It is now clear that not only is climate change one of the greatest threats to the environment of the planet, but its adverse impacts are also increasing in their frequency, severity, and distribution.
The UN IPCC released a report in March 2023 warning that the climate impacts now being experienced are highly likely to become critical within the next decade. Some, such as the rise in the height of the oceans mainly being caused by the melting of the ice at both polar caps, will be irreversible.
The threat is largely being driven by the release of carbon dioxide from the burning of coal, natural gas, and oil (the ‘fossil fuels’). Although an enormous financial investment is being made around the world to substitute renewable energy sources for each, the expectation is that the full conversion to a carbon emissions-free world is unlikely to occur before late in the century.
The United Nations position is that these emissions need to be halved before 2030 if the worst impacts are to be avoided. To achieve this, the 41 billion tonnes emitted in 2023 would need to drop to 20 billion tonnes annually by 2030. Unfortunately the lack of progress reported to the UN by most countries establishes that this is now an impossible goal.
Carbon disclosure in Australia
The crisis has immediate implications for business in Australia.
Certain organisations with significant carbon emissions have been required to report their emissions since 2007. Now however, Federal legislation that came into effect in April 2023 also requires Australia’s 215 top emitters to disclose the reductions they will achieve by 2030. And currently, the Australian Treasury is progressing a law imposing national mandatory disclosure rules for carbon emissions that will apply from 2025.
Disclosure of the emissions profile of firms not caught by these laws is largely a voluntary exercise, but they are also facing growing civil pressure to follow suit. Entities such as the Australian Securities & Investment Commission and the Australian Prudential Regulation Authority both made statements in 2023 emphasising the expectation for executives and Board Directors to ‘disclose and address ‘foreseeable and observable’ climate-related risks.
Supply chain emissions profiles
It is widely acknowledged that the carbon emissions of an organisation include the carbon embodied in its supply chain (known as their Scope 3 emissions). In some cases, these can be much higher than from the internal processes of the primary reporting entity, but considerable effort may be required to trace these in a credible and standardised manner.
Australian exporters of goods and services can also automatically find themselves classified as Scope 3 emitters for compliance with the regulations imposed on their overseas customers. The type of obligation that this may place on Australian exporters to disclose their status varies considerably across industry sectors, and with the location of the overseas importer.
For example, the European Union has legislated a Carbon Border Adjustment Mechanism that comes into effect in 2025. This will impose a carbon tax on imports of electricity, cement, aluminium, fertilizer, and iron and steel products across the EU.
The level of tax applied will depend on the emissions embodied in each product, and on the difference between the prevailing EU price and any carbon price paid in the production country. (The current price of one tonne of carbon dioxide in the Australian voluntary market is about $30; the EU CBAM levy is expected to reach AUD 150).
Carbon offsets
International efforts supporting the transition away from a carbon-intensive world are essentially relying on the immediate reduction in the emissions by the highest fossil fuel polluters. But some industry sectors argue that they cannot meet the deadlines for reducing their carbon emissions being imposed by regulators, and are instead pursuing other avenues.
The two alternatives receiving the highest investments are the “capture and underground storage” of carbon dioxide (CCUS or geo-sequestration); and biosequestration, which involves funding massive vegetation plantings to absorb it.
These programs are very complex in both their design and implementation. They have also been widely criticised over the past two decades for their unreliability, poor performance, and an inability to obtain independent verification of their claims
But worse, the land diverted by these projects can diminish vital water resources for key food production regions, or destroy high value ecosystems. Both can have significant socio-economic implications in both the immediate and longer terms.
Sadly though, offsets that employ measures which, even if they were to be productive, are unlikely to make a meaningful contribution to efforts to mitigate the extreme impacts of climate change. They lack the scale to be effective for decades – and at a time when constraining additional carbon dioxide releases is critical now.
The business case for disclosure
The scale of the energy transition that is required to contain climate change is underpinning a rapidly growing international body of technical standards, laws, and financial instruments describing how carbon-intensive activities should progressively be minimised.
Australian businesses not only need to understand their greenhouse risk profile, but also publish their plans for reducing it over the next 5 years. This data is increasingly being sought by large funds who operate across the globe and factor climate risk into their investment strategies .
International benchmarks such as the (IFRS S2), Greenhouse Gas Protocol Corporate Standard and GRI can be helpful. The Middle Way has extensive experience assisting organisations prepare their carbon strategies and disclosures, both domestically and internationally.