JUST GOOD BUSINESS : The GHG dilemma


It appears greenhouse gas reporting by large emitters in New Zealand is imminent. Whether such reporting will be required by regulatory change or demanded by shareholders and the public, businesses that emit substantial amounts of greenhouse gas are going to have to disclose their emissions eventually – whether they like it or not.
The critical question is – should businesses begin to report now, or wait until the Government or the public forces their hand?
In early September, the Australian Senate passed the National Greenhouse and Energy Reporting Amendment Act 2009. The Act amended already existing legislation which implemented single national framework for the reporting by large emitters of information regarding their greenhouse gas (GHG) emissions. In addition, it tightened up the rules relating to those emissions and potentially imposes the obligations on smaller emitters.
The National Greenhouse and Energy Reporting Act 2007 (NGERA) came into force two years ago. The purpose of the NGERA is to pull together national framework for GHG reporting in order to avoid ‘patchwork’ or duplication of state and territory-run reporting regimes.
Under the NGERA, corporations and other major emitters are required to report on four areas of their business: levels of GHG emissions, energy production, energy consumption, and any other information specified under the legislation (for example, projects which remove greenhouse gases from the atmosphere). Emitters had until 31 August this year to register under the scheme, while the first annual greenhouse and energy reports are due by the end of this month.
In order to achieve the objectives under the NGERA, the Australian Federal, state and territory governments have agreed to the ‘National Greenhouse and Energy Reporting Streamlining Protocol’. This ensures standard national approach to GHG and energy reporting takes place and removes the red tape on businesses created by multiple and varying programme reporting requirements.
The Protocol requires businesses to report on things such as energy consumption and production, GHG emissions (and projections), intensity indicators, action plans and energy savings. The Protocol, along with the NGERA and the online reporting system, make up the Australian ‘National Greenhouse and Energy Reporting System’.
The Amendment Act passed in September this year requires any company emitting more than 25,000 tonnes of GHG per year to report to the government. It also allows government officials to physically gather from businesses information about their GHG emissions and energy use for selected purposes.
There is currently no corresponding mandatory reporting regime in New Zealand. Rather, the decision on whether or not to report on greenhouse gas emissions and energy use is left up to businesses. However, this does not mean New Zealand firms should relax; obligations to report are very likely to be imposed on such firms in the very near future. This could be by:
• the New Zealand Emissions Trading Scheme (NZ ETS);
• other forms of direct regulatory action similar to the Australian NGERA System;
• expectations of shareholders; and
• well-established principles of corporate responsibility.
The Climate Change Response Act 2002 provides for the imposition of the NZ ETS across all sectors of the New Zealand economy. Although the scheme was put on hold pending select committee review under the National Government, the NZ ETS is now expected to be fully operational by December 2009. The NZ ETS will impose obligations on certain firms (‘participants’), including obligations to measure their greenhouse gas emissions and match them through the purchase of New Zealand Units (NZUs). In this way, participants of the NZ ETS will be required to report to the Government on their greenhouse gas emissions in order to account for them and offset them by purchasing NZUs.
The NZ ETS will only capture small number of New Zealand firms as the intention of the scheme is to capture greenhouse gas emissions at points that are as ‘up-stream’ as possible (and allowing the costs to flow through the economy at large). This means that some firms which emit GHG but are not considered ‘participants’ under the NZ ETS will not be required to report their emission levels to the Government.
However, the Government has always shown preference for aligning economic policies with Australia whenever possible (for example, under the Closer Economic Relations Treaty). Therefore, it’s possible the New Zealand Government will follow Australia’s lead and implant mandatory framework similar to the NGERA system in the New Zealand economy. If this is the case, firms that currently sit outside the NZ ETS may one day find themselves with significant GHG reporting obligations.
Even without any regulatory action from the Government, many firms either already face reporting obligations from shareholders and other individuals with interests in the business, or are very likely to in the near future. From pure risk management position, many directors and shareholders already expect executive management teams to be disclosing information around the firm’s GHG emissions. Failing to disclose and manage something that could have such serious commercial implications on the business could even be considered to be breach of director or executive management’s duties.
Therefore, if firms are not doing so already, it is more than likely that reporting (whether to the board and shareholders or to the public at large) on GHG emissions will become the rule, rather than the exception.
Failing pressure from shareholders
and other stakeholders, the public is increasingly starting to expect large companies to disclose their emissions and electricity consumption. Further, the public expects such companies to provide evidence of projects and activities that are taking place to lower emissions and electricity use. Therefore, robust reporting on GHG emissions will almost certainly become an established component of corporate responsibility.
Again, many large New Zealand companies are already active in this space (for example the Warehouse Group) and are gaining the benefits of being considered ‘good corporate citizen’ as well as any associated market advantages.
The only option available for Australian and New Zealand firms, whether or not they are captured by mandatory national reporting schemes, is, if they are not already doing so, to begin robust and transparent reporting regime sooner rather than later. The need to begin action on reporting on and reducing emissions was summed up perfectly by Kath Lahey, chief executive of the Business Council of Australia.
In October 2008 she said “businesses cannot afford to sit back and wait for trading to formally start before planning to tackle the implications for their strategies and operations of what is fundamental long term transition from high-emission to low-emission world economy”.

Bryan Gundersen is partner at Kensington Swan and head of the firm’s Climate Change workgroup. Phillipa MacDonald, solicitor, also assisted with this article.

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