In the front line

Investors and financial organisations are increasingly alert to climate change. As leading emitters of greenhouse gases, utility companies are in the front line. John Haven reports

It is a common belief that the European Union's Emissions Trading Scheme (EU ETS) will create the world's largest emissions trading regime, generating new assets and liabilities worth tens of billions of pounds, presenting new and unique challenges for utility company leaders.

Opinions surrounding the EU-ETS vary greatly. The complex uncertainties about the rules of allocation and future prices for carbon and electricity haven't helped matters.

However, over the past few months, key commentators have been certain on one thing: climate change will be a key driver of corporate value.

The quality and effectiveness of your business's carbon strategy is likely to become a key metric in investor decision making. According to PricewaterhouseCoopers' Global Utilities Leader, Manfred Wiegand: "Carbon risks are a focus of analysts and credit-rating agencies. Early strategic planning, market leadership and effective management are vital. Companies that do not rise to this challenge place their shareholder value and potentially their independence at risk.

"Companies should already be a long way down the road of running scenario analyses and implementing the necessary internal reforms. These need to span the full range of activities within the organisation

"Yet our research shows that only a minority of European utility companies have a
strategy for climate change in place and fully operational, and many utilities have no climate-change strategy at all."

Utility companies need to demonstrate they have clear plans in place to exploit the shareholder value opportunities of emissions trading, as well as showing that they are able to manage the compliance aspects.

The pace of regulatory action to curb emissions is intensifying around the world. Utility companies need to prepare quickly for the introduction of cap and trade schemes in the EU, Japan and Canada. In the US and Australia, other emission limitation schemes are impacting on the energy market.

Many utility companies have failed to take the key steps to equip themselves for the new environment. According to the Global Utilities Insight report, fewer than one in five European companies have a strategy for climate change and emissions trading. More worryingly, one in five said they had no climate change strategy at all.
Failure to implement and communicate an effective strategy on emissions trading and wider climate change issues could jeopardise utility company shareholder value. Utility leaders are in no doubt of the value connection.

About 54% of European survey respondents believe emissions trading will enhance shareholder value in the long-term and 49% foresee a beneficial effect on long-term profitability. In both instances, this is more than twice the proportion of companies expecting a detrimental long-term impact.

Utility companies should be leading players in emissions trading markets but the race is on for them to demonstrate that they have the right strategies to deliver results.

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