How Australian businesses are preparing for a price being placed onto carbon

1. SMART partners forum 2009.
Preparing for a carbon price
Damien Herd
0410 585 487
www.peopleplanetprofit.com.au 1
dherd@peopleplanetprofit.com.au

2. Contents
About PPP
Sustainability – a contemporary issue
Implications for directors
Directing company resources
Observations
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3. About PPP
• We’re a niche advisory firm helping clients transition into a carbon constrained
world.
• We’re industry practitioners, with experience in areas including:
– Commodity trading and risk management
– Governance and compliance
– Information systems management
– Stakeholder management
– Sustainability and climate change
• Our clients include:
– Policy makers
– Large emitters
– Large energy users
– Listed companies
– Renewable energy companies
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4. Contents
About PPP
Sustainability – a contemporary issue
Implications for directors
Directing company resources
Observations
4

5. Sustainability – a contemporary issue
• Sustainability:
– Recognition of the need to ensure enduring value for shareholders and an
important part of corporate citizenship.
– Development that meets the needs of the present without compromising the
ability of future generations to meet their own needs.
– Concept based upon the belief that human activity should not be undertaken
if it entails doing irreparable harm to our social and environmental
infrastructure.
– Sometimes confused with the concept of environmentalism.
– Concept of sustainability is already somewhat inherent within the concept of
a business. The purpose of a business is to generate sufficient revenue to
fund their activities and meet the reasonable needs of their owners over time.
Regardless of other goal or ideals, staying in business and prospering is a
fundamental value of any ‘for-profit’ enterprise and most ‘not-for-profit’
enterprises too.
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6. Sustainability – a contemporary issue
• Zero harm
Workplace health • Prevention
and safety • Rehabilitation
• Land remediation
Environment • Water quality
• Air quality
• Corporations law
Financial markets • Superannuation law
• Taxation law
• ASX Corporate Governance Council
Corporate • AICD Code of Conduct
Governance • AFMA Code of Conduct
• National Greenhouse and Energy Reporting Act (NGERs)
Greenhouse gas
emissions
•
•
•
Carbon Pollution Reduction Scheme (CPRS)
Energy Efficiency Opportunities Act (EEO)
20% National Renewable Energy Target (RET)
!
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7. Contents
About PPP
Sustainability – a contemporary issue
Implications for directors
Directing company resources
Observations
7

8. Implications for directors
• The new greenhouse gas emission obligations don’t lay specific additional
responsibilities on directors.
• Rather, director’s existing obligations or duties require them to diligently
manage the transition of their business into the new world.
• Duties include:
– To act loyally and in good faith
– To act with care and diligence, and for a proper purpose
– To prevent insolvent trading
– Of continuous disclosure
– Disclosure of related party transactions
– Disclosure of director’s interests
• Most relevant for the purposes of today are the director duties:
– To prevent insolvent trading
– Of continuous disclosure
– To develop a good understanding of the company they direct
(indirect)
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9. Prevention of insolvent trading
• Not to be confused with ‘going concern’ assumption in annual financial
statements.
• A director may be personally liable for insolvent trading if new
debts/obligations are incurred when there were not reasonable grounds to
believe that the entity would be able to pay the debts as they become due.
• The insolvency obligation arises at any point in time, not just when the annual
financial statements are prepared.
• Solvency is defined by the Corporations Act 2001 as being able to pay all of
one’s debts, as and when they become due and payable.
• The introduction of a carbon price will require director’s of impacted businesses
to check the solvency or otherwise of their business.
• An example.
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10. Continuous disclosure
• A company listed on the ASX has an obligation of continuous disclosure of
information which may have an effect on its market price.
• Directors can be personally liable for a company’s failure to observe the
continuous disclosure requirements.
• Directors also have a duty to provide information to shareholders about the
company’s activities and its financial position.
• The introduction of a carbon price will require director’s of impacted businesses
to maintain a high degree of disclosure of relevant information to shareholders
and other stakeholders.
• An example.
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11. Good understanding of their business
• Inherent to successfully managing any / all of the director’s duties is the
development of a good understanding of the business conducted by the
company they direct.
• Directors typically meet 12 times each year and are required to make very
significant decisions that will impact the financial performance of their
company.
• Director’s of impacted businesses will need to develop a good understanding of
the implications a carbon price may have for their company.
• This requires the existence of a very good understanding of the company, and
then the rapid development of a very good understanding of NGERs, CPRS,
RET, and what they mean to the business.
• An example.
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12. Contents
About PPP
Sustainability – a contemporary issue
Implications for directors
Directing company resources
Observations
12

