Beyond Copenhagen – Carbon Reduction Schemes and the looming implications for company directors

Wal-Mart: leading the way

Wal-Mart, the world’s largest retailer, has recently announced further plans to reduce its impact upon the environment. The goal is a challenging one: to lower carbon emissions by 20 million tonnes of greenhouse gas from its supply chain (of over 100,000 suppliers) between now and 2015.

The carbon reduction strategy is part of the company’s ongoing strategy to be a sustainable company and “reflects their recognition of their community responsibility”. Wal-Mart, as part of this process, hosted a sustainability summit with its major suppliers focusing on the business case for going green. As the Wal-Mart plan focuses on supply chain improvements, the conference sought to bring varying industry sectors together in order to discuss implementing environmentally sustainable business practices. A key feature of discussions with suppliers was the requirement that suppliers provide customers with product information in a simple format using an index system so that customers can make a choice to consume in a more sustainable way. Additionally, Wal-Mart plans to improve its stores and facilities in terms of their energy efficiency, use of building materials and water consumption. The company report notes that via a “High Efficiency (HE) Store Series” they are testing “high efficiency” pilot stores, which includes the provision of energy to the stores through new technologies such as solar and wind power generation.

And Wal-Mart is not alone in their efforts to improve their carbon footprint. Marks and Spencer (M&S), the UK’s leading retailer, has also just announced its updated Eco Plan, known as “Plan A”, with very ambitious target of “becoming the world’s most sustainable retailer by 2015”. For M & S, there is a clear strategic advantage in undertaking its eco improvements and its goal is to have all M&S products become “Plan A products with at least one sustainable or ethical quality”. Current suppliers will have to demonstrate their goods can support “Plan A” parameters and any new supplier will no doubt have to present its sustainable or ethical quality credentials as part of the terms of doing business with the retail giant in the future.

Lack of legislative certainty-for now

The lack of a binding result from the Copenhagen summit has left many businesses wondering about what course of action they should take regarding carbon emission reductions. Many of our clients have told us that they have limited understanding of what will be required, by when, by what mechanisms and what report and management systems they may need to implement. Although there are no legally binding requirements as yet, we have no doubt the Federal Government will resume the process towards setting targets and establishing a mechanism that will require company compliance at some stage in the future. We note that despite the lack of outcome in Copenhagen, the Government’s Carbon Pollution Reduction Scheme (CPRS) website still advises that Australia’s legal framework will change post 2012. Furthermore, the Wal-Mart and M & S models will undoubtedly be scrutinised by leading Australian businesses given these companies are leading the way. With this in mind, we recommend that company directors start to address the issue of carbon emissions, understand what impact carbon pricing and managing emissions may have on their business, consider the requirements that may be placed upon them as suppliers and also consider the potential marketing, selling and bottom line commercial benefits of being carbon savvy.

Steps to improving your carbon footprint: issues company directors should be considering

In light of a global move by many businesses to evaluate and focus on carbon emission reduction, MST has spoken with a number of Australia’s leading carbon reduction organisations and not-for-profit groups. From those discussions, we have compiled a series of steps you, as a company director, can consider now in order to improve your organisation (and the goods and services your organisation produces) and to reduce its carbon footprint. They include:

• Evaluating the carbon footprint of the business as it stands today. There are many good organisations who can establish exactly what emissions a business or a product currently emits. By calculating a carbon footprint, a business can establish the baseline from which to set future goals.
• Developing a strategic plan and establishing a defined term on how and by when the company should deliver a goal of improved energy efficiency and therefore a reduced carbon footprint.
• Providing all levels of the organisation with a structured program on how this should be achieved. Every facet of an organisation has a role to play and is likely to have good ideas and ways in which the carbon footprint can be improved. For example, consider aspects of how the organisation manages its waste, evaluate potential changes to fuel consumption of manufacturing processes and even think about how your employees get to and from the workplace.
• Installing processes to measure improvements and communicating the improvements to all relevant parties at regular intervals.
• Purchasing carbon credits: where appropriate, a business may be required to purchase carbon credits. We recommend this be undertaken with reputable organisations as we note a myriad of new products emerging in this space. It is important to also note if your organisation decides to purchase carbon offsets that they are subject to internationally recognised reporting and certification standards.
• It is our view that boards of larger companies may be required to provide reports on their carbon emission reduction activities in the future. Therefore ensuring the systematic management of carbon credits from the outset is an important issue.
• Consider the marketing and other business selling features of these activities. There may be an opportunity to enhance the value of your business, and the Wal-Mart and M&S case studies noted above are good examples of what your business may be able to achieve. Please note that promoting your organisation and/or its products as being green or carbon friendly must be genuine because any false claims may be a breach of the Trade Practices Act.

In summary, we consider that regardless of whether or not there is a global emissions target, if you are a company director it would be prudent to address the issue of carbon footprint and emission savings in your organisation in the near term. Don’t wait until there are legislative changes- being proactive in this space will only enhance the value of your business.

Author: Susan Reece Jones