Preparing For A Price on Carbon

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

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Preparing For A Price on Carbon

  1. 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. 2. Contents About PPP Sustainability – a contemporary issue Implications for directors Directing company resources Observations 2
  3. 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 3
  4. 4. Contents About PPP Sustainability – a contemporary issue Implications for directors Directing company resources Observations 4
  5. 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. 5
  6. 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) ! 6
  7. 7. Contents About PPP Sustainability – a contemporary issue Implications for directors Directing company resources Observations 7
  8. 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) 8
  9. 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. 9
  10. 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. 10
  11. 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. 11
  12. 12. Contents About PPP Sustainability – a contemporary issue Implications for directors Directing company resources Observations 12
  13. 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 13
  14. 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 14
  15. 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 15
  16. 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 16
  17. 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 17
  18. 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 18
  19. 19. Contents About PPP Sustainability – a contemporary issue Implications for directors Directing company resources Observations 19
  20. 20. © All rights reserved. Confidential - This document and the information contained in it are confidential and should not be used or disclosed in any way without our prior consent. 20

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