Editor: What business sectors are likely to be most affected by disclosure requirements linked to climate changes issues?
Flynn : The business sectors that are likely to be most affected are those with significant greenhouse gas exposure - the energy sector, the utility companies, and especially those business sectors that rely significantly on fossil fuels, particularly coal burning power plants. For a number of corporations these disclosure requirements can be a positive development in that they can take credit for their steps to reduce their greenhouse gas emissions and their carbon footprint. For other corporations the disclosure requirements may pose more of a challenge because of their heavy reliance on coal and other fossil-fuel based products. Other business sectors that are likely to be affected by the disclosure requirements are those that have a tangential relationship to the energy sector because of their significant business ties to it.
Editor: Are there opportunities for positives to come from these reporting requirements?
Flynn : There are a number of different ways that these reporting requirements can have a positive impact for companies. First, the playing field is leveled in that the requirements for disclosure are similar for all companies. If companies abide by the reporting requirements, a company won't be penalized in the market place for disclosing too much or not disclosing enough.
Some businesses see the disclosure requirements as an opportunity to distinguish themselves from their competitors, which can result in shareholder approval and in a net economic benefit. Also, having to report long term liabilities or potential negative economic impacts resulting from greenhouse gas emissions provides a real incentive for companies to make strategic changes and adjustments to reduce their carbon footprint. Effective use of mandatory disclosures is also an opportunity for companies to take credit for those actions that are being taken and the technological developments being made to reduce or mitigate greenhouse gas emissions. All of these can be positives from public shareholder and business perspectives.
Editor: How would you advise clients from a corporate culture standpoint to begin thinking about disclosure requirements?
Flynn: In order to create the right corporate culture, a company needs to deliver a message from the highest levels of management that it has an obligation to report certain environmental issues, that it is important to properly report them, and that the company intends to fully comply with these requirements. It is important to make it known to all involved in the company that proper, correct and adequate disclosure is vital to making sure that that company can meet both the letter and the intent of the reporting requirement going forward. Having the right culture in place will make it much less likely that a company will be caught short, or be accused of not meeting its reporting obligations.
Editor: What are you doing as a firm to work with clients to address these greenhouse gas liability reporting issues?
Flynn: We try to work proactively with our clients rather than reactively. We try to get involved early on in the process and encourage our clients to focus on their disclosure and reporting obligations and create that corporate culture we discussed earlier. We also work hard with our clients to help them explore reasonable options to shift or start shifting away from processes that generate greenhouse gasses. This is an advantage for them in terms of long term liability concerns and can create a positive regulatory and public perception. Finally, we always try to help our clients find business opportunities. For example, we are working on several very innovative business approaches to market our clients' ability to reduce or address greenhouse gas emissions.
To the extent that a company can embrace its reporting obligations and turn them into a positive, this can be a factor that distinguishes that company from some of its competitors, can increase shareholder value and profitability and can create new business opportunities.
Published April 1, 2008.
