Carbon complexity

Carbon management is suffering an image crisis. Most experts agree it’s the best chance we’ve got of tackling climate change, but many of those in a position to lead don’t really understand it. Others just don’t think that it’s important.

Paul O’Connor from Pricewaterhouse Coopers believes this has led to a decline in the carbon verification side of its business. “We are now in a situation where interest has died down and the market has fallen flat,” he says. “Nobody cares. Why pay an accounting firm to verify your carbon emissions if you can sell the carbon for less than what it costs to pay the accountant?”

Accountancy fees aside, the perception exists that implementing a carbon management strategy is an unnecessary cost. If something costs money, and its benefits aren’t understood, most businesses will ignore it.

Part of the problem is that people aren’t entirely sure what carbon management is. The Carbon Trust’s definition states: “Carbon management does not focus solely on energy-related emissions or any single aspect of an organisation’s carbon dioxide emissions impact. Nor does it concentrate only on carbon dioxide. Instead, carbon management looks at every aspect of an organisation’s performance in relation to climate change mitigation.”

However, in reality carbon management means different things to different people. For many companies, carbon management is simply a matter of energy efficiency. This definition works for Nicola Steen from carbon brokers, CO2e. She says: “Our strategy is to put a pound sign in front of carbon management – it is going to affect companies’ bottom line, and that’s what we focus on.”

But for many, the issue is more complicated. Carbon mitigation can affect employment, brand equity and compliance costs. Throw the costs of capital, balance sheet impacts, direct asset values and staff retention into the mix and the concept becomes even less clear. This makes it difficult to explain to the board that carbon management is important.

Julius Brinkworth, group energy manager at food retailer Sainsbury’s, knows this problem well: “Board members know a little of what is going on and they understand investor relations and integrity issues. However, many of them don’t realise how these relate to carbon management.”

Making it material

Much of this comes down to materiality. There’s no better way to get board members reaching for the carbon management handbook than by making the issue relate directly to the company’s future remit to operate.

For aggregates company RMC, having a carbon management strategy is a key operational requirement – 90% of its carbon dioxide emissions come from its cement operations. Because carbon management is material to the company, it is taken seriously at all management levels. Noel Morrin, the company’s international environment director, has made his board understand this “by putting the fear of God into them and showing them the numbers.”

For utilities company Severn Trent, carbon management is so material that it represents a business opportunity. Reducing carbon, waste and energy for its customers is its core business – so it literally pays for the company to get its carbon strategies right.

“All the directors are switched onto carbon management,” says Gill Treanor from Severn Trent. “It underpins how we are trying to adapt to and reduce our impact on climate change, and how we are trying to adapt to UK and EU legislation. It’s all part of risk management and exploiting future business opportunities.”

But for other companies though are more pressing issues, such as pensions. As Michael Roberts from the CBI says: “The number one cost for most businesses is staff. Second is property, yet a vast majority of polluting companies do not see property as a strategic boardroom issue. If they aren’t worried about their second largest cost, they certainly won’t be concerned about carbon.”

For example, Sainsbury’s is aware of carbon management issues, but it is not an area of immediate concern despite the emissions associated with transportation of its goods. Brinkworth rates it as a “small to medium concern” compared to other issues such as food sourcing, produce quality and GM foods.

Barriers to adoption

While organisations such as the Carbon Trust battle to make business understand that carbon management is an important issue for most of them, regardless of size and sector, other companies are out there trying to get started. Their first conclusion is usually that it isn’t easy.

With a new terminology explaining a new concept and not many places to turn to for advice, managers struggle to know where to begin. This problem is compounded by the fact that many companies don’t have data on carbon-related issues.

Morrin says that RMC found it easier than some to put carbon management measures in place because it understood that emissions data had to be accurate before it could begin.

“As a company, we know what our numbers are,” says Morrin. “Carbon management consists of very complex set of issues, and if you can’t put it into a material context using accurate data it’s very difficult to get it put on the agenda and get the resources you need.”

The key word here is accuracy. Morrin gives the example of pet coke – a waste material from oil processing used as fuel to fire cement kilns. For years, the cement industry worked to an estimation of its calorific value that was out by 7.5%. As emissions were calculated according to calorific value, data on the industry’s environmental impacts was rendered meaningless.

