase productivity and provide more leisure? But that’s a debate for another time.

The key issue, of course, is to get enough people to realise that we need fundamental change and to support that change. Maybe we’ll get to that tipping point, but the problem is that too many people have too much to lose if they step away from the present system.

The book is full of cartoons and many of them cheapen its image. They give the impression that the cause of all the world’s problems is cynical and corrupt capitalists. It isn’t nearly as simple as that. There are signs that some business leaders are beginning to get the message, and pitting one section of the community against another is not only no solution, it’s a waste of the very limited time we have to get things under control. 

There’s much to be done. Enough is Enough is a useful route map.

Sustainable Real Estate

At a recent meeting of GACSO - the Global Association of Corporate Sustainability Officers - Lynn Cook, Real Estate Associate at DWF, explained how legislation is driving sustainability in the property sector. The key legislation is the Energy Act 2011. This comes into effect in 2018 and provides that any property with less than an E rating may not be let. 25% of offices are currently below this efficiency rating (and 45% are currently below D).

The legislation applies to existing leases, not just renewals or new leases. Landlords will find pressure from mortgage lenders and in turn will put pressure on rents in order to recover the costs of improvements. There may be some help from the Green Deal, launched in January. This is a scheme based on the “pay as you save” principle. Loans are advanced for the cost of approved energy-saving work and repayments are recovered via the electricity bill. The Golden Rule is that energy savings should be greater than or equal to the repayments. So far uptake of the scheme has been slow. The problem for the commercial sector is that the landlord’s and the tenant’s interests are not necessarily aligned. The landlord makes the improvements but the tenant is often the bill-payer.

The government is still supporting renewable energy. The feed-in tariff (FIT) for solar energy is still a good deal, even after the government’s backtracking on the rate of subsidy, which sent a number of solar installers to the wall. The Renewable Heat Incentive, covering biomass, heat pumps and solar thermal, has been much more carefully thought through and will now make these systems cost-effective in many more situations.

Now is the time for landlords to survey their current stock and determine what needs to be done to bring it up to E or above. Or maybe just to dispose of it. Introducing so-called “green leases” putting more of the obligation for energy efficiency on the tenant, is another way of reducing the landlord’s burden.

For the future, it is difficult to tell whether efficient buildings will have an enhanced capital value - or whether leaky buildings will plummet in value as 2018 approaches. Maybe there will be a mad refurbishment panic at the end of 2017. The government is not expected to move from the 2018 deadline. After the FIT disaster it is much more organised.

Sustainability At Law

DWF, the business law firm, hosted a meeting on behalf of GACSO, the Global Association of Corporate Sustainability Officers in Manchester yesterday. Here’s what I learnt.

Ty Jones, Head of Value and Sustainability opened by explaining how sustainability affects a legal practice.

Sustainability is now part of the business plan and is far more than window dressing. It’s a platform for delivering outstanding results and a clear differentiator when every legal practice is trying to promote itself as a deliverer of excellence. The drive to sustainability is led by stakeholder expectations. No client wants to be associated with a supplier with a bad reputation, and vice versa. The question is whether the professional firm is a value limiter or a value creator. The value limiter concentrates on business as usual to the exclusion of all else. The value creator is a thought leader, a strategic thinker and will challenge clients. For credibility, there must come a point where the firm will refuse to do business with clients that are recklessly unsustainable. Even so, the firm will not hold clients to standards that it cannot meet itself. The firm as value creator will add value by challenging clients and thus will limit its clients to the best clients. Equally it will attract and retain the best professional partners to work in the firm.

Until two years ago DWF had no Environmental Management System (EMS). Now it has ISO 14001, as expected by its clients. Clients putting work out to tender are going far beyond asking whether there is an environmental policy. Now they ask for details of the EMS and want to know how it can add value to their own sustainability objectives. Some clients can have rigorous sustainability standards and yet demand less than sustainable service from their lawyers. An example is insisting on face-to-face meetings at remote locations, when the same result could be achieved with a conference call .

