THERE has been no shortage of talk about the forthcoming Copenhagen climate change conference in December, at which presidents and prime ministers will discuss ways to save the world by reducing carbon emissions. Already, many suspect that little will be decided at the meeting. The reality is that if the world is saved, it will not be a question of handshakes and photo-opportunities, but organisations striving to reduce their carbon emissions, and accountants will play a part in this.
Businesses and other organisations face a barrage of schemes aimed at reducing their carbon: there is the Carbon Reduction Commitment (CRC), which is designed to cover those organisations not covered by the EU’s Climate Change Agreements and Emissions Trading Scheme. In addition, there is the government’s Carbon Disclosure Project and, as of last month, guidance from DEFRA on what it expects corporations to report about their carbon emissions.
As an example of just how complex this could all become, take the CRC, which comes into force in April. Organisations will qualify for this if they have at least one half-hourly electricity meter or if their total half-hourly electricity consumption exceeded 6,000 megawatt-hours during 2008. Between 5,000 and 6,000 organisations are expected to fall into these categories.
Organisations in the CRC will report their carbon usage in April 2010, and be charged an amount of money dependant on this (around £12 per lb of carbon). The best estimate is that £600-700m will be raised. Six months down the line, organisations will have to report their carbon usage again, and will be ranked according to how much they have improved. Those in the top half of the rankings will be given their money back plus extra, while those in the bottom half will be given back less than their initial payment.
Clearly, the CRC requires organisations to accurately report the amount of carbon that they are producing. About 20 per cent of the companies who report will have their data scrutinised, and there will be fines for those which fail to meet the standards. Accounting skills – chiefly auditing, reporting and restructuring – are needed, and that is why accountants are deeply involved in the CRC, and indeed in other carbon reduction schemes.
BUILD THE SYSTEM
Accountants, says Jon Gorrie, a director at KPMG, can offer three things in terms carbon-reporting. Firstly, they can build the system to collect the data, a process which is similar to carrying out an internal audit. “A lot of the time people fool themselves that they have the data in the terms that the CRC requires,” he says. Secondly, accountants need to be involved in the reporting of the data. Increasingly, organisations want to go beyond mere carbon data, but also take in wider issues such as water and waste and the use of other finite resources, and even create one report that looks at all aspects of sustainability, such as diversity, and the social and environmental impacts of their business. Thirdly, they can offer assurance, or an analysis of the report. At the moment, says Gorrie, the problem with carbon (and CSR) reporting is that they are vague. The key is to “extract something that is rigorous”. We are striving towards creating a vocabulary, he says, so we can talk meaningfully about this sort of reporting.
The world is changing quickly, it seems, and firms can no longer bury their heads in the sand about carbon. The CRC, says Alan McGill, a partner specialising in sustainability with the Climate Change Team at PwC is “really raising the bar around this sort of information and how it is used.” This is not just about conforming to unpopular regulations, either. He says that shareholders and investors increasingly understand that accurately reporting their carbon emissions is essential: reducing carbon means saving money. Even though carbon reduction is being driven by government, those with an eye on the bottom line know that it matters.
It goes beyond the CRC, too. In its Climate Change Act, the government committed the UK to reducing carbon emissions by 34 per cent by 2020 compared to 1990 levels. If it fails, it will buy carbon credits to cover the shortfall, and the least carbon-efficient organisations will pay for it. It’s time to call in the accountants.