New Frontiers in Carbon Accounting - Prof. Jan Bbbington (25.09.12)

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Presentation by Professor Jan Bebbington's (Director, St Andrews Sustainability Institute) at the New Frontiers in Carbon Accounting event held at the Business School in September 2012 in association …

Presentation by Professor Jan Bebbington's (Director, St Andrews Sustainability Institute) at the New Frontiers in Carbon Accounting event held at the Business School in September 2012 in association with the Edinburgh Centre for Carbon and Innovation.

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  • 1. Accounting and Carbon Issues: a case study Jan Bebbington (in partnership with Lorna Stevenson and Alison Fox)
  • 2. The thinking• In the long term, policy will limit reduce ghg emissions (noting uncertainty)• Cross compliance issues arise – thinking of impact of change in one part of the governance system on other systems• Is there a mismatch between how much greenhouse gases that can (safely) be emitted & value assigned to fossil fuel companies?• AND if so, what should be done about it from an accounting standard setting perspective in terms of disclosure of reserves?
  • 3. Carbon Tracker thesis (2011)1. Due to global climate change governance initiatives, fossil fuel reserves currently identified by fossil fuel companies will not all be able to be combusted, and2. that current reporting of fossil fuel reserves in annual reports does not reflect this fact, which gives rise to3. stock market valuations of these firms not being accurate (either currently and/or at some time in the future)4. which also exposes stock markets themselves to climate change related risks that they are not currently aware of.
  • 4. Research Methods• Expert interviews with financial market participants & literature review across disciplines• Survey across 7 countries, plus international: • Australia Canada • China Russia • South Africa UK • USA – of accounting standards & listing requirements – of oil, gas & coal company reserves disclosures
  • 5. Interview Findings• “existing & easily available data • If there were a constraint: on magnitude of geologically, – markets are not ready to environmentally, economically, think about it anyway socially & legally accessible coal – Markets “will wake up late” reserves are of insufficient quality – “physical factors completely to guide [policy & investment outside of analysts’ frames of choices on energy security, the reference” environment & resource • Need trusted country level allocation]” Grubert climate change risk exposure data (banker) • Strategic impact of climate• Uncertain timing change agenda might result in• Unpredictable effect disclosure eventually (investor) – none now due to perceived investor indifference
  • 6. Asset definition• Assets = something of value, acquired due to a past transaction• Asset valuation = probable that benefits will eventuate + cost/value of the asset can be measured reliably• RESERVES ARE NOT ASSETS (from an accounting perspective) … but are value relevant
  • 7. Findings – 1a: International reporting requirements for mineralsIASB IFRS 6 Exploration for and Evaluation of Mineral Resources (2004) IASB Discussion Paper Extractive Activities (2010)International Combined Reserves International Reporting Standards Committee (CRIRSCO) – international reporting template (2006)Australia Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (JORC, 2004)Canada Canadian Institute of Mining: Definition Standards on Mineral Resources and Mineral Reserves (CIM, 2005)China No standardRussia The (Russian) National Association for Mineral Resources (NAEN, 2011)South Africa The South African Code for the Reporting of Exploration Results, Mineral Resources and Mineral Reserves (SAMREC, 2007)UK Pan-European Code for Reporting of Exploration Results, Mineral Resources and Reserves (PERC, 2008)USA The Society for Mining, Metallurgy and Exploration: A Guide for Reporting Exploration Information, Mineral Resources and Mineral Reserves (SME, 2007) Accounting Standards CodificationTM Topic 930 Extractive Activities – Mining
  • 8. Findings – 1b: International reporting requirements for oil & gasIASB IFRS 6 Exploration for and Evaluation of Mineral Resources (2004) IASB Discussion Paper Extractive Activities (2010)International Society of Petroleum Engineers: Petroleum Resource Management System (SPE- PRMS, 2007)Australia AASB 6: Exploration for and Evaluation of Mineral Resources (2009) [this standard relates to both minerals and oil and gas]Canada Accounting Guideline AcG-16, Oil and Gas Accounting — Full CostChina Standard 27Russia US GAAPSouth Africa Society of Petroleum Engineers: Petroleum Resource Management System (SPE- PRMS, 2007)UK Statement of Recommended Practice: Accounting for Oil and Gas Exploration, Development, Production and Decommissioning Activities (SORP, 2001).USA Accounting Standards CodificationTM Topic 932 Extractive Activities – Oil and Gas Reserve Estimation and Disclosures (2010).
  • 9. Standards Survey Findings 2• Common themes in reporting standards: – Competency & responsibility of individual tasked with preparing reserves report – Definitions of reporting terminology to be used – Resources: inferred, indicated, measured – Reserves: probable & proved – Assessment to include “mining, metallurgical, economic, marketing, legal, environmental, social and governmental factors” PERC, 2008
  • 10. Standards Survey Findings 3• Guidance regarding disclosure related to climate change (SEC, 2010) • Possible sources of climate change consequences companies should consider for disclosure: – Impact of legislation & regulation – International accords – Indirect consequences of regulation or business trends – Physical impacts of climate change • Existing disclosure requirements: – Description of business – Legal proceedings – Risk factors (E&Y survey: climate change) – Management discussion & analysis
  • 11. Reports Survey Findings 1• Insert table 6Country Number (from 5) discussing CO2 and/or Number (from 5) disclosing carbon climate change emission quantities or (Panel A) percentages (Panel B)Australia 2 1Canada 3 0China 0 0Russia 1 1South Africa 2 4UK 5 3USA 5 0Total 19 9
  • 12. Reports Survey Findings 2• Companies discuss global climate change in their annual reports – Forthcoming regulation & legislation (largely Anglo-American) – Impacts on costs and operations – Quantified GHG emissions – scope 1,2,3 – Largely narrative• IPO disclosures better• BUT absence of constraints information• IF carbon constraints bite, there will be information (but for now you just can’t tell)
  • 13. Implications• Ability to regulate is there• Hooks are in other bits of regulation (eg metallurgical engineers; competent person; public interest)• No one is looking forward re carbon budgets• No-one is taking a country or global perspective
  • 14. Significance• Emerging regimes to address new (?) problem areas• Mixing of expertise necessary• Lack of sensible accounting entity boundaries to really know anything interesting (go for equivalent of Atomic Energy Authority & nuclear reporting?)