Sustainability Practices Make Good Sense for Your Business
Helen Mallovy Hicks
Release date: Aug. 14, 2009
Hosts: Dean Mullett and Helen Mallovy Hicks
Guest: Wendy Potomski
Running time: 16:40 minutes
Wendy Potomski, a former vice president of PwC’s Sustainable Business Solutions and Climate Change Services practice, shares key sustainability strategies that are especially important in a down economy.
Dean: Welcome to Strategy Talks with Dean and Helen, part of the PricewaterhouseCoopers Managing in a Downturn podcast series. I'm Dean Mullett, co-head of our Restructuring and Distress Strategy Group, and a member of our Credit Crisis Task Force.
Helen: And I'm Helen Mallovy Hicks, a Partner in the Advisory Practice of PricewaterhouseCoopers in the Dispute Analysis & Valuations group.
Helen: In today’s episode of Strategy Talks we’re talking with Wendy Potomski, vice president of PwC sustainable business solutions and climate change services practice. Wendy will discuss how environmental issues no longer reside in single departments. It’s now an organization wide issue from the sea suite dam. But with these changes also come opportunities for added business value. Wendy is joining us form our telephone from out Montreal office today, welcome Wendy. How can organizations quantify the potential opportunities?
Wendy: The potential opportunity is more focused on new technologies and clean tax. The focus on climate change has really opened the door for organizations with these new technologies that can actually reduce greenhouse gas submissions. The first thing you need to do is to look and determine what your new technology or new process will do. Look at your baseline which is your business as usual, measure out what your greenhouse emissions for that process and measure what it is for that new technology. The difference between the two is the reduction.
Now many organizations will have compliance targets and you’ve heard about cap and trade systems. One of the key components of a cap and trade systems is the ability of an organizations with compliance targets is to actually buy offset credits. So this new technology that reduces your emissions is an offset, potentially, can be an offset credit. There for by measuring your baseline which is business as usual, the emissions by using your technology and creating that credit, there is some value there. One of the things that you have to make sure is that there is a process. There is a process to create that. There is a lot of science and rigger that goes into demonstrating that a reduction has happened. Once you have demonstrated that there is third party verification that you need to have to make sure that it is real. These credits are a commodity that is being traded on exchanges. So just like any security or investment, purchasers of this will want due diligence done and want to guarantee that it’s actually real.
Helen: So is this expensive to have these measures done and third party verification? And how do parties do that?
Wendy: The expense is more of an upfront cost. One of the things that need to be in place to measure and monitor these reductions and the creation of these credits is a data management system. So this information should be treated like all other financial information in an organization. You should have internal controls over that. So setting up that initial data management system and the controls around the data is some cost at the very beginning. It’s the upfront cost of doing this. On an ongoing basis the cost relative to the value of the credit is reasonably minimal. Right now the carbon credit market is still immature, the regulation is not there. There are a lot of voluntary markets and the price of these credits is probably not at the price that it could be in the future.
Dean: Wendy, if we look at some of the mature old school industries that are out there, it would seem to me that you may get some resistance from people buying into this when you start mentioning new technology, clean technology. I would suspect that some people’s eyes glaze over when you get into the dollar and cents kind of focus. Assume that I’m a big fuel consumer and maybe not an early adopter of technology. What is in it for me to do this today, apart from the softer element of sustainability and climate change? We look at Ontario and it is a high energy cost environment, does it allow me to actually compete better? What are some of the real reasons that some of our older and mature industries want to uptake on this?
Wendy: One of the real pushes to actually understand what your baseline is or understand what your climate change risks are is because you may be in a compliance situation and you don’t know it. The rules have not yet been defined; the federal government has initially set a rule of a compliance threshold of a hundred thousand tons of ____ on an intensity basis. The Ontario government and as recently as May 2009, the Quebec government has issued their intention to create a cap and trade system and regulate the carbon markets. They’re going to follow a threshold and a target, a compliance target of 25,000 tons. So that’s dramatically lower than what they large funder admitters of the federal government identified originally. So if you are an energy intensive company and you were not previously targeted as a large funder admitter for compliance, you may be now. So you need to then invest in the data management systems to calculate, monitor and measure this so you can meet those compliance targets. If you can determine where you are in the threshold and meeting that compliance target, what the risk is to your business of not meeting that; and what the cost effective means to achieve that goal in the reduction, under that threshold. Then you can make a sound and informed business decisions, instead of making reactive choices to meet a target that may not be the best use of your funds.
Dean: So a big part of this is risk management for your organization because if you can adhere to legislation when it comes in, either you’re going to be penalized of you’re going to be out of business.
Wendy: Correct and in addition to that the Ontario Security commission along with CICA have both indicated that they would like organizations to disclose their climate change risks. So if you don’t understand your climate change risks and are not able to communicate effectively that to your investors there could be some consequences from lack of investors, your share price falling and loyalty of your customers.
Dean: What do you say to your companies that say we’re bringing into legislation but it’s not a fair system because there are countries in this world that don’t really care about the environment and are continuing to pollute and we have to compete against them and yet we are being forced to live under a different standards or perhaps incur costs as penalties.
