Companies failing to adapt to carbon trading will be left behind in the economy of the future, writes Keith Orchison (published in The Weekend Australian 28-29 June 2008)
The introduction of carbon emissions trading in Australia heralds an industrial revolution, say management consultants PricewaterhouseCoopers, and companies unable to adapt risk damage to their reputation and brand.
The Rudd Government intends the scheme to commence in 2010 and PwC warn that industrial companies must act urgently to assess the risks they face and to set up robust systems to manage their carbon costs.
Graeme Billings, industrial products leader for the consultants, says in introducing a report on Australian business preparedness for a carbon-constrained era that major energy users have a lot of work still to do. They have been slow to respond to the challenges of climate change management compared with their international peers and companies in other industry sectors.
PwC claim that, while Australia's resources sector is a leader in its awareness of the issue and its preparation for a carbon-constrained economy, the industrial products sector "appears a weak link" in the supply chain for a range of markets. The sector, producing materials such as steel, glass, chemicals and plastics, sits in the middle of the chain running from energy suppliers to consumer goods providers and retailers.
Manufacturers are accountable, according to the consultants, for about 69 million tonnes of greenhouse gas emissions a year or 12 percent of Australia's total, making them the third largest emitting sector.
The first step in the "revolution" is the start of the National Greenhouse and Energy Reporting Act next month. This affects some 700 companies, including power generators, miners and large manufacturers. Data gathered from them will underpin emissions trading.
The new situation, PwC warn, exposes industrial companies not only to stiff penalties for failure to comply with regulations on reporting emissions under legislation that takes effect in July but also to pressure from their shareholders and financiers as well as from companies further down the supply chain, competitors, consumers and their own staff.
Companies, urge PwC, should see carbon trading as an opportunity to seize a strategic advantage rather than as a regulatory compliance issue.
Big energy users will face cost increases in 2010, they say, and can expect that the marketplace will impose penalties on firms that lack startegies to manage such costs once the carbon charge regime is in place.
Financiers and shareholders, they add, will demand investment-quality data on companies' emissions and energy costs. "Companies that do not provide it might face difficulty in securing funding or lose shareholder support and see their share price decline."
A survey carried out by the consultants last November found that, while 80 percent of industrial products company executives agreed that business should play a role in greenhouse gas abatement, 76 percent of manufacturing managers were unsure of the risks they faced and 73 percent said they had taken no action to manage the issues.
Only 20 percent of industrial products business leaders said they understood how their company could profit from emissions reduction and offset opportunities.
Ninety-six percent of manufacturers, PwC claim, did not fully understand their reporting obligations and less than two percent had a high level of confidence in their data.
By contrast, say the consultants, 95 percent of resource company executives reported that they had action, such as introducing new business policies or procedures, had changed their strategy or had hired advisers to identify the risks and opportunities confronting them.
PricewaterhouseCoopers urge Australian businesses to pursue an eight point plan towards building income, brand value and reputation in a carbon-constrained economy:
Make the issue a priority at board level and empower executives to oversee a carbon management strategy.
Establish a budget to fund the corporate response.
Review operations to assess the true cost of carbon to the organisation and the risks it faces in the new economy.
Set up independent auditing systems for tracking and reporting energy consumption and greenhouse gas emissions.
Forecast emissions and set reduction targets.
Report on emissions within the company and externally to meet the expectations of regulators, shareholders, customers and staff,
Investigate new markets and how the company can benefit from carbon trading. "Niche products that respond to the new environment have the potential to be a major growth engine for manufacturers," say PwC.
Benchmark progress against the company's competitors.
Meanwhile in their 2008 global utilities report, PwC note that uncertainty over how emission permits will be allocated under the Rudd Government's proposed scheme remains a critical issue for the Australian power generation sector. How the issue is resolved will have a major influence on Australia's energy supply certainty and on private sector investment in generation, the consultants add.
They report that Australian energy supply respondents to the global survey view environmental compliance as the number one challenge facing their business in the period ahead. Suppliers also express a high level of uncertainty about the future of environmental schemes that support "green" investors.
| to top of page |