Other companies collect data but aren’t aware of its relevance to carbon management. Treanor found that many managers had gathered the information, but didn’t know how to use the data. She explains: “When we began to address carbon management, we started talking to different parts of the business and found that they were already collecting relevant data but weren’t making the connection to our carbon management strategy.”

Sharing the burden

Sharing information and techniques is one way to promote understanding. Sainsbury’s recently visited its suppliers to find out what they were doing in terms of carbon management. The results, says Brinkworth, were surprising: “Most were doing great things. It was quite a shock to go to other companies and find them doing more than we are. You can learn as much as you teach.”

Fiona Mullens from the Royal Institute of International Affairs agrees. She has worked with large multinational companies and found their approach very useful. “Management is so focused on making their business successful that they look at all the angles,” she says. “They identify where their liabilities will come from in 10 years time and provide the resources to deal with them.”

External barriers

Even if interior barriers such as inefficient data collection systems are overcome, external factors still make it tough to tackle carbon management. Trying to compete in an increasingly global marketplace against companies working under different policy, regulatory and legislative regimes is not easy and does not create a level playing field.

For example, it is cheaper for a company to make cement in China and ship it to the UK than it is for RMC to make it in Kent. The carbon footprint of the Chinese cement is bigger, but for buyers the most important issue is cost – climate change is not top of their agenda. Everyone agrees that it would be helpful to have

international standards, but realistically this will not happen for years, if at all.

Even if such standards existed, not everyone believes they would create conditions conducive to reduced carbon emissions. Take the European Emissions Trading Scheme (EU ETS). Despite still being in the planning stages, it already has its critics. Morrin says: “Look at some of the projections – only two of the fifteen countries in the EU are anywhere close to hitting their carbon emissions target – the rest are out by miles. Do you think that’s going to change? Do you think that the businesses in those countries are going to comply? Look of the history of any other EU directive and the writing is on the wall.”

Although some would argue that this is a pessimistic view, most businesses are sceptical that all member states will play to the same rules. While such doubts exist, few companies will be willing to stick their heads above the parapet.

Responsibility of the policy makers

The people that can create confidence are the people running the show – the politicians. But despite the rhetoric, policy-makers are failing to put carbon management-friendly rules in place. An RMC cement product has a carbon dioxide footprint that is 70% smaller than standard cement, but it can only be used in the UK when the specifications allow it – and they often don’t. A change to the Building Regulations would encourage the use of this alternative, but until someone in government grasps its significance, it will remain another frustrating barrier to progress.

“What business can do is actually quite limited because policies are set according to political agendas,” Morrin says. “People on the policy and government side of the fence need to be more flexible. There are an awful lot of rules being created to serve political expediency that are not helpful and this is occurring in silence at every level.”

Business, NGOs and other interested parties need to positively engage government and help it to drive the carbon management agenda forward. It may take time, but it can have a positive effect. As Brinkworth says: “Government officials are willing to listen and I have certainly learnt a lot from them about how they work. It is very dangerous to think that once a policy is set it cannot be changed.”

With a clearer regulatory framework business and an understanding of why policy decisions are being made, businesses can make strategic carbon-related decisions and plan for the future with confidence.

Conclusions

To ensure that carbon management becomes material for all businesses, work needs to be done on many levels. Policy makers need to be informed through effective lobbying and then need to make bold decisions that enable companies and their host countries to march confidently towards the UK’s carbon management targets. This needs to be replicated internationally.

Also, businesses need to improve their data collection systems and then to feed this information to the board in a way that highlights carbon management as material to business operation.

Organisations such as the Carbon Trust have the toughest job of all. They have to explain why carbon management matters to business leaders and then convince the policy makers that they need to make decisions that will allow it to happen. As Mullens says: “The Carbon Trust needs to help companies understand what they need to do, but also to tell the government where the logjams are.”

Carbon Trust chief executive Tom Delay says: “We need to carry a huge number of people step by step on a journey of discovery. We don’t understand as fully as we ought to what carbon management means to us and what it means to business.

“We have to discover what it’s all about and find a way of reaching the people who need to know about it but for whatever reason don’t – that is our big challenge.”