Wendy: One of the key principals behind the original Kyoto Protocol was for developing countries like the United States, Canada, UK to transfer technology to some of the more developing nations to help us move them through the development in a more cleaner more environmentally friend way. I do understand that some organization in some countries may believe that this is a competitive advantage. One of the things that we are noticing, especially in the EU right now, they just implemented a fuel tax, so every airline that lands in the EU has a carbon tax associate with it on their fuel. So if more policies and more countries or groups of countries implement regulation or policies like that, regardless of whether you are developing or developed, you will have to comply and you will have to reduce your emissions. Investing in technologies and investing in ways to reduce that minimize your emissions in the most efficient way is still a sound business decision and in the long run you will end up having to do this in some way or form.
Helen: What can organizations do now to prepare for the anticipated of the climate change legislation here?
Wendy: The key is information. I mean you need to understand what your position is, what your risks are, are you at risk? You have a carbon asset, are you creating your reduction with your technology or through your operation that you weren’t aware of? Is there other value that you can be getting? Also you need to know whether you are onside or offside with potential compliance and regulations. So understanding that and being able to have the data to make informed decisions is key. One of the things that we have noticed from organization and clients, especially in the retail space, is that retailers are looking back through their supply chain and asking for organization to disclose what their carbon content of some of their products and services are. So if you don’t have that information you could be putting yourself in a competitive disadvantage. Being prepared, acting early and having the information available to make sound business decisions is key.
Dean: One additional comment on your tax on fuel for planes landing in the EU. Do you ever envision a time down the road where if there are people or countries that are not cooperating in regards to emissions, that there may be some type of some tariffs system on imports coming into say Canada or US from developing nations that basically are disregarding any requirements on emissions?
Wendy: Over the last few years, the state of California has implemented the low carbon fuel standards. This is one of the things that the oil sands have been directly impacted by. The state of California is requiring that all fuels used and consumed in the state be of a certain level of emissions. So organizations that would like to supply to that state and to be used in that state have to comply with that target. So there are a lot of things that in spite of no national/federal regulation in Canada or the US, organizations in states are taking action and they are requiring organizations to comply with certain standards. It’s not a regulatory standard per say from a national perspective but its access to market that’s key.
Dean: So that if I understanding you correctly, is the actual burning of the fuel once it lands in the state of California. It’s probably not a big leap that to think back that if that still doesn’t get you to where you want to be, you can do an over arch and reach saying that you need a certain level of emissions at the production site of whatever product is being produced.
Wendy: There are a variety of different regulatory regimes that are being created right now. One of them is REGHI (Regional Greenhouse Gas Initiative) and it’s a consortium of utilities in the north east US that have agreed voluntarily to reduce their emissions and comply within a certain scheme. So that’s one illustration of a non regulatory, voluntary regime. But they have capped their emissions and they have agreed to reduce. The other one is the Western Climate change initiative, which California; a lot of the western states and four Canadian provinces including Ontario and Quebec are all part of. Now that is another cap and trade system where they are asking for provinces and states to reduce their overall emissions for a variety of means of mechanisms. So not only are some states going and doing a direct tax on fuel consumed they are actually participating in these other schemes and they have actually made personal commitments to the government through their own operations.
Helen: Wendy is it all doom and gloom for organizations in terms of additional costs that they’re going to incur in terms of compliance with the legislation? Or are there opportunities for organizations in a carbon constrained environments?
Wendy: Many organizations have realized a variety of direct and indirect benefits in address climate change in their businesses. There could be real cost savings by becoming more energy efficient while they’re reducing their greenhouse gas submissions. And these costs savings can in turn be invested in other projects within the organization which is especially important in today’s’ times when capital is scares in many organizations. So organizations are finding that reinvesting these savings that they have becoming more energy efficient in other projects. In addition organizations as they become more energy efficient they could change some processes and become more operational efficient. So by looking at their greenhouse gas submission and responding to climate change ricks they become more operationally efficient which could have a positive contribution to their margin. Don’t discount the reputational value that organizations receive especially today when they can effectively communicate that they’re reducing their gas house submissions and reducing their environmental impact. Everyday you see four or five commercials on the TV of green products and you’ll see all the new packaging in green and this is so entice consumers to buy their product. So organizations are getting a lot of reputational benefit from going green and paying attention to the environment. There is an increase amount of government funds and tax incentives available for organizations that want to make capital investments in becoming more energy efficient and reducing their greenhouse gas submission.
Dean: Well we’re running out of time and with the few remaining moments that we have, if there is one piece of advice that you would like leave our audience about our subject matter what would it be?
Wendy: Any organization can make change, the value of your change is the same, reducing greenhouse gas submissions in Canada or anywhere around the world is a positive benefit for all. The world is changing and the one thing for certain is that we need to make change and reducing, paying attention and understanding what your greenhouse gas submissions are is a good thing. Not only for the environment but it can be a cost effective way to reduce your energy consumption and increase your operational efficiency. It’s not just about saving the environment, saving the planet it’s also about making your business sustainable for the long term. The more information you have on your energy consumption and how that information is used within your organization, the better you can manage it and become more efficient. At the same time you’re doing well for the planet by reducing emissions.
Dean: For more information on climate change and other sustainability issues, please download our series of reports called “The Forecast” on pwc.com/ca.
Dean: This concludes this episode of Strategy Talks, part of the PricewaterhouseCoopers Managing in a Downturn podcast series. I'm Dean Mullett, thank you for listening.
Helen: And I'm Helen Mallovy Hicks. We hope you'll join us again soon for another episode. To download or to subscribe to this podcast series or to find more information on this topic, please visit pwc.com/ca/strategytalks
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