Whacked with the environment stick

04 Apr 2007Archived News Energetics in the News

PUBLISHED: The Age - By Leon Gettler - Jonathan Jutsen, Founder & Executive Director, Energetics Pty Ltd is asked by The Age to comment on the impact climate change legislation is having on Australian business.


THE Australian Stock Exchange corporate governance council has announced its revised corporate governance principles will take effect from January.

Not only is that late, but whatever it decides on sustainability may well be superseded by legal developments.

The ASX had asked whether companies should be more open in reporting on sustainability. Like the rest of Australian business, the ASX is about to discover that question is starting to look about as effective as the United Nations.

Businesses now face a flurry of legislation on climate change, and have to make disclosures that won't be voluntary. It will be time-consuming and costly. Law-makers are deeming that necessary.

The ASX has been looking at whether it should change its Principles of Good Corporate Governance. Hot button issues canvassed include one proposal that would have companies reporting on environmental and corporate responsibility risks, or explaining why they do not.

The submissions on the sustainability issue broadly slot into two camps: investors want more information, business wants no change.

Until recently, global warming was not on business radar screens.

Consider, for example, this response from Billabong's company secretary, Maria Manning, last year to the Carbon Disclosure Project, a global project run out of London:

"As Billabong International Limited is an action sports business catering to all seasons and temperatures, any change in climate is likely to have limited impact on the business . . . our operations are not currently affected by extreme weather events, changes in weather patterns, rising temperatures or changes in sea levels."

In other words, climate change is no problem for Billabong. They sell plenty of T-shirts.

The Business Council of Australia seems to be trying to have it both ways.

Its submission to the ASX has described the reporting push as impractical. Yesterday, the BCA put out a climate change policy that, among other things, calls for a long-term scheme over at least 30 years to reduce greenhouse gas emissions. It also calls for measurement and reporting protocols for all emissions "whenever practical".

The problem for companies is that voluntary disclosure on sustainability, whether they want it or not, is fast being overtaken by legislation.

In the next few years, businesses can expect an outbreak of laws on sustainability, imposing new controls and requirements. We are entering an era of compliance, and legal risk, around global warming. Climate change sceptics and those campaigning against disclosure are missing the point.

Businesses here have already been hit with energy efficiency opportunities legislation.

The law, which has only recently come into force, now requires all big energy-using businesses to report their energy use and opportunities for savings.

The Energy Efficiencies Opportunities (EEO) Program is mandatory for all companies that use more than 0.5 petajoules of energy. Translated, it applies to all companies with electricity bills costing $5-$10 million or that spend $1.5-$2.5 million on natural gas or $13 million on diesel.

Companies had to register for the program by March 31. Unfortunately, many didn't wake up to this until a few weeks ago.

Jonathan Jutsen, a director of Sydney-based energy consultants Energetics, said there was a flurry of inquiries last week from companies suddenly realising they had to register.

"It suggests there was a low recognition of the range of measures they are going to be hit with," Mr Jutsen said.

And while businesses were telling the ASX that reporting would just create more paperwork, they are in for a shock with the EEO. It requires them to conduct technical energy-savings assessments, and implement what consultants like to call a continuous improvement process.

What's more, they have to document everything. They will have to establish a paper trail documenting what they have done around six elements: how much management support there is for the program; ensuring they have the right people doing the assessment; information, data and analysis; evaluating energy efficiency; how they make their decisions around these decisions, and how they communicate outcomes, both internally and to the market.

None of this disclosure is voluntary.

In addition to that, there are state laws.

In Victoria, the Bracks Government plans to introduce a climate-change bill this year. It aims to cut greenhouse gas emissions by 60 per cent by 2050 and increase low-emissions energy generation to 20 per cent by 2020. The legislation will also require big greenhouse gas emitters to disclose their emissions to the public.

The Bracks Government also plans to bring in regulations this year to extend the reach of the Energy Resource Efficiency Program legislation introduced last year. The state's biggest water and energy users will be required to undergo an audit. If the audit identifies savings in water and energy use that will pay for themselves over three years, the companies will be required to implement them.

If developments overseas are anything to go by, there is more ahead.

In the US, the Democrat-controlled Congress has introduced different pieces of legislation to counter climate change. The US Senate began the year by introducing several bills that will, among other things, require reductions on greenhouse gas emissions.

The US Supreme Court this week ruled that the Environmental Protection Agency had the power to regulate greenhouse gas emissions from cars and trucks. Other US litigation events to watch out for are California's lawsuit against car makers, and the class action lawsuit by Gulf Coast residents who are suing oil companies, utilities and coal producers, claiming their contribution to climate change made hurricane Katrina more severe.

In Britain, the Blair Government has proposed environmental legislation that has generated discussion around future policies that include taxes on airline flights, fines on polluting industries, and manufacturing standards to eliminate high-energy light bulbs and electronic equipment with standby modes.

With climate-change issues set to be at the forefront of legal, economic and political news worldwide this year, it is clear voluntary disclosure will be a fading luxury from an era when environmental issues were less charged.

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