SEC pressured to mandate financial disclosure of climate risk

An important initiative has been launched by Ceres and Environmental Defense to petition the US Securities and Exchange Commission to require companies to disclose the risks that climate change may pose to their financial results.

Ceres and Environmental Defense are non-profit organisations which attempt to bring together investor groups, environmental organisations and investment funds to engage directly with major companies on sustainability issues. Ceres in particular has a strong record of performance over many years, and was a primary sponsor of the Global Reporting Initiative.

In their petition they are joined by ten states, including California and Florida, and New York City to mandate corporate financial disclosure of climate risk. They note that the risks go beyond the direct risks posed by, for example, extreme weather events, to potential capital investment in new technology as regulations become more demanding of carbon performance. Significantly they are demanding a more precise quantification of climate risk, beyond simply noting that such risks exist, or may exist. In this way, they are bringing climate change from the periphery, as a branding or compliance issue, squarely to the core of the strategy development that drives economic value.
It has been apparent for some time that climate risks are largely unrecognised, unmeasured and unmanaged. It is literally the case that no company is without climate risk. Some industries have obvious exposures: the insurance industry, for example, has for some time recognised and has attempted model the changing risk to its business (see Munich Re, for example). But climate change is affecting all phases of business, including markets, supply chains, raw materials, energy costs and so on.

The simple fact is that very few companies have looked squarely at the increases in risk to their business resulting from climate change. So while the intention of the Ceres petition is to be applauded, the technical challenges it presents are considerable, and have only just begun to be recognised, let alone addressed. (see my 2007 conference Presentations on this topic.)

Recently, for example, a survey by the Australian Industry Group and Sustainability Victoria of 810 Australian manufacturing and construction companies found that only 10% of them new how much greenhouse gas they are producing. Only 7% understood how emissions trading worked. Remarkably only 1% has purchased renewable energy.

This survey conforms with the reality I have found in presenting sustainable business to over 100 companies in the past two years. This lag in corporate knowledge, and corporate action, is difficult to understand, given what is at stake. Not only unrecognised risks, but unrecognised opportunities, are presenting significant challenges to major companies in all sectors in maintaining their industry leadership and competitive advantage. The kind of short-term thinking it represents constitutes a major threat to national prosperity, as much as to global sustainability.

The technical demands of quantifying and financially modelling climate change risk and opportunity should not be underestimated. It requires a multi-disciplinary capability that doesn’t come easy to corporate analysts. New tools must be mastered. But it can be done, and the Ceres/Environmental Defense petition, if acted upon by the SEC (as it will be, sooner or later) will require companies to develop this kind of mastery.

This is precisely the kind of urgency that underpins the development of the University of South Australia’s new Graduate Program in Sustainable Business. The role of universities in contributing to the mounting global campaign to alleviate climate change is to train senior managers capable of using these tools to provide just the kind of strategic evaluation envisaged.

In the end, however, the barrier to adoption is not primarily technical, but cultural. It is the apparent relectance of companies to take climate change seriously, as a major–perhaps the major–factor in the reconfiguration of the the global business environment; to learn about climate change, about the emerging strategies for dealing with it; and to derive the reconfiguration of their businesses that will be required, that is slowing down the corporate response. As is increasingly being noted, those companies that move now will be the leaders in the new sustainability age; those that don’t will not succeed.

Report from The New York Times link here.

Text of the Ceres/Environmental Defense petition link here.

Ian Lowe’s ‘Quarterly Essay’ on climate change and the nuclear option

Ian Lowe’s Quarterly Essay entitled Reaction Time: Climate Change and the Nuclear Option is a well-informed, well-reasoned and timely contribution to the current debate. He brings an unusual level of credibility to the debate. He is an engineer and physical scientist by training, with a doctorate in physics, and currently emeritus professor of science, technology and society at Griffith University–an orientation which fits him exceptionally well to handle the multi-disciplinary character of the issue. Interestingly, his early academic years in the UK in the 1970’s saw him as a supporter of nuclear power, and a participant in early policy reviews. In this essay he recounts the accumulation of data and experience that lead him to the opposite position. He is now President of the Australian Conservation Foundation, and has a clear position against nuclear power as a solution to global warming.

