Deloitte: Executives must view business through a new lens due to climate change

Tokyo — As Japan prepares to publish its 2020 goals for greenhouse gas emissions, businesses need to be prepared to manage the upside and the downside. How they do this is one of the top of mind issues Deloitte member firm leaders are discussing at the Deloitte Touche Tohmatsu Annual World Meeting, being held in Tokyo this week. As part of its preparation for the meeting, which focuses on client service excellence, 50,000 Deloitte member firm client service representatives from around the world contributed to a web-based discussion on how best to advise clients on top-of-mind businesses issues, including climate change, sustainability, and how companies can effectively manage the implications of the fast-approaching carbon regulation requirements.

“The pace of change in response to the Protocol’s expiration and its potential successor is likely to increase. There will be great business opportunities, and also business casualties,” says Nick Main, Chairman, Deloitte New Zealand, who arrived in Tokyo after an extended tour through North America and Europe, advising clients on the implications of the Protocol’s fast-approaching expiration. “Rather than an excuse for inaction, the economic crisis is seen as an opportunity to rebuild a new global economy. It will call for great leadership, but the world is changing and business must change in response,” says Main.

The Obama administration has pledged nearly US$150 billion over the next 10 years for climate change legislation. Ambitious initiatives such as the Western Climate Initiative are targeting up to 15 percent greenhouse gas emission reduction below 2005 levels by 2020 for seven U.S. states and four Canadian provinces. The European Union Emission Trading System has proposed expansion for its trading scheme, broadening greenhouse gases under a trading scheme that will be in effect in January 2013.

The implications to businesses will be significant, according to Main, and could include:

* Substantial incremental costs for entities in regulated carbon markets
* Realignment of the business strategy, incorporating the price of carbon into the overall business plan
* Rethinking the company’s risk profile and re-evaluate the company’s strategy to consider new competitive products, businesses, and changing consumer preferences.

Main, who also serves on the Deloitte Touche Tohmatsu Corporate Responsibility Council and as the Deloitte Touche Tohmatsu Global Chief Ethics Officer, explains, “Companies need to protect their vitality by adopting behaviors, policies, and technologies that make efficient, intelligent, and sustainable use of natural resources. Crucial among these will be a new lens for executive decision making, through which natural resources are seen as valuable in the same way as financial and physical assets.”

Momentum for development of North American carbon markets continues to grow, driven in part by the upcoming Conference of the Parties meeting in Copenhagen (COP 15) in December 2009, the commitments and actions of the Obama administration, and by the steady progress of the Western Climate Initiative. According to a recent report by Deloitte United States, Confronting the Carbon Challenge: Business implications of the developing North American carbon markets, a U.S. cap-and-trade system is on the horizon, and is projected to achieve revenues of $80 billion per year as a result.

“Establishing international guidelines on how countries should agree on and put into effect the sharing of the burden of emissions reductions will be as important as trade negotiations,” says Main. “Emissions into the atmosphere in one country affect all countries, so those who do not participate may experience negative reaction.”

For more information on the business issue of climate change, visit Deloitte’s website.

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