Is green the new black?

01 Oct 2008Archived News Energetics in the News

PUBLISHED: In the Black by Deborah Tarrant Cheryl Bowler, Principal Consultant; Carbon Markets, Energetics Pty Ltd tells why the role of Chief Carbon Officer is necessary for business to forecast and hedge carbon risk as part of growth plans.


As emissions trading and energy reporting come into effect, the role of finance professionals is becoming ever-more important

Regardless of personal style or whether they are true believers in climate change, it seems everyone's collar will take on a new hue in coming months as organisations great and small contend with the green revolution.

Economists and workforce-change experts are heralding the arrival of the green-collar worker, those whose jobs deal directly with the environmental agenda.

And new rules, with the now-applicable Australian National Greenhouse and Energy Reporting (NGER) laws and further legislative lead-up to the launch of an Australian emissions trading scheme (ETS) in 2010, will effectively touch every aspect of every organisation from board level down.

As Deloitte Australia's chairman Wayne Goss noted succinctly in his company's response to the Australian federal government's Carbon pollution reduction scheme green paper, the economic environment is undergoing a fundamental shift.

Climate change is no longer just an issue for the environmental or sustainability team but 'an everyday business challenge'.

As happened with the GST, increased costs related to the new carbon order will flow through to every part of the economy, regardless of whether or not an organisation is one of the 700-1100 heavy emitters who should have been gathering data since 1 July under the NGER.

Of course, the brave new carbon-constrained world of business will bring with it significant workforce change. There will be more jobs, new jobs and fresh skill-sets to be acquired.

An ETS will not only demand three million workers to be trained or re-skilled by 2015, according to a new CSIRO report Growing the green collar economy, but employment will grow by between 2.6 and 3.3 million jobs by 2025. Along the way, much-reported skills shortages will be exacerbated.

What's abundantly clear is that the role of finance professionals and accountants will become increasingly pivotal as changes unfold. Financial knowledge and analysis will be vital, along with the skills to account for emissions and the increased costs they will bring to operations.

New opportunities are emerging and, despite the uncertainty of the pre-ETS landscape, must be evaluated.

A flurry of activity currently surrounds the big four accounting and advisory firms as they strive to get the right hands on deck to help clients, reports Craig Bowater, managing director of the health and environment division of recruitment firm Aurec.

'[Firms are] looking to recruit expertise from Europe where emissions trading has been under way since 2004,' he reports.

Right now most larger companies are looking to consultants to 'come in and tell them how to do it', while some are already appointing carbon specialists within divisions, in particular in legal, tax, assurance / audit.

Climate change departments are embryonic within a few large companies, and the focus currently is on compliance, although the frontrunners are seeking competitive advantage.

In the accounting area, interest in candidates with triple-bottom-line reporting experience has ramped up, says Aurec consultant Christopher Stellatos. In financial services the call is out for energy strategists and traders in environmental products and derivatives.

'Of course, it's early days yet,' observes Stellatos, who's expecting a huge groundswell over the next six to 12 months. Many are still waiting on the government's lead with economic modelling, and also on a white paper due by year's end that is expected to deliver the legislative shape of the future.

Until now large organisations have typically been exploring carbon issues through cross-disciplinary steering committees, explains Cheryl Bowler of sustainable solutions consultancy Energetics. She says the hot emerging job is the role of chief carbon officer (CCO).

As emissions trading shifts carbon from a risk management issue to changing the way organisations run, it's moving swiftly into the financial and accounting sphere, with carbon trading, credits and offsets showing potential to create significant intangible assets and liabilities.

The CCO will not only manage the carbon footprint and ensure responses to mandatory and voluntary reporting requirements, but will brief the board on the implications for financial accounts. 'Companies will have to forecast and hedge their carbon risk as part of their plans for growth,' says Bowler.

And CCOs might be hedging that risk for growth with credits. 'They will be looking at the carbon risk in future acquisitions, evaluating joint ventures and mergers, every expansion will have to take in the carbon element,' Bowler adds.

Fundamentally, an ETS seeks to achieve business transformation and technological renewal, and all the hard business decisions are around capital investment.

'It will impact decisions on what to invest in,' says John Purcell, CPA Australia's policy adviser on corporate regulation. 'Some assets will decrease in value, which is why it's important for companies to start disclosing their current and future emissions profiles now rather than allowing the market to make uninformed decisions based on perceptions.'

Under the NGER, organisations must already provide greenhouse gas data of the same quality as financial accounts. There's no need to submit an assurance or verification statement with data.

Yet, as with the tax system, companies can be audited, and the motivation to supply accurate data is strong. The CEO faces a $200,000 fine if adequate steps are not taken to address errors.

In the emissions trading phase, the green paper calls for greater scrutiny. Businesses with ETS liabilities will have to provide externally verified assurance statements with their greenhouse data, just as with financial data.

'CFOs need to be on top of this because it will probably fall to them to make sure the data is right,' Bowler says. 'And they're the ones who will be managing the cash flows for emissions trading down the track.'

Appointing a CCO sounds relatively straightforward, but it won't be enough, Bowler cautions, because that individual will need to be contacting all parts of the business and understanding diverse attributes.

While a CCO might hail from a financial/accounting background, he or she will need additional training to understand the technical side, she says.