His essay covers a lot of ground, and is worth reading by anyone who wants an informed, although clearly–and unapologetically directed–view of the issues. He reviews the energy demands of the world, centreing on the emerging peak of oil availability, and outlines the global dilemmas implicit in this trend. In this he doesn’t retreat from a consideration of quality of life and well-being issues, or of distribution impacts between the developed nations and the poor of the world. He notes some important precursors in attempts to restructure societies in more sustainable energy directions (such as Alberta, Canada).

He summarises the evidence for climate change–evidence which he regards as incontestable–and the generic technical solutions: cleaner fuels and energy efficiencies. He then moves to a consideration of the nuclear option. He takes head-on the idea of nuclear technologies as the only ‘clean’ technology capable of addressing global warming. He covers the true costs of nuclear power, which he argues make it uneconomic; the world-wide retreat from nuclear reactors; the long time lags needed to bring nuclear energy on line; the threat from nuclear accidents, such as Chernobyl, and of nuclear weapons proliferation; the almost inconceivable lengths of time over which nuclear waste will have to be stored effectively, and the lack of a technology to do so; and the problems of low-grade uranium ores:

“Total life-cycle analysis has concluded that fuelling nuclear power stations from lower-grade ores actually releases more carbon dixoide per unit of delivered energy than burning gas. . .there is no doubt that the fuel energy, consequent greenhouse emissions and the dollars needed to produce uranium all increase rapidly as the ore grade declines.”

(This is a point referred to in my posting of August 20).

Lowe looks in some detail at the techical problems associated with economic projections over the long periods required by the analysis of energy options, and particularly the problem of discounting, which places far greater weight on the well-being of present as distinct from future populations. He analyses incisively the rather ludicrous policy developments in Australia, as the federal government has attempted to marshall some kind of ‘expert’ opinion in favour of nuclear power, in support of its economic objectives. He flags the agenda for nuclear enrichment in this country and the dangers inherent in it. He dissects the current policy, of both parties, to sell uranium into a deeply unstable international political environment. He notes the real possibility that Australia is headed for the role of a nuclear waste dump for the US.

Against this Lowe promotes the growing credentials of wind and solar power to provide an increasing proportion of the world’s energy requirements at reasonable costs. Notably, he points out that the current level of energy demand is not a given which has, at all costs, to be met: at the level of material prosperity enjoyed by this country in the 1960’s, he argues, a sustainable world could be equitably enjoyed.

Although this is a polemical document, its marshalling of arguments against the nuclear energy option and in favour of renewable energy options is an important statement, and one that, under the present push by the nuclear industry to rebadge itself as clean and green, to what it hopes will be a compliant and intellectually cowed society, is greatly needed. It should be widely read.

Link to The Quarterly Essay here.

NSW emissions trading scheme under pressure

It’s perhaps not widely known, even in Australia, that the state of New South Wales has been running one of the longest-running and largest emissions trading schemes in the world, the Greenhouse Gas Abatement Scheme. The overview of the scheme is presented as follows:

‘GGAS commenced on 1 January 2003 in NSW and on 1 January 2005 in the ACT. It is one of the first mandatory greenhouse gas emissions trading schemes in the world. GGAS aims to reduce greenhouse gas emissions associated with the production and use of electricity.

‘GGAS establishes an annual State-wide greenhouse gas benchmark for the electricity sector and then requires individual Benchmark Participants (who buy or sell electricity in NSW) to meet their allocation of the mandatory greenhouse gas benchmark, based on their share of the NSW electricity demand.

‘Benchmark Participants achieve this by surrendering abatement certificates created from project-based emission reduction activities. The surrender of these certificates effectively offsets a portion of the greenhouse gas emissions associated with their electricity purchases.

‘Project-based emission reduction activities, from which abatement certificates can be created by accredited abatement certificate providers, include:

  • Low-emission generation of electricity (including cogeneration) or improvements in emission intensity of existing generation activities.

  • Activities that result in reduced consumption of electricity.

  • Activities carried out by elective participants that reduce on-site emissions not directly related to electricity consumption.

