GHG schemes are here to stay and management actions are required

By Dr Anne-Marie Warris, LRQA - www.lrqa.com

Greenhouse gas (GHG), from being of interest to just a few avant-garde companies, has become a focus of strategic concern for a number of industry sectors covered by the EU Emission Trading Scheme (ETS) since its introduction in January 2005. And it is not just a European issue; plans for emission trading schemes are being discussed in Canada and Australia, as well as in Japan and a number of states in America. Although GHG is an issue for specific sectors now, others also need to pay it attention. Discussion about the inclusion of aviation in the EU ETS would impact on most of us in terms of holidays and leisure activities as well as business travel. Some studies look at including road emission trading to focus more directly on the individual consumer.

There is debate and dissention in the market with regard to the long term viability and staying power of GHG schemes and focus on GHG from government and other institutions. But GHG as an issue is here to stay and its impact on the bottom line is becoming clear. The recent work of Henderson Global Investors - the Carbon 100 Report - states: 'Under half of FTSE 100 companies disclose their carbon emissions, accounting for over two-thirds of emissions. In addition, even for those companies that do report, there is still a considerable lack of comparability in reported emissions data.' The report also found: 'If companies had to pay the UK Government's estimate of the economic damage done by a tonne of carbon - around £20 a tonne - then over 12 per cent of the FTSE 100's earnings (in terms of earnings before interest, taxation, depreciation and amortisation) would be at risk. For some companies, well over 50 per cent of earnings would be exposed to carbon costs'. The cost to organisations due to GHG can vary dramatically. Its impact on their bottom line will also vary dependent on their activities - it is likely to be lower for service companies and higher for manufacturing companies.

The GHG issue is here to stay because of its impact on our global environment and hence on our livelihood and survival. But, most importantly, it is here to stay because it is becoming 'business as usual' and is integrated into electricity and fuel prices. For any organisation there are two important reasons to take GHG seriously. Firstly, it can substantially affect your bottom line and profitability whether you are in the traded market or not, and secondly, because of its environmental impact.

So, what does your organisation need to do?
There is a need to recognise that there are issues associated with your organisation's future strategic direction that may be impacted by the GHG issue. You need to determine your strategic approach taking account of GHG issues and revise it as the market, knowledge and operational situations change. There are also practical issues associated with the dayto- day management of the business.

Any solution must be embedded in your organisation's system and control mechanism and provide relevant data to both strategic and routine levels of management. The overall approach needs to focus on your organisation's GHG exposure in terms of emissions data and the corresponding financial exposure. Decisions also need to be made that will affect how frequently data is monitored and recorded, how it is communicated and what affect it may have on your organisation's strategic management. Such decisions need to be consistent with the needs of your organisation's strategic plans.

Management arrangements that will support both strategic and routine management will typically include:

	deciding on the scope of the GHG focus by evaluating its impact on your organisation - is it predominantly an indirect impact, for example from suppliers and others, or is it a direct impact, due to operations controlled by the organisation, or somewhere in between
	communicating with key stakeholders regarding the scope to ensure GHG scope and focus meets the need of critical partners and influencers
	identifying the risks and issues and their consequences related to GHG
	management approach for managing the identified risks
	control systems to ensure management actions are completed and effective, including audits and reviews
	external assurance of data and system.

Such arrangements can be part of risk management under corporate governance as well as classic management systems including triple bottom line. The important issue is that they operate effectively and provide relevant and timely information to management both for strategic decision making and routine monitoring and supervision. Such arrangements can benefit from third party assurance to ensure that the organisation's GHG strategy is based on reproducible and reliable data and processes that will help provide up-to-date and relevant information.

For more information: climate-change@lrqa.com