While the Obama administration is moving fast to break with eight years of "climate denial" under George Bush, the UK government seems to have lost its early focus on introducing climate change regulations. Jyoti Banerjee investigates.
For a time, a year or so ago, it looked as if UK companies would be required to meet mandatory regulations on carbon emissions. But the focus seems to have been lost, under pressure from business lobby groups that are concerned about the impact such regulations will have on British companies. Instead, UK companies are urged to report their carbon emissions following recommended guidelines, and the soonest we will have a carbon regulatory framework will now be 2010, when only Britain's largest companies will have to meet the forthcoming Carbon Reduction Commitment (CRC) mandatory framework.
The Americans are still debating the merits of carbon trading schemes versus carbon taxes, with carbon trading, based on existing EU schemes, gaining ground among policy-makers. Right now, no one really knows what the Obama administration will seek to put in place but it is quite certain that whatever happens in the US will be felt over here in the UK.
The challenge with meeting regulations, whatever they might end up being, is that a business needs to know what its emissions are in order to assess compliance, and manage change. Very few large organisations have systems for tracking and managing their carbon emissions – when you get to small or medium enterprises, the number falls away even further.
So the first impact of carbon emission regulation will be the immediate challenge of measurement of emissions. Some years ago, a standardised protocol was agreed which defined three potential "scopes" for a corporate greenhouse gas (GHG) inventory. Most small or medium enterprises do not produce energy themselves so Scope 1 emissions will not be relevant to them. They will almost certainly be purchasing energy from third party sources, known as Scope 2 emissions, and usually these purchases carry information on the actual energy consumed in our organisations. From these energy purchases, it is possible to assess the emissions generated in the production of that energy.
However, the real challenge for all companies, but smaller companies in particular, is managing Scope 3 emissions, which cover everything from business travel and emissions embedded in products purchased from supply chains, through to downstream emissions related to logistical costs in distributing your products. I
n practice, there are hardly any sustainability performance management systems for smaller companies, and the ones that do exist are typically dismal failures when it comes to a full coverage of Scope 3 emissions.
The UK’s Carbon Reduction Commitment regulations enter the statute books in 2010, but will only apply to companies that spent at least £1m in electricity across 2008 - this covers only the top 5000 companies or so. The remaining 2 million or so small enterprises, and around 150,000 medium enterprises, and another 20,000 or so large companies are not covered by the regulations and will probably feel they can ignore any sustainability performance management. They would be wise not to be too hasty on this, as they may feel the second-hand impact of the regulations aimed at large UK companies, plus whatever the Americans cook up.
The big question mark will be whether the large companies that have to participate in CRC end up requiring their supply chains to participate as well – in which case, we could see smaller businesses having to track and manage their carbon footprint just to remain on the supplier list of a large enterprise like Tesco or Marks & Spencers.
Preparing for regulatory change
So how can a company prepare for a future of uncertainty in environmental regulation? I see three prongs that any management team will have to deal with when it comes to emissions:
• Learn about climate change, its potential impacts on the working of the business, and the risks that the business carries due to climate change factors
• Measure your organisation's emissions – you can’t manage what you don’t measure
• Reduce your carbon emissions – there isn’t a business in the western world that could not gain efficiencies, save money, and contribute its mite to saving our planet through carbon reduction measures. In fact, the most successful businesses of the next couple of decades will be those that articulate a much more efficient carbon business model.
Do you get the feeling that, despite so much collective attention, very little has actually happened to stop the carbon juggernaut? I certainly do.
The primary reason for the failure of businesses to prepare for the inevitable is somewhat counter-intuitive. According to Simon Thomas, chief executive of environmental performance specialist Trucost, the reason why companies have done so little to prepare for the challenges of carbon are that the potential costs of doing so are actually, ironically, quite small. Nicholas Stern’s climate change review stated that it would cost the world around 1% of GDP to deal with climate change, but not dealing with it would cost us somewhere between 20-30% of world GDP, through rising ocean levels, refugee crises, desertification, falls in food production, lack of water, and so on.
So, according to Thomas, the cost of doing something seems so low, that it somehow fails to capture the attention of our management teams. “Surely, we must need to do more than just this,” seems the factor that renders management supine.
Given the low cost of success, and the high cost of failure, leaders of medium and large enterprises should be bending over backwards to deal with what may seem like really simple and trivial issues of carbon management. Just because it seems easy to do, don't forget that you still have to do it.
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Posted by: Offshore Outsourcing Company | May 29, 2009 at 06:58 AM