  • The capture of carbon from the atmosphere in forests.’

To access the Greenhouse Gas Abatement Scheme link here.

The pre-conditions for emissions trading, which include the functions of standardisation, authentication, recording and auditing, have been approached by the GGAS in innovative ways which have contributed significantly to the global development of emissions trading schemes. The trading activity of abatement certificates generated under the GGAS occurs outside the scheme itself, although its Registry tracks transfers and changes of ownership. A carbon price is set by the market which trades in these certificates.

The recent announcement by the Federal government of its intention to develop a national emissions trading scheme has had the effect of reducing the price of carbon in the NSW GGAS. Holders of credits, fearing that the GGAS will fold as the national scheme comes on line, have dumped their holdings of credits on the market. Effectively the price has halved, from about $11 to $6.

This in turn has placed pressure on companies which have developed their businesses on the GGAS scheme. These companies gain accreditation with the scheme, develop abatement schemes, secure certificates and trade them through the scheme. The abrupt decline of carbon price has placed these businesses under pressure.

The NSW government has been faulted for handing out credits too freely, causing an oversupply (as in the European ETS). The NSW government in turn places some blame on the Federal government for not providing certainty on the plans for national emissions trading and the pricing that will come with it. They also argue that hedging in the form of forward contracts should have been entered into by companies largely dependent on sustained levels of carbon pricing. It is unlikely, however, that such forward contracts would have been obtainable in the current environment of uncertainty.

Overall, although the NSW GGAS must be given credit for the work it has done in establishing and running the scheme, and for the reduction of emissions it has achieved, the vulnerability of its pricing mechanisms to external factors must raise again the alternative strategy of a carbon tax. It seems more and more likely that a combination of carbon trading and carbon taxes will be necessary to secure the reduction in levels of emissions that climate change demands.

Report from The Age link here.

Wind power for corporate operations

Wind power has always been somewhat controversial, on economic, landscape and wildlife grounds. This has been particularly true in the UK, where a well-established countryside movement has resisted what they see as a decline of landscape amenity with windfarms.

As the technology has advanced, however, the economics of wind power are becoming much more persuasive. Just how much more is emphasised by a recent report that Marks & Spencer, one of Britain’s most famous retail brands, is setting up a trial of the ability of wind turbines to power two of its shops, in Glasgow and Galashiels, Scotland.

The stores will also be fitted with rainwater flushing toilets, and power efficient lighting and ventilation. Marks & Spencer project that these measures will reduce greenhouse emissions in retails stores of this configuration by 95%.

Report from The Guardian link here.

The biofuel weed

It is increasingly being realised, as discussed in previous posts, that biofuels are incentivising damaging clearing practices in developing countries. Here is a report on a plant which has been a weed, but which now shows promise of biofuel potential that doesn’t involve such damage.

Jatropha curcus, also known as Ratanjyot or Jangli erandi, is a drought-resistant perennial plant which grows in gravel, sand or salty soils. It is a small tree with smooth gray bark, which exudes a watery latex when cut. Normally, it grows between three and five meters in height, but can attain a height of up to eight or ten meters under favourable conditions. Its black seeds are poisonous to animals and humans. It has been growing round farms in Africa and Asia for generations.

Now it has been established that the seeds of Jatropha are an important source of biofuel. It fruits within two years of planting. It yields five-twelve tonnes per hectares of oil seeds and produces two -four tonnes of bio-diesel. Large plantations of Jatropha are being established in India, China, the Philippines and Malaysia, even though, as yet, the processing and sale of the product is not well advanced.

The attraction of Jatropha as a biofuel precisely its ability to grow on the poorest soils, and under very dry conditions. This makes it far less likely to occupy land that is cultivable by traditional crops, thus avoiding the ecological and social displacement that has been accompanying so much biofuel development.

At the same time, if it begins to fulfil its promise the development of Jatropha will need to be regulated, to avoid its ownership being concentrated, and to avoid a wholesale switch of traditional farmers, growing the food of the developing nations, to this cash crop. The problems that can be associated with unfettered free markets don’t stay away just because the product is contributing to global sustainability.

Report of Jatropha growing in Mali, from The New York Times link here.