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Carbon Footprints .

Carbon Footprints. Nick Main, Chairman Deloitte 26 October 2007. Agenda. Drivers for Change Standards and Approaches Developing a Carbon Footprint Assurance Accounting . Sustainability is the end game, but Climate Change awareness is helping drive a change in attitudes.

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Carbon Footprints .

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  1. Carbon Footprints. Nick Main, Chairman Deloitte 26 October 2007

  2. Agenda • Drivers for Change • Standards and Approaches • Developing a Carbon Footprint • Assurance • Accounting Presentation Name (View / Header and Footer)

  3. 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 don’t 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 of—and capitalize on—a green movement, whether I believed in it or not. If you’re a CEO, you have no option today.” Jack Welch, April 12, 2007. Presentation Name (View / Header and Footer)

  4. 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 Presentation Name (View / Header and Footer)

  5. 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 Presentation Name (View / Header and Footer)

  6. 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 Presentation Name (View / Header and Footer)

  7. 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) Presentation Name (View / Header and Footer)

  8. 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 Landcare’s carboNZero programme eg. NZ Wine Company, Meridian Presentation Name (View / Header and Footer)

  9. 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) Presentation Name (View / Header and Footer)

  10. 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. Presentation Name (View / Header and Footer)

  11. 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 Presentation Name (View / Header and Footer)

  12. 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) Presentation Name (View / Header and Footer)

  13. 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 Presentation Name (View / Header and Footer)

  14. www.deloitte.com/nz/sustainability Member of Deloitte Touche Tohmatsu

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