Carbon Footprints.

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Carbon Footprints.

• Nick Main, Chairman Deloitte
• 26 October 2007

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Agenda

• Drivers for Change
• Standards and Approaches
• Developing a Carbon Footprint
• Assurance
• Accounting

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Sustainability is the end game, but Climate
Change awareness is helping drive a change in
attitudes

• Matters to the world
• Over the past year there has been a huge change
  in public perception (Stern, IPCC, An
  Inconvenient Truth)
• Some countries already have their backs against
  the wall and it isn't just developing countries
  eg. Australia and Water
• Matters to future generations
• The decisions we make (and dont make) today will
  have wide ranging impacts on future generations
• Matters to consumers
• Consumer attitudes are changing and businesses
  that do not recognise this will suffer

I would try to take advantage ofand capitalize
ona green movement, whether I believed in it or
not. If youre a CEO, you have no option today.
Jack Welch, April 12, 2007.
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Why you want to measure your Carbon Footprint
will determine your approach

• Regulatory requirements
• Trading
• Voluntary
• Kyoto
• NZ ETS
• Corporate brand positioning
• Strategic planning
• Product positioning

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What is a carbon footprint?

• Simply put the total amount of greenhouse gases
  produced to directly and indirectly support human
  activities, usually expressed in equivalent tons
  of carbon dioxide (CO2).
• The term carbon neutral refers to those
  organisations (and individuals) that have worked
  to reduce the amount of greenhouse gas emissions
  their activities produce and then off-set any
  unavoidable emissions.
• This is an immature area and standards are still
  being developed early movers can have an
  advantage

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It is important to use recognised standards and
approaches when calculating carbon footprints

• The Greenhouse Gas Protocol, A Corporate
  Accounting and Reporting Standard
• Issued by the World Business Council for
  Sustainable Development and the World Resources
  Institute
• Principals Relevance Completeness,
  Consistency, Transparency, Accuracy
• Organisational Boundaries accounting concepts
  for control
• Operational Boundaries, Scope 1 direct, Scope 2
  electricity indirect, Scope 3 other indirect
• Scope 3 relevance, reliability
• Reporting
• Double counting
• ISO 14064-1 Specification with Guidance at the
  organisation level for quantification and
  reporting of Greenhouse gas emissions and
  removals
• Based on the GHG protocol

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Measuring a carbon footprint

• Define the scope of your inventory
• Must be clear on the purpose of measuring the
  carbon footprint!
• Critical step in ensuring that information
  captured is relevant for the purpose it is being
  compiled
• Measure emissions and establish a baseline
• - Collect activity data and appropriate
  emissions factors
• Scope 1 Direct Emissions, eg. onsite fuel
  combustion
• Scope 2 Indirect Emissions, eg. purchased
  electricity for own use
• Scope 3 (Optional) Indirect Emissions, eg.
  Employee business travel
• Develop targets and strategies to reduce
  emissions
• You need a plan to manage down your emissions.
  Reductions targets can either be absolute (eg. A
  10 reduction relative to the chosen baseline
  year) or intensity based (eg. A percentage
  reduction per unit produced, or per FTE if a
  services organisation)

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Measuring a carbon footprint (cont)

• 4. Off-set unavoidable emissions
• - Organisations can then purchase carbon credits
  (also known as offsets) to cover any
  unavoidable emissions. Offsets are derived from
  projects that are specifically implemented to
  avoid emissions
• - The quality of the credits is an important
  issue and most reliable credits will be supported
  by a certification process
• 5. Independent Verification
• - Increased credibility and enhanced
  stakeholder trust
• - Increased senior management confidence
• Companies in New Zealand are reaping benefits of
  going through the local carbon neutral
  certification process provided by Landcares
  carboNZero programme eg. NZ Wine Company,
  Meridian

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The Carbon Trust in the UK provides guidance on
developing product footprints

• Analyse internal product data
• Build supply chain process map
• Define Boundary Conditions and identify Data
  requirements
• Collect Primary and Secondary data
• Calculate emissions by supply chain process steps
• There is an increasing mood to determine
  standards for product carbon footprints as a way
  for consumers to make informed decisions (Tesco)

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Assurance provides a safeguard against a number
of risks associated with emissions reporting

• Financial risk arising from under reporting of
  emissions
• Financial risk arising from over reporting of
  emissions, leading to additional costs incurred
  to purchase offsets
• Financial and reputation risk arising from
  selling credits which have not been subject to
  robust verification
• Reputation risk arising from making statements of
  carbon neutrality or offsetting schemes which are
  later found to be green wash. For example,
  claiming to have offset all emissions when the
  credits purchased only offset part of the
  emissions profile.

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There are several audit standards employed for
assurance

• ISO 14064
• Part 1 Specifications with guidance at the
  organisational level for quantification and
  reporting of Greenhouse Gas Emissions and
  Removals
• Part 2 Specification with guidance at the
  project level for quantification, monitoring and
  reporting of greenhouse gas reductions or removal
  enhancements
• Part 3 Specifications and guidance for
  validation, verification assertions
• International standard on Assurance Engagements
• Guidance provided by IAASB, designed for all
  assurance engagements other than audits or
  reviews of historical financial information
• Attest Engagements on Greenhouse Gas Information
• Specific rules for ETS e.g. European guides,
  DEFRA guidelines in the UK

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There are some challenges ahead

• Diverse and frequently changing set of standards
  for accounting for GHG emissions
• Diverse set of set of standards determining how
  assurance services are provided and the level of
  assurance given
• Different and often no regulation about who can
  provide this assurance
• Requirements under a compliance regime (NZ ETS)

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Accounting Issues

• IFRIC 3 Withdrawn!
• Accounting for Allowances
• An (intangible?) asset
• Initial recognition fair value (or cost?)
• Free allocations
• Accounting for emissions
• A liability
• At market value
• Revenue account treatment asymmetric
• Hedging (compliance or trading)
• No netting

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