It’s important to influence the supply chain as far as a relatively small organisation such as DWF can. The firm has therefore established structured supply partnerships including benchmarks, quarterly reviews and regular discussions.

Employee engagement is important from the moment of induction into the firm. Many people don’t realise that sustainability goes far wider than environmental issues. They also don’t realise that actions with a sustainability consequence – use of materials, use of energy, disposal of waste – also have a financial consequence. Smart use of technology, not just using technology in an unplanned way, can make people’s working lives more sustainable. The recent acquisition of Cobbetts by DWF, involving the absorption of 500 people into existing premises, demonstrated exactly how this can work.

Sustainability is firmly embedded in the DWF business plan.

Later in the session Lynne Cook of DWF spoke about sustainability and real estate and Alan Knight of BITC explained the background and objectives of GACSO. More on this in a later blog.

The Sustainability Challenge for Big Business

The Cantor Business Lecture was introduced on 29 January by Prof Bob Doherty, professor of marketing at the Management School of the University of York. The lecture was delivered by Sir Stuart Rose on the subject of  “The Sustainability Challenge For Big Business.” 

I thought you might be interested in my notes on the presentation.

Stuart Rose was the Chief Executive who introduced Plan A to Marks & Spencer. He started his speech by reminding us that the world will soon be a very different place with a population of over 9 billion by 2030. By then we will need

• ·      50% more food,
• ·      50% more water and
• ·      30% more energy.

Prof John Beddington, former Chief Scientific Advisor to the government, has described this as "a perfect storm." At the moment there is not enough to go round. 

While Marks and Spencer adopted Plan A because there is no Plan B, there is no plan at all for the world at large. Whether capitalism can survive is an open question. David Attenborough has made the point that we cannot grow indefinitely and Tim Jackson, in his book “Prosperity Without Growth”, states that growth will inevitably come to a halt.

Today each of the top 12,000 families in the US owns more than the poorest 10 million inhabitants of the world. Those families control sufficient resources to wipe out global poverty within five years. Warren Buffett and Bill Gates are showing the way, but much more could be done.

Of the 100 largest institutions in the world, 63 are corporations, not governments. Trust is the key. Many businesses are better trusted than many governments.

A child born today in the West can expect to live for 100 years. It’s worth recognising this while remembering that the Bruntland Commission defined sustainable development in 1987 as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs.”

Plan A was introduced at Marks & Spencer following an abortive takeover. Stuart Rose read Al Gore’s book “An Inconvenient Truth” and then watched the film. He then showed the film to the top 100 executives at Marks & Spencer. The next day around 70 of them emailed him saying something should be done. Al Gore’s thesis is that sustainable business is more profitable business. Initially Marks & Spencer’s competitors wrote off Plan A as mere greenwash. The company has 2,500 suppliers encompassing 25 million people, all needing to be convinced. The investment community was sceptical. Stuart Rose personally led the internal team and brought staff and customers on board.

After three years, 72 of 100 pledges had been achieved and profitability had improved. Then Walmart and O2 and Unilever and Nike and HSBC all came along asking how they could do the same. Sir Stuart quoted the Chief Executive of Patagonia, an outdoor clothing supplier, who said, “every time we do the right thing we make money”.

At Marks & Spencer Plan A had four effects.

• ·      First it drove cultural change and encouraged people to look everywhere for savings and also to be hungry for more change.
• ·      Secondly, remuneration was tied to the success of Plan A and as it succeeded people were paid more.
• ·      Thirdly, innovation accelerated and
• ·      finally there were far-reaching changes in the  supply chain.

For example, in Bangladesh workers’ incomes, workers’ rights, industrial relations and improved productivity were all targeted. As a result wages were increased on average by 25% but increased productivity meant that Marks & Spencer could continue to use these suppliers and remain competitive.

The company’s current aim is to be the most sustainable organisation in the world by 2015.

In concluding, Stuart Rose said that he believes that in future everyone will have to have fingers on every pulse. Organisations will need to network more. Businesses that create partnerships will succeed, not only through partnerships with competitors, but they will need to work with NGOs to accelerate innovation and to deal with the challenges that face us all.

