The small to medium sized business impact from carbon pricing: challenges and opportunity
Matthew Tukaki, CEO of the Sustain Group and Australian Representative to the United Nations Global Compact looks at the challenges and opportunities for small to medium sized business.
The debate about climate change policy is all around us from front page spreads in the national mastheads, the nightly television news through to talkback radio. There are those who are for setting a price on carbon and then there are those who oppose it. The reality is, this week, the legislation will be before the Parliament and likely well in place before the end of the year in time for a go live day of 1 July 2012.
There is nothing that will stop this from happening and while there are advertising campaigns going on at the moment to capture the hearts and minds of those both for and against it, the simple truth is business, industry and the public sector need to be prepared.
Lost amongst the noise of the debate is a large section of the Australian economy, some would even argue backbone, and that is small to medium sized industries and business. While it is true that the impacts felt by the initial carbon price of $23 will be on 500 of the nations heaviest emitters, it is worth while keeping in mind that the cost will inevitably be passed on through the various layers of the supply chain before hitting the consumer who will ultimately purchase or buy the end product.
Much of the compensation being talked about is only related to trade exposed industries or individual households, and not necessarily small to medium sized business. It is timely to reflect on some of the things small to medium sized business need to keep in mind as the weeks and months roll on into the implementation date of 1 July 2012.
Changes to tendering from major corporations: tools and techniques/things to watch
If you sell your service or product to a large client and have done so in a tendering process, then chances are you would have come across statements related to sustainability, the environment and corporate social responsibility. In the past they have been questions that have a paragraph or two as a response and in many cases, the responses have not been meaningful let alone the way the question has been asked. Over the last twelve to eighteen months many large organisations have started to change those elements of the tendering process by accepting what you have said, to now wanting validation of your statements.
In the case of the carbon price and sustainability many are wanting you to now validate that you have completed a carbon footprint analysis and are implementing programs around carbon reduction. In some other cases additional requirements are now being sought such as membership to programs (Global Reporting Initiative, United Nations Global Compact etc) or holding a third party certification. By not being able to validate your statements could mean the difference between winning or losing business. More importantly, you need to understand that one of the reasons why large organisations are now requiring this sort of validation is also because it increases their own reporting requirements and sustainability credentials.
Some relatively straightforward things you can do are review the statements you place into tender documents or expressions of interest – ask yourself, if I was asked to validate what I am saying, would it pass the muster? If not, you know you have to go back to the drawing board. There are a range of tools that small to medium sized business can access such as the Good Business Register, partly funded by the Australian Government and managed by the St James Ethics Centre.
The other important thing you need to look at, depending on the size and scope of your business, is to complete a carbon footprint analysis. These can range in complexity and cost – however, there are some pretty simple tools you can find online or even engage a third party to come in and do one. By using the Input Output tools first developed by Sydney University for example, you can obtain your footprint in a matter of days. Of course, get it right and your credentials can also give you a competitive edge and increase your chances of securing a deal or winning a tender.
Be careful of wolves in Sheep’s clothing: will a carbon price lead to an increase in my own costs?
As mentioned before, the focus has largely been on those organisations directly liable such as power companies, waste management facilities and large corporations. However, it is highly unlikely they will absorb the price impacts and so you may find yourself in a position where the costs are being passed through to you.
Even from those organisations you buy from who may not be directly liable for a price on carbon but will experience price increases from their own supply chains which may lead to an increase in your own costs, albeit indirectly. In an exercise we have recently undertaken with one medium sized business with around 90 employees and three locations, we looked at the emissions coming from energy consumption, the profile of the energy company supplying the power and aligned this with the likely pass through of costs to the business as a result of the price on carbon.
We determined, that the company could see an increase in direct pass through costs of about $13,000 per annum – however, here is the clincher – when we reviewed the contracts the business had in place with the energy company there was nothing in there to suggest they could legally pass the cost through – which comes to another piece of advice: check your supplier agreements and look for keywords such as “carbon price”, “ets” and “cprs”. If the energy company is implying you have to accept the price increases, then look at taking your business elsewhere, alternatively, ask them to validate how they arrived at your cost increase. So, in short, there are ways you can mitigate an increase in costs such as reduction programs, lessen energy consumption and even look at investing in some new technology that will streamline your production or service processes. At the same time, just because someone may say to you an increase is “just how it is” – no its not.
It’s all too hard? – partner with organisations to help you deliver on your sustainability or corporate social responsibility credentials
Running a small to medium sized business is sometimes a lot tougher at the coal face than being the CEO of a large multinational corporation – I should know, I speak from experience. I went from leading one of the nation’s oldest and largest corporations Drake Australia, where I had resources and support workers, administration teams and front line staff. I knew every month that reporting and compliance, administration, HR and IT were all things I didn’t need to worry about too much – instead my focus was on sales, marketing, growth and strategy. Now running a medium sized corporation, I know that I have to be across all of those things (and more) and so one of the solutions I have found is by partnering or working with other companies who can help me deliver on the sustainability challenge.
In some cases there will be the opportunity to use tools that are freely available in the public domain such as the Good Business Registerwhile for others it requires a small investment in time and materials. But, beware of “Green washing” or being tempted to articulate your credentials in such a way that it becomes implausible to believe – remember, whatever you put down can be validated, the statements you make can be tested in the same way that your products and services can be evaluated.
Opportunities and investment: innovation led by the small to medium sized business sector
Of course, with challenges come opportunities and in the main, the biggest single benefactor of climate change policy will be the small to medium sized business sector. Unlike the bigger end of town, smaller organisations can move faster, are more agile and can adapt to changing circumstances – in the main, because we don’t have as much red tape to cut through or people internally that we need to convince our good idea is in fact a good idea. There are opportunities to innovate around technology, as technology will be a prime motivator for carbon reduction initiatives. If you have a concept, product or service in the sustainability area then now is the time to look at putting it to market because let me be really blunt – there are more people out there trying to find out what to do and how to manage the climate change challenge than there are those who are actually doing it – which means there is a market.
Don’t be frightened, dismayed or despondent about the challenges ahead – see the opportunity and go after it. Don’t get caught up in the political narrative because at the end of the day the legislation will pass the Parliament, it will come into force and at a stretch, if there is to be an incoming Coalition Government in a few years time, there will still be a climate change policy in one form or another – not withstanding the near impossibility of winding back the soon to be passed framework.
Matthew Tukaki is the CEO and Executive Chairman of the Sustain Group and Australia’s Representative to the United Nations Global Compact where he represents business when it comes to the Environment, Labour, Anti-Corruption and Human Rights. Matthew is also a non-executive Director of one of Australia’s peak mental health bodies, Suicide Prevention Australia, and Chairman of the Living Earth Initiative – a project designed to educate children on backyard ecology. The Sustain Group works with business and industry to transition into a low carbon economy.
Mark Harris
September 21, 2011 at 9:49 am
Matthew, thank you for
Matthew, thank you for sharing the link to the article. Like Debbie I too have sent it to some folk in my own network who are constantly talking about business and climate change. You are right about technology being an insight into the solutions we can find. I really do enjoy reading your words and am really looking forward to the next one. Mark
Anonymous
September 21, 2011 at 4:36 am
Thanks Matthew,
Fantastic
Thanks Matthew,
Fantastic information several business associates of mine have recently been discussing this topic and had no idea where to go for some direction around this topic. I hope you don’t mind but plan to forward this to my entire database.
Regards,
Debbie E.