By Lawrence E. Goldenhersh, president and CEO, Enviance, Inc.
In January of this year, the Environmental Protection Agency (EPA) and Security and Exchange Commission (SEC) implemented unprecedented new reporting that mandate thousands of companies—many for the first time—track and report their carbon emissions for 2010. Companies have quickly realized that auditable GHG data tracking and management will quickly move from a “nice-to-have” to a mandatory component of financial reporting. (Editor’s Note: for more info on the SEC reporting, please see our Gina-Marie Cheeseman’s coverage from January).
Because of the financial implications of carbon going on the balance sheet, organizations must be able to verify CO2 emissions, not just loosely estimate them with “spreadsheet” data collection. The snowball effect of GHG emissions included in financial reporting is a heightened risk for inaccurate data, but also a call-to-action for companies to reduce carbon emissions to meet EPA and SEC regulations.
A key issue for CFOs is that GHG data reports will be scrupulously audited, and any missteps could lead to discrepancies in company financial statements, enforcement action by the SEC and class action lawsuits from investors misinformed about the cost and risk of GHG. Given this increased risk, investors, regulators and juries will view reporting criteria on the same level as other financial metrics that determine the value a company.
Furthermore, if a cap-and-trade or carbon tax system is ever implemented in the US, as already in place in most other industrialized nations, there will instantly be a scramble for companies to reduce carbon emissions—a positive environmental outcome. For companies that must purchase carbon allowances to conduct “business as usual,” this new carbon-related cost could prove a costly mess if not properly analyzed, measured, accounted for and financed.
The GHG mandate has pushed thousands of companies to seek software solutions from external vendors that specialize in compliance accounting. While GHG management and reduction is complex, existing software makes the challenge manageable and provides necessary tools to mitigate environmental impact without sacrificing competitiveness and complying with federal mandates.
Companies need to consider the following—and soon—when deciding on an effective GHG management solution:
- A centralized software system with the ability to track the often opaque reporting processes, preferably from vendors with proven track records and domain knowledge.
- A system with the flexibility to continually adjust as protocols for GHG data collection, calculation and reporting change and evolve.
- Software that is grounded in the particular chemistry and requirements of GHGs to avoid conversion and differentiation mistakes between the various gases.
- Internet-based architecture, also known as “cloud computing,” to analyze the highly-distributed, complex nature of the GHG data and provide ease and speed of deployment. The internet is also ideal for managing carbon in the supply chain, where most of manufacturing companies’ emissions occur.
Companies must act now to rally their entire organization to prepare for auditable GHG inventories and adapt to the change necessary to compete in a carbon-constrained economy. As the guardians of reliable emissions data, environmental engineers will become a critical resource for senior management to preserve the integrity of a company’s financial reporting. CFOs will need to rely upon calculated emissions data to strategically account for emissions costs, stay competitive and as always, increase shareholder value. Furthermore, the IT and operations departments need to be streamlined in the day-to-day maintenance of the monitoring system, and EHS departments will have to take responsibility for reporting the emissions.
The bottom line for companies as America moves towards a clean-energy economy—they can’t afford to wait to address environmental compliance, and they can’t afford to use a solution that won’t guarantee accurate reporting.
About the author: Lawrence E. Goldenhersh is president and CEO of Enviance, Inc., a proven provider of Internet-based software solutions that help companies manage carbon and other regulatory risks. More information is available at www.enviance.com.