The first steps to sustainability

With an influx of environmental, energy and compliance legislation coming in the next 18 months, local companies face a regulatory minefield when it comes to planning their sustainability roadmaps.

Given the basics of any 'greening' programme is 'measure in order to manage', this month The Green Mile provides a brief outline* of the local carbon emissions reporting landscape, why it matters, and what it means for South African businesses.

Following this initial overview, subsequent features will explore some of the common strategies for employing environmentally sustainable practices, what they involve and what the impacts are.

At the heart of the issue is the force that drives our economies - energy, and the associated carbon dioxide (CO2) emissions that come from generating and using it. As one of the heat-trapping greenhouse gases (GHG) produced by burning fossil fuels, CO2 has received the bulk of attention due to its powerful warming effect and increasing concentration in the atmosphere.

As a result, human-induced CO2 emissions have become a focus for government and industry, as the main driver of global temperature increases and consequent climatic changes. The International Panel on Climate Change (IPCC)'s authoritative Fourth Assessment Report paints a bleak picture for Africa. Given the low resilience of the continent's infrastructure and vulnerability of its populations, it is one of the regions likely to suffer the worst from anticipated droughts, floods, and land degradation.

As local commentators point out, this is not merely a socio-development issue, but strikes at the heart of business continuity and survival.

Jonathon Hanks, MD of local consultancy Incite Sustainability, says adaptation is set to become an increasingly significant concern. “It is now increasingly unlikely that the goal to limit the increase in global average temperatures to 2^0C (from pre-industrial levels) will be reached.

“It is anticipated that the likely emissions pathway is a 3.2^0C increase by 2100 at best, with some suggesting even an increase between four and six degrees is likely,” he adds. “This will leave South African businesses in one of the areas likely to face severe adaptation challenges, with significant risks.”

Hanks points out risks are not only over the longer term, but will increasingly be felt over the short and medium term: “Both in terms of needing to adapt to the physical impacts of climate change, as well as adapting to changing international market expectations regarding, for example, products with high carbon-intensity.“

One of the challenges for businesses is that there's no clear, overarching regulatory framework to help guide carbon emissions measurement and mitigation strategies. While several overlapping policy documents are being finalised, they all have different timelines, focus areas and requirements, which adds to companies' confusion regarding the best road forward.

PricewaterhouseCoopers' Appetite for change report released in March revealed 90% of South African businesses believe government exerts a strong influence on environmental practices through legislation and regulation. “The absence of clarity discourages investment in change and, as such, targets need to be sufficiently ambitious and backed by legally binding frameworks to be effective," the report notes.

It adds that 73% of businesses in SA agree with the global sentiment that existing environmental taxes, regulations and incentives are ineffective, inconsistent and unclear. In addition, 77% of local respondents do not believe government has a consistent long-term environmental regulation policy.

Director of climate and energy at the National Business Initiative (NBI), Valerie Geen, says business is overloaded in terms of what is happening in energy and climate-related legislation. “The current regulatory environment is overwhelming because all these changes are happening simultaneously. They're still breaking things down into steps.”

She notes that several policies regarding energy and climate change are planned to be finalised at the end of 2010 or early next year. These include policies around the Integrated Resource Plan and Integrated Energy Plan, which will shape SA's energy supply, mix and investment in renewables. In addition, regulations on carbon pricing, data collection and financing are also being debated.

On the compliance side, the King III Code on Governance, which came into effect in March this year, also places much more emphasis on sustainable strategies and climate change-related risk. The Report notes: “Sustainability is the primary moral and economic imperative of the 21st century. It is one of the most important sources of both opportunities and risks for businesses.”

In the past, sustainability was a warm and fuzzy issue; now it's core to the economy of business.

Valerie Geen

King III requires that sustainability reporting and disclosure be integrated with the company's financial reporting, and that general oversight of sustainability should be delegated by the board to the audit committee.

“The challenge for business is to prioritise,” says Geen. “They have to decide what to start with and what they need, and how to make sense of this plethora of legislation, while keeping the business afloat.”

With government still in the process of finalising many guiding documents, as well as a national policy on climate change, measuring emissions is one step companies can take in the meantime. “The advantage of measuring is that you've already started on the journey - at least if the data's there you can find the gaps to fill in,” says Geen.

According to Hanks, measuring a company's carbon footprint is the first step to managing its climate change risks and opportunities. While emissions reporting is not yet mandatory, it can provide a lot of insight in terms of where energy resources are being used, he says.

One voluntary emissions reporting vehicle is the Carbon Disclosure Project (CDR), a global institutional investor collaboration on the business implications of climate change, introduced in SA by the NBI and Incite Sustainability in 2007. Local CDP reports see the top JSE-listed companies report on their emissions and climate change strategies, with the response rate increasing from 59% in 2008 to 68% in 2009.

Water and environmental affairs minister Buyelwa Sonjica says in the report's foreword that GHG emission reporting by industries will soon be mandatory in SA and non compliance shall be met with penalties.

KPMG also points out in the report that investors are beginning to evaluate organisations on the basis of their preparedness for associated risks and opportunities related to climate change. “Every day, more and more money is flowing towards companies that are demonstrating an understanding of how climate change is impacting their business and are implementing actions to thrive in the new, carbon-constrained global economy,” the firm states.

A helpful methodology in terms of breaking down a company's respective emissions is the GHG Protocol, an international accounting tool to help understand, quantify, and manage GHG emissions. It outlines Scope 1, Scope 2 and Scope 3 emissions to give businesses a better idea of where energy is consumed, by what or whom, and how directly responsible it is for the impacts.

Teresa Legg, director at local consultancy sustainableIT, says it's key that organisations start measuring now if they want to reduce emissions, because at some stage they'll have to report on it. “Unless they actually have a baseline and are measuring against it, there's no way to manage emissions or measure how they've changed,” she adds.

Scope 1 emissions, for example, involve direct emission from company-owned or controlled equipment, vehicles or corporate jets. Scope 2 comprises indirect emissions from consuming purchased electricity while Scope 3 involves indirect emissions from other business-related activities, such as commuting travel, business air travel and paper consumption.

“While business can choose to play a wait-and-see game, in the long term they will benefit by taking action to reduce emissions and improve energy efficiency now,” says Hanks. “Smart businesses will be aware of the significant opportunities associated with the inevitable transition to a low carbon economy, and will be moving to realise these opportunities.”

Geen points to government's pledge at the Copenhagen Summit in December last year, where president Jacob Zuma committed SA to mitigation actions which will result in a deviation below the current emissions baseline of around 34% by 2020 and around 42% by 2025. “The country made a commitment to reducing emissions and the people bearing the brunt of that pledge is business,” she says.

According to Geen, the key issue is that once companies are aware of the host of legislation that's changing the corporate landscape, they must engage with it. “If they don't engage in policy changes in a proactive way and consider what the implications are for business, it threatens their very survival.

“In the past, sustainability was a warm and fuzzy issue; now, it's become core to the economy of business.”

*This is not an exhaustive overview of current climate-related regulations, but focuses on some of the policies relating specifically to carbon emissions reporting and management.