The importance of measuring and reporting on the carbon performance of businesses
While combusting carbon based fuels has been responsible for fueling our past growth, the growth over the next century may well be hinging on carbon abatement. As we transition to low carbon economies globally, the corporate sector has a critical role in this change. Over the last two decades, building on a broader emphasis on corporate social responsibility (CSR), corporate reporting on climate change and greenhouse gases (GHG) has increased. At least 40 countries currently have mandatory emissions reporting programs in place. In addition, more than half of S&P Global 100 companies (55 percent) mentioned climate change in their CSR reports and about 40 percent mentioned it in their financial filings.
Regulatory trends in Canada
In 2004, the Canadian federal government introduced the Greenhouse Gas Emissions Reporting Program (GHGRP). So far, the GHGRP has applied to the largest GHG emitting operations in Canada. All facilities that emit the equivalent of 50,000 tonnes (50 kilotonnes) or more of GHGs in carbon dioxide equivalent units (CO2 eq) per year are required to submit a report.
However, the mandatory requirements vary from province to province. In Ontario for example, facilities that emit more than 25,000 tonnes of greenhouse gases must report and verify their emissions data annually under the Greenhouse Gas Emissions Regulation. The Ministry of Environment and Climate Change is also encouraging voluntary reporting for smaller emitters above 10,000 tonnes of greenhouse gases, so that they are prepared to adapt to emerging North America-wide requirements with which Ontario will likely align.
The thresholds for mandatory reporting requirements are expected to fall in the coming years given aggressive provincial Climate Action Plans to reduce GHG emissions across the country. Ontario and Quebec for example have joined the Western Climate Initiative, a cap-and-trade program that sets a clear limit on greenhouse gas emissions and minimizes the costs of achieving this target. By creating a market, and a price, for emission reductions, cap and trade offers an environmentally effective and economically efficient response to climate change.
Whether for voluntary or regulatory purposes, companies are under increasing pressure from regulators, consumers, corporate buyers, investors and other stakeholders to measure, report and reduce greenhouse gas emissions.
Other mandatory and voluntary initiatives
There is increasing interest from mainstream investors to evaluate long-term investment opportunities in order to mitigate financial risks from a carbon and sustainability perspective. Currently 20 stock exchanges globally have developed their own guidance on Environment Social Governance (ESG) reporting including NASDAQ and Toronto Stock Exchange (TSX). There are also several jurisdictions such as Hong Kong, France and the United Kingdom that mandate carbon emissions reporting for listed companies.
In addition, leading companies are joining voluntary initiatives to develop internal carbon standards. Some of the top voluntary carbon reporting initiatives include the Carbon Disclosure Project (CDP), Global Reporting Initiative (GRI) and the Science Based Target Initiative.
The business case for carbon reporting and management
Business leaders know that climate change impacts are here and on the rise. They also know there are significant economic opportunities in the transition to a low-carbon economy. Some companies like Puma and Microsoft have adopted a shadow carbon price which is a level higher than the current government carbon pricing levels (which according to experts is $10-$15 per metric ton) to prepare for a transition to a low-carbon world. This is particularly true for companies in the oil and gas, and metals and mining sectors (e.g. Shell, BHP) which use shadow price ranges that are compatible with the levels recommended for governments by the High-Level Commission on Carbon Pricing ($40-$80 per metric ton by 2020 and $50-$100 per metric ton by 2030). According to 2016 disclosures to the CDP, more than 1,200 companies worldwide (including 47 Canadian companies) are either pursuing internal carbon pricing or preparing to do so in the following two years—up 23 percent from 2015.
Hence, carbon management is essential to prepare for future climate change regulations and carbon pricing, reduce greenhouse gas emissions, realize cost savings from cheaper clean energy fuels and energy efficiency measures, gain a competitive edge, and showcase corporate responsibility.
As per international commitments like the Paris Climate Accord, economies globally will be transitioning to a low carbon economy over the next few decades. Therefore, it is imperative for companies to assess their carbon emissions and factor these risks and opportunities into their corporate decision making.