Climate change: a risky business

The South African government is widely expected to commit to a carbon emission reduction roadmap at a global meeting of nations in Copenhagen in December. This will mean the establishment of legislation that will impact the corporate community and affect all spheres of the economy. The only uncertainty that still remains is in which shape or form it will come.

Graham Terry, head of the Office of the Executive President at the South African Institute of Chartered Accountants (SAICA) and author of the recently published book Green - why corporate leaders need to embrace sustainability to ensure future profitability (TerraNova) - agrees. “If ever there was a time for both chartered accountants and the business community to investigate the risks and opportunities that carbon reduction holds, now is that time.”

He said sustainability reporting is just one of the tools for business to monitor and evaluate their sustainability risks, and also to highlight the opportunities. “The reporting process in many companies is unfortunately largely a reputation-enhancement exercise, known as 'greenwash', and is often not integrated as a core part of the company's performance monitoring.”

Not all doom and gloom

According to Donald Gibson, director of the Transnet Programme in Sustainable Development at University of Pretoria's Gordon Institute of Business Science, it is not all doom and gloom. Gibson believes that sustainability awareness among South African business, although it is not where it should be yet, is on the increase.

“It's difficult to tar all companies with the same brush - there are certainly pockets of excellence and areas where sustainability is not on the agenda. While our companies have a long way to go, the awareness by the business sector of sustainability issues like climate change is increasing rapidly,” said Gibson.

SA taking climate change seriously

He said the South African government appears to be taking climate change seriously, and the dialogue around planning for a carbon-constrained economy, including business, is ever increasing. “The problem for business is that it is unclear as to what South Africa's exact commitments will be after Copenhagen. Many companies are, therefore, lying low and observing what transpires. There are definitely legitimate risks to South African business - financial, regulatory, physical risks and risk to their reputations.

“It appears as if South Africa is not going to be able to avoid mandatory emission reduction targets in the short to medium term, say after 2020, and those businesses that want to be competitive and indeed to be in business then, will need to start adapting their business models for the carbon-constrained world sooner rather than later, or else they will be outperformed by the competition.”

National competitiveness

Gibson said the Copenhagen negotiations are largely about national competitiveness in an increasingly “flat” world, and if South Africa wants to sell products and services globally, being carbon neutral or positive along the full value chain will increasingly become a prerequisite. “Some South African companies are already struggling to expand globally due to their large carbon footprints.”

Both Gibson's and Terry's points of view clearly illustrate the importance of understanding and implementing sustainability reporting, not only as a risk-reducing business tool, but also as a way of gaining competitive advantage.

“Reporting should be integral to the annual reporting of companies - not an exercise relegated to the communications or marketing department of an organisation,” said Gibson.

He said reports should meaningfully balance the areas of poor performance with good ones, risks with opportunities, and should include a meaningful stakeholder engagement process. “This will help companies understand their risks and opportunities better.”

Risks must be acknowledged

“We should not, however, stare ourselves blind against the concept of ‘risk'. Risk creates a mental fear and, therefore, we perceive issues like climate change negatively. The risks must be acknowledged - we do need to mitigate our impact, and we have a tough challenge ahead to adapt to the changes, but we should also be focussing on the positive opportunities for competitive advantage through cost reduction, innovation and development of new products and services, efficiency, waste and pollution minimisation, reputation enhancement and many others.”

“Chartered Accountants, who have a unique ability to identify and present relevant, accurate financial information to stakeholders, are ideally positioned to utilise these skills in presenting non-financial information,” added Terry.

CAs favourably positioned

He said CAs (SA) are also in a favourable position to lead talks within businesses as to mitigation and adaptation strategies - a useful contribution when considering the uncertainty of what the future holds.

A key resource in learning more about carbon trading, sustainability reporting, assurance and a host of other sustainability issues is SAICA's recently launched book, Green. Complemented by the recently launched dedicated sustainability website, www.sustainabilitysa.co.za, business leaders can stay up to date with the latest relevant sustainability news and initiatives. Green can be ordered through the online shopping section of the SAICA website: www.saica.co.za.