Why Asia Should Prepare for Carbon Reporting

The levels of commitment in addressing climate change may vary, but there is a clear trend. For the first time, the United Nations conference in Copenhagen in December 2009 included a global agreement by 132 countries to limit temperature rises to 2 degrees. Subsequently, 79 countries have set emissions reduction targets that will cover 80 percent of global energy-related emissions.

 
However, a complete global consensus is improbable and governments are likely to adopt policies that vary from one country to the next. Senior executives with a mandate spanning in Asia Pacific need to understand where their own organisation stands and where they may be exposed in different jurisdictions. This is a particular concern in China as many companies are so heavily dependent on manufacturing and international trade.
 
There are a number of potential policy responses including the imposition of carbon emissions reporting requirements, incentives for energy efficient activities, mandatory use and incentives for cleaner fuels, and imposing price signals such as emissions trading schemes and taxes.
 
The financial implications for businesses in Asia Pacific are likely to include legal requirements for reporting carbon emissions and/or energy consumption; carbon price liability from carbon taxes or emissions trading through tax or permit obligations – either directly or in the supply chain; market pressures from low carbon substitutes; trade barriers and border taxes based on carbon intensity; and other new forms of grants, subsidies and tax incentives.
 
China has been a key recipient of foreign investment through the Kyoto Protocol's Clean Development Mechanism (CDM) and has provided a number of supportive measures to encourage clean technologies and emissions reductions.
 
Irrespective of what actions governments undertake, such changes are going to require a level of reporting and assurance on carbon emissions and/or energy use at a company level, and accompanying that, careful management of business impacts.
 
An important first step for the CEO is to identify what carbon emissions reporting measures are mandatory, which measures may become mandatory, and which, although voluntary may also be beneficial to conduct. The most widely used voluntary reporting formats include the Carbon Disclosure Project (CDP) and Sustainability Reporting using the Global Reporting Initiative (GRI).
 
From here, the CEO needs to clearly identify where responsibility lies for the collection and processing of carbon emissions data. In many cases, it lies with an operating executive or environmental officer and sometimes it falls to the CFO. Responsibility may not be clearly defined due to the overlap of this issue across supply chain, production, legal and financial management functions.
 
All this is not difficult, but it needs institutionalising. The first steps are a small investment, compared to the potential opportunities and risks. The CEO also needs to establish accountabilities in their business to understand potential liability and prepare for new opportunities. Regulatory climate change policy impacts on longer term business decisions such as acquisitions, mergers and joint ventures, so it is now an essential responsibility for any successful business leader.
 
Click here to read KPMG's new CEO Guide to Carbon, which explores these issues in more detail.
 
This article first appeared on the KPMG China Connect newsletter, October 2010 issue.
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