The question is not whether organisations should do these things but whether they can possibly afford not to try. The imperative is to change radically and change now because we cannot continue as we are. We need to plan and we need to set goals. All this must go on at a time of rapid change in global economic activity and a shift of economic power from one part of the globe to others. People in the third world and in developing countries have expectations equivalent to our own and have the same rights to them, but how we’re going to be able to satisfy them is still not clear. If we are to have any hope of solving the problem we need to start now.

There is a storm starting now for our children, for our grandchildren as well as for us.

It’s time for action.

Here are some of the points from the question session which followed.

Stuart Rose agrees that the government must get involved if we are to succeed, but at the moment they’re not doing anything if it’s going to lose votes. He believes they will eventually be forced to face up to reality.

Incentives are a good way to change behaviour. He once sent a crate of champagne to someone who managed to save one penny’s worth of cardboard from the packaging of every pair of socks. When you’re selling millions of pairs of socks that’s a lot of money.

In other cases firm guidance is important. For that reason he personally chaired the sustainability committee at M&S.

Is continuous economic growth possible? No.

Is sustainability compatible with consumerism? No - unless perhaps the products are truly recyclable so people can renew their wardrobes and their gadgets and everything else, but return the ones that they no longer use.

Sir Stuart believes that George Osborne was too late in implementing many of his cuts. He believes the cuts are necessary and recognises that they are unpalatable, but the alternative of spend, spend, spend, is a reckless road to ruin.

The business of business is no longer just business!

Economics for a Crowded Planet

For Christmas I was given Commonwealth: Economics For A Crowded Planet by Jeffrey Sachs.

This book covers a range of challenges facing the world and is optimistic in suggesting solutions.

Commonwealth  contains a number of startling insights. First, the human domination of major components of our world. Humanity controls 45% of the land, around 60% of the water cycle and nearly 80% of marine fisheries. Agriculture is the principal user of water and uses as much as all the rest of the demand put together. As a result the Ganges, the Yellow River and the Rio Grande no longer reach the sea because the water is abstracted along the way. We are using groundwater, otherwise known as “fossil water” because it’s been trapped underground for millions of years, in the mistaken belief that it’s an infinite resource.

Sachs shows how we can address these problems and in particular the problem of population growth. He shows how government intervention is essential and demonstrates that the free-market economies will not address these problems. He also shows that social welfare economies outspend both free markets and mixed economies on R&D, they contribute more in aid and have the lowest proportion of their domestic population in poverty.

Sachs is an American, but that does not stop him from criticizing his country. He complains that poverty in the US is more widespread than in even the average free-market economy. The US struggles to meet its 0.7% GDP target for foreign aid, yet spent $572bn on the military in 2007. This is nearly as much as the whole of the military spending by all the other countries in the world. Spend on humanitarian and development aid by the US was just £14bn. In Sachs’ opinion, few of the world’s current problems can be solved by military means.

This book was written and published in 2008. It closed on an optimistic note. Sadly the actions which Sachs expected to be taken have not been taken. In many ways the world has gone backwards. He echoes the Stern Report (2006) in saying that immediate action will be much cheaper than if we delay. And yet, instead of a strengthened Kyoto agreement which Sachs looked forward to in 2012, the actual result concluded last December was even weaker than the original agreement, with many decisions postponed for yet more years. Meanwhile, the US shows no signs of moving away from its policy of using military solutions almost regardless of the nature of the problem, the people of Haiti squat in disease-ridden refugee camps still waiting for the aid funds promised more than a year ago and exceptional weather brings fires and flood to Australia, with hurricanes and blizzards attacking parts of the US with ferocity that they’ve never seen before.

I very much hope that Jeffrey Sachs will write a sequel, but we can’t sit around waiting for it. Spread the word. Take action now. At the risk of sounding histrionic, the future of humanity depends on what we do this week, this month, this year. Leave it much longer and it’ll be too late!