Green energy and jobs... oh and the EU...

Reading on The Telegraph yesterday I found out that "EU green energy laws 'put 1.5m UK manufacturing jobs at risk'". Now, this is mainly The Telegraph repeating a report of the Business for Britain (BfB) Eurosceptic group.

The storyline that the authors put together is that the EU is the source of green energy laws and these laws increase energy costs which eventually threaten the profitability of energy intensive industries which may leave the country as a result and leave behind them unemployed people...

Is this exaggerated maybe?

I should first of all clarify that:

1. Yes, there are energy intensive industries in the UK (and the rest of Europe) and yes, they would love to have low energy prices. In fact, I would also love them to have low energy prices, at least at levels that they would prefer to stay in the UK than leave.

2. Yes, that's an important debate especially when you realise that it's not just the low Chinese energy costs we're competing against but the very low energy costs available in the US (there's a link to shale gas on that matter but I will come to this at a later post). So it's not any more a decision between establishing factories in developed or developing countries but a direct comparison between developed economies.

and then add a few thoughts and observations to the debate:

a. The main Green Energy Laws that the article cites are really one, the Emissions Trade Scheme (EU-ETS). The Renewable Obligation (RO), also mentioned in the article, is not quite an EU law at all.

b. Increased use of renewable energy, which is the aim of RO, is aligned with the current EU policies. Specifically, those looking to achieve an average of 20% share for renewable energy across the EU by 2020. However, a new binding target for renewable energy for 2030 is far from certain.

c. Coming back to what is actually EU law, the EU-ETS has so far recorded rock-bottom carbon prices. Did it really threaten any of the large manufacturers? Not the least, since they've all budgeted for significantly higher prices which were never realised. Whether EU-ETS will survive post-2020 remains an open question.

d. The UK, and not the EU, has the Climate Change Act 2008 which requires the country to reduce its carbon emissions by 80% between 1990 and 2050. This is achievable with a combination of measures relating to improved energy efficiency, increased use of renewable energy sources and nuclear energy. That's the most demanding, long-term climate change target that exists out there and makes the UK world leader in the Climate Change agenda.

So, at this stage let's get one thing right. It's not the EU green energy laws but the UK laws that drive renewable energy investment in the UK. Green energy laws is not a good enough reason to be Eurosceptic I think!

Next post will be about the green levies and their "huge" impact on our bills which was not. Probably linking it with how the Coalition Government handled this issue...

Carbon reporting became mandatory!

The UK Government has regulated for carbon (ore more precisely - carbon dioxide - CO2, methane -CH4, nitrous oxide - N2O), hydrofluorocarbons - HFCs, perfluorocarbons -PFCs and sulphur hexafluoride - SF6) reporting to become mandatory since the beginning of October 2013. The legislation was introduced as part of the Companies Act 2006 (Strategic and Directors Report) Regulations and requires companies to include in their Directors' report carbon disclosures for the financial years ending on or after 30 September 2013. The legislation affects all UK quoted companies which essentially includes all UK incorporated companies whose equity share capital is listed on the Main Market of the London Stock Exchange UK or in an EEA State, or admitted to trading on the New York Stock Exchange or Nasdaq. 

Relevant guidance has been published under the broader "Environmental Reporting Guidelines: Including mandatory greenhouse gas emissions reporting guidance" scheme. The current guidance allows a lot of freedom with regards to the format and layout that the reporting should take place. Therefore companies that are already using the Greenhouse Gas Protocol Corporate Standard  or even ISO 14064-1 will not be surprised by the requirements. However, it is expected that the reporting framework will be reviewed by 2015 and 2016 with the intent to enhance its scope. 

This development can be criticised widely; lack of mandatory and comparable reporting framework; lack of commitment or even strategic reference to reducing emissions rather than just merely reporting them and the list can go on.  But the fact is that this initiative puts the UK in the lead of climate change action in the world since this is the first and only scheme currently operational in the world. The consequences of this regulation will not be limited in the UK. Quite clearly the scheme involves companies with a strong presence in international stock exchanges and their reporting in one region (UK or even the EU or EEA) will not leave unaffected their activities in the rest of the world. 

Some may even argue that the majority of companies affected were already reporting their greenhouse gas emissions. But, Delloit's "UK Carbon Reporting Survey - Lip service or leadership?" shows that this is only partially true. Indeed a very large number of companies choose to report on their emissions but  only a fraction of them does so in a transparent, accurate and complete way. Very rarely companies provide details about their emissions calculation methodologies or have their reporting verified by external auditors.

Nothing can be improved if it's not measured. The Government has made a first step in the right direction and it looks like more developments will follow. 

Is your company a challenger or a leader?

