The latest information from the Carbon Trust in the UK provides some salient lessons concerning the pending regulatory environment that will come with the new carbon economy. The Carbon Reduction Commitment (CRC) is a mandatory emissions trading scheme starting in the UK in April 2010. The guide is based on draft regulations published in March 2009 and is directed at financial directors. The sectors specifically affected include retail, leisure, professional services, local authorities and universities etc. Under the CRC participants will be required to:

• Measure their carbon emissions accurately and provide a carbon footprint report
• Produce an ‘evidence pack’
• Purchase carbon allowances to cover their emissions

The CRC includes civil and criminal penalties for non –compliance. All organizations will be ranked in a performance league table using three metrics:

• Absolute metric: their relative change in absolute emissions
• Growth metric : their change in emissions relative to revenue
• Early action metric :whether they have taken voluntary steps to reduce emissions prior to 2010

The CRC has a number of important implications for CEO’s, Chief Sustainability Officers and Finance Directors:

• The P&L and Balance sheet implications of reserves and allowance purchases and the anticipated and actual recycle payments including any penalty or bonus provisions
• The cost of allowances may need to be financed for six months prior to the recycle date
• Sufficient internal audit over energy and carbon data with third party verification
• Compliance and regulatory risks

We have been advising our clients for the past 18 months that this type of regulatory environment lies just round the corner. Clearly sustainability reporting can no longer be regarded as part of the fluffy domain of public relations, it’s about managing risk and identifying and creating value within the business. The key is to efficient carbon management is to build on existing data collection systems such as Earthcheck which can be hardwired into an organizations, buildings and destinations financial reporting platform.

A practical starting point is to set clear boundaries such as determining what emissions you are responsible for and what belongs to others.