Not all organisations will need a CCO. In service-based organisations, for example, responsibilities may rest with the finance division to deal with increased costs in the budgeting process caused by higher energy and fuel prices.

There is greater complexity in companies that have large direct emissions, or those captured indirectly because they have considerable electricity consumption.

Big emitters will need the right scientific personnel on board to do the measurement - and, in turn, the finance people, in particular, the auditors, will need to be able to interpret those results, explains Bowler.

She anticipates major skills shortages in the verification area, which has been largely dominated by engineering firms, with just a handful of accounting firms accredited for voluntary programs such as the Australian federal government's Greenhouse Challenge Plus.

International verification companies with expertise honed in the EU and other markets and under the rules of the Kyoto Protocol are already moving into Australia. 'The biggest burden on business in the next 12 to 18 months will be getting the measurement right,' Bowler insists.

However, emissions trading will present a new arena for financial players.

Out front will be a new breed of high-flying carbon traders whose roles will be to sell permits into a range of new and subsidiary markets, including futures.

Electricity companies and big emitters will look to appoint their own people to buy and sell their permits, while the permits themselves will also require specialist tax and accounting arrangements.

The financial services industry will have a hefty slice of the new action. High growth will be in services similar to those for financial products, such as shares, and will include trading advice, brokerage, trading platform and support services.

Investors worldwide are already helping to save the planet through a rising number of new funds linked to companies that are fighting climate change.

A market in offsets is also on the way. From the current vantage point, this looks set to include the forestry sector, as the green paper allows for forestry landholders to opt into the ETS, points out Ian Porter, a former Victorian government environment and sustainability policy analyst who now consults with The Nous Group.

Under the scheme, forest landholders could become part of the carbon market and have credits to sell to polluters.

Porter says: 'The question is how to account for the carbon that is soaked up by growing trees? While a quasi-Australian standard already exists, offsetters also have been getting their systems up to standard so they can account for what they are selling into the market.'

Carbon constraint and emissions trading may have zoomed in on big companies, but the majority of Australian businesses in the SME sector will also feel the impact. Bigger businesses will increasingly lean on suppliers as they look to reduce their footprints.

Increased costs for energy and other inputs are expected to present big fallout. Community awareness will drive the competitive edge.

Porter believes accountants in the SME sector will play a particularly important role because traditionally they have been the only people keeping tabs on the energy bill.

'They might not need a carbon officer, but all organisations should have someone who is looking to minimise their footprint from a risk management perspective,' he says.

Finance professionals will be crucial not only within businesses but for advising others on how to manage their footprints and make investment decisions in the new green world.

Even in smaller business this will mean asking basic questions around energy use, the costs of running equipment and the likelihood of suppliers increasing their prices.

Savvy smaller businesses are already heading for carbon neutrality. Those that aren't should be mindful that the day when they are asked to provide information on their products is looming.

'Accountants need to understand what's happening in other businesses and the life cycles of products along with the carbon / cost implications of the different types of energy,' says Gavan Ord, business policy adviser at CPA Australia.

Most immediately, they should be developing an awareness of the issues and possible impacts, including a more-than-rudimentary grasp of emission levels, Scopes 1, 2 and 3. 'They need to become familiar with the language and technical terms of a carbon-sensitive economy,' Ord says.

Carbon accounting may have an extra dimension, but core skills are highly relevant because the new skills are not far removed from the old ones: preliminary analysis; pricing; budgeting and making investment decisions informed by greenhouse emissions.

'While they will need to understand the technical side, CPAs already have the skills, and independence, for assurance,' Ord believes. 'Inevitably, they will be engaging more with other professionals, including engineers and strategists.'

Liza Maimone who heads the PricewaterhouseCoopers sustainability practice describes a cross-disciplinary approach that's melding skills. To provide advisory and assurance services her team currently combines legal, accounting, engineering, economics and transactional expertise.

Climate change insight is being embedded through a series of awareness programs into all aspects of the firm's services, she says.

'Specialists are sitting across the business and we run audits to ensure they have the required depth of expertise.'

There has been a lot of interest, but it's currently hard to find people with the right skill-sets, she admits. At the graduate level the firm has been looking to those with dual degrees, such as commerce/engineering. For trading, PwC is leveraging the longer experience of its European team.

Clearly, acquiring skills for the carbon economy is no longer a matter of wait and see. Frank Mitchell of Swinburne University's Centre for Sustainability has developed Australia's first accredited series of short courses in carbon accounting.

He says that although uptake has come from small business and the public sector, right now few understand how to complete a greenhouse inventory.

'For most, the process is not that hard,' he says. 'But finding the right data within organisations can prove challenging.'

An abundance of courses from education and training providers is anticipated as the rules become clearer and the realisation dawns that in terms of the bottom line, green really is the new black.

Looking ahead, challenges are in carbon forecasting. While business analysts may be accustomed to planning over five-, 10- and sometimes 20-year timeframes, manufacturers and some medium-sized businesses may need the services of a good analyst or strategist, suggests Porter.

Of course much depends on the emissions targets detailed in December's white paper, which are expected to coincide with the long-term targets for carbon reduction. In the interim though, it seems there's no time to waste.

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