With so many companies already stepping up efforts to adopt sustainable practices it is not a surprise that some are doing better than others. But, how is sustainable practice adoption really measured? How do we actually know how well (or how bad) their performance is? Up to a large extend sustainability corporate performance is all about reputation. Even those tangible benefits that companies expect to achieve by engaging in sustainable practice are in fact just a matter of managing their reputation. This doesn't necessarily mean that companies only talk the talk but rather that they talk the talk at least as much as they walk it.

Brandologic teamed with CRD analytics to map the sustainability performance and the stakeholder perception of 100 prominent world companies. The evaluation classifies companies in one of four categories Challengers, Leaders, Laggards and Promoters in what they call Sustainability IQ Matrix. 
Leaders are those companies that perform well in ESG (Environmental, Social and Governance) and are perceived to do so by their stakeholders. Challengers are companies that even though they perform well, they do not manage to get enough credit for their performance. In contrast, Promoters are those companies that get more stakeholder credit than what they deserve and finally Laggards are companies that do not take a keen interest in ESG.

Apart from the difficult to read graph pasted above, there are industry specific graphs that do well in providing you with a clearer picture. Not surprisingly, I've taken a keen interest on the one focusing on the energy (oil and gas) sector. There I've noticed that Exxonmobil, Shell, BP and Chevron are actually doing bad in managing their reputation even though they're not that bad in their sustainability practice. Obviously,
Deepwater Horizon accident must have something to do with refreshing the oil and gas sector's bad name (and unfortunately it's not the only one...).

There's also a category for industrial companies and transportation in a rather inconvenient joint presentation. I'd rather focus on the airlines here and let you know that they all perform badly. However, some manage to convince their stakeholders and their credentials. American Airlines and Lufthansa seem to get more credit than they deserve even though they do not perform significantly better than British Airways and even Japan Airlines (which actually performs the worst of all). As far as transport is concerned you'd probably prefer to use UPS than FedEx based on their ESG performance. Mind that even though UPS performs a lot better than FedEx they receive less credit. Something for the UPS management to pick up urgently!

In the detailed methodology section of the sustainability leadership report  I've noticed that Environmental, Social and Governance performance are not weighted equally. Instead, the main weight (50%) is on social responsibility with the rest (50%) shared between Environmental and Governance. Makes me wonder how the results would look like with equal weights or even more if Environmental was on the 50% scale.   

Sustainability reporting becomes mainstream

Just before the end of 2012 news about "Environmental reporting more than doubles" made headlines. There has only been little (if any) discussion about this issue which deserves more attention. To begin with, the data on which the news is based reflects on much wider sustainability and responsibility trends, rather than just "environmental reporting"; the latter is part of the agenda for responsible business.

The findings are attributed to research made by the Governance & Accountability Institute, (G&A Institute) which also serves as the data partner for the Global Reporting Initiative (GRI) in the US,UK and Ireland.

In detail, only 19% of the S&P 500 companies reported in in 2011 while in 2012 the reporting companies were 53%. Similarly, in 2011, only 20% of the Fortune 500 companies produced reports in contrast to 57% for 2012. It is therefore fairly obvious that sustainability reporting is being adopted by large corporations rather rapidly. It also becomes clear that for the first time companies that report are the majority.

So, does reporting provide reputational benefits for companies? 

G&A Institute's results show that although there is a positive association, the answer is not that simple. 58% of the companies included in the Newsweek's Green rankings are reporting; however, another 42% are not. The Corporate Responsibility magazine's list of the 100 best Corporate Citizens includes 47 companies that are not reporting. It's only the Ethisphere's list of the World's most Ethical Companies where 76% of those included are reporting. 

Apart from the direct reputational benefits for companies, they can be included in indices with a focus on sustainability and responsible citizenship. Most exchanges operate a number of such indices; the World Federation of Exchanges (WFE) reports that there are at least 75 such indices in the main exchanges internationally. So, are the reporting companies more likely to be included in the high profile indices for sustainable and responsible business? 

On this issue reporting seems to be a strong determinant. Out of the companies listed in Dow Jones Sustainability Index (DJSI) North America, 85% produce reports the vast majority of which (91%) are based on the GRI standard. The DJSI World is dominated by companies that report by 98%. Finally, the results are pretty similar with the NASDAQ OMX CRD Global Sustainability 100 where 97% report their sustainability performance.  

The benefits from reporting are generally intangible, since they do not translate directly into profits. However, it is important to see that the effort that companies put in developing that aspect of their communications is acknowledged. Any vagueness should be not be attributed to the market not picking up the signals but to the lack of a single definition or methodology for responsible and sustainable business reporting.

Companies may choose to  discuss their environmental and social impact in qualitative terms or disclosure quantified details about their resource management and emissions. Standards like the ones provided by GRI or the Carbon Disclosure Project (CDP) allow corporates and organisations to produce in depth reports. Selecting between a rough qualitative or a detailed quantitative approach defines the degree of commitment and the expected public acknowledgement that companies should expect.