13. Tricker’s framework
Compliance roles Performance roles
Boards external role To provide accountability Strategy formulation
Boards internal role Monitoring and supervising Policy making
Past and present orientated Future orientated
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14. Real world examples
Compliance roles Performance roles
To provide accountability: Strategy formulation:
- Understand the environment - Strategic direction
- Going concern - Establish risk appetite
Boards external role - Solvency - Establish risk culture
- Disclosure - Establish risk profile
- Progress reports to - Resourcing for strategy
shareholders, management and
employees.
Monitoring and supervising: Policy making:
- Understanding the business - Develop the risk governance
- Allocation of resources structure
Boards internal role - Monitor risk governance - Develop policies
structure - Develop procedures
- Monitoring compliance
- Conducting planned periodic
internal audit reviews
Past and present orientated Future orientated
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15. The focus to date
Compliance roles Performance roles
To provide accountability: Strategy formulation:
- Understand the environment - Strategic direction
- Going concern - Establish risk appetite
Boards external role - Solvency - Establish risk culture
- Disclosure - Establish risk profile
- Progress reports to - Resourcing for strategy
shareholders, management and
employees.
Monitoring and supervising: Policy making:
- Understanding the business - Develop the risk governance
- Allocation of resources structure
Boards internal role - Monitor risk governance - Develop policies
structure - Develop procedures
- Monitoring compliance
- Conducting planned periodic
internal audit reviews
Past and present orientated Future orientated
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16. The focus will shift
Compliance roles Performance roles
To provide accountability: Strategy formulation:
- Understand the environment - Strategic direction
- Going concern - Establish risk appetite
Boards external role - Solvency - Establish risk culture
- Disclosure - Establish risk profile
- Progress reports to - Resourcing for strategy
shareholders, management and
employees.
Monitoring and supervising: Policy making:
- Understanding the business - Develop the risk governance
- Allocation of resources structure
Boards internal role - Monitor risk governance - Develop policies
structure - Develop procedures
- Monitoring compliance
- Conducting planned periodic
internal audit reviews
Past and present orientated Future orientated
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17. Examples
Compliance roles Performance roles
To provide accountability: Strategy formulation:
- Understand the environment - Strategic direction
- Going concern - Establish risk appetite
Boards external role - Solvency - Establish risk culture
- Disclosure - Establish risk profile
- Progress reports to - Resourcing for strategy
shareholders, management and
employees.
Monitoring and supervising: Policy making:
- Understanding the business - Develop the risk governance
- Allocation of resources structure
Boards internal role - Monitor risk governance - Develop policies
structure - Develop procedures
- Monitoring compliance
- Conducting planned periodic
internal audit reviews
Past and present orientated Future orientated
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18. Examples
Understanding the business – bringing carbon into all existing corporate
models
Monitoring and compliance – achieving inaugural NGERs compliance
Develop the risk governance controls – carbon trading and risk
management policy development
Strategic development – revisiting what is core vs non-core
Establishing the risk profile – revisiting the risk profile
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19. Contents
About PPP
Sustainability – a contemporary issue
Implications for directors
Directing company resources
Observations
19

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Confidential - This document and the information contained in it are confidential and should not be used
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