I had this letter in the FT this morning:
Bring climate change on to companies' balance sheets
From Richard Murphy, City University, London, UK
As Bank of England governor Mark Carney has recently revealed, the voluntary accounting required of the world's largest corporations by the Task Force on Climate-related Financial Disclosures is proving ineffective, with few companies providing key data.
As a result the time has come to consider how the issue of climate change can be brought on to the balance sheets of these companies. The Corporate Accountability Network, which I direct, proposes that this be done by requiring that every company provide in full, and upfront, its cost of transition to being a net zero-carbon emitter, as the worldwide climate emergency will require them to be. The costs must reflect current technology. Supply chains must be considered in the calculations. Offsetting would not be allowed. As a result, the price of carbon would not be involved in the calculation. The question would be a simple one of whether or not a company would know how to achieve this goal, and what the cost might be. Those who do know should attract capital. Those who can't make the transition should not.
This change to financial reporting, which we call sustainable cost accounting, would allow everyone to make rational climate-based decisions about their portfolio. It is, we suggest, what the world needs now.
Richard Murphy
Director, Corporate Accountability Network,
Professor of Practice in International Political Economy,
City University, London, UK
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Richard, should a system like this aim to ascribe each unit of emissions to one and only one company balance sheet?
As an example: An oil extraction company produces a barrel of oil. A refinery buys that barrel and turns it into petrol. A logistics company buys that petrol and drives a lorry around with it, emitting the carbon it contains.
Who has to account for that carbon? The extraction company getting the raw material, the refiner making the product or the user making the emissions? All of them? Split by some formula or each in full?
If everyone has to account for the whole of the carbon footprint, you would end up with some really strange effects, like a trader or distributor being hit with a massive carbon balance sheet, when their active contribution to those emissions is very small (if all they do is move a product from one place to another).
But if only one actor has to account for it you get even weirder results – if it’s the extractor that has to account for it, the end users would all get off scot-free, if it is the end user, then even a company like Saudi Aramco could claim being carbon-neutral by just putting up enough windmills to power their own activities. Any formula to split the accounting will immediately get murky and subject to challenge.
I am guessing making the company at the point of emission account for it would be best, as it would make it easier to capture the whole supply chain up to that point and force them to think about alternative fuels, etc. But it would have the bizarre effect of letting the fossil fuel companies themselves get away with only having to account for their own emissions, rather than those of the fuels they produce.
Could you please elaborate?
Excellent question….and I will get back to you on it
But that requires time and I simply do not have it today
Keep watching and I will address it
Richard
With respect to Peter Emmrich’s question, suggest using something akin to Value Added to attribute cost/impact to firms across the supply chain, from raw materials through final consumption. That would account for current FF usage, not transition to net zero emissions.
I agree, this would be a sensible thing. If this were replicated across the world it would concentrate minds on the necessary changes to transition to a zero carbon economy.
I saw an article citing a study showing that offshore wind alone if fully exploited even in shallow waters can provide all human power needs plus 30% and suggested the excess be used to turn sea water into hydrogen for off grid energy needs.
This is just shallow water wind. Deep water wind using anchored turbines are now real. There are tidal turbines in the Pentland Firth between Orkney and Sutherland. They have been there for at least 18months and are functioning well. Marine animals avoided the area during construction but have returned. The turbines are cowled to protect them and no problems have been found. Marine mammals are too intelligent to be caught.
Scotland has countless tidal races between islands. A glance at a sailing map reveals their tidal strengths. Some are so strong you cannot paddle a kayak against the flow. So planning a route using a sailing map is necessary.
Then there’s solar, not just solar electric panels but the elaborating solar thermal stations in Spain and North Africa. Now using molten salt to carry the heat as the temperature at the focal point on the central tower is too hot for steam. The molten salt flows through a heat exchanger heating water to run a steam turbine and produce power. The molten salts cool slowly allowing power generation after the sun sets in the evening.
The possibility for a zero carbon future is scientifically possible and probable. It just takes political and commercial will to make the transition.
Why does it matter if individual companies are carbon neutral, when what we really care about is the system as a whole?
If you don’t allow carbon offsetting either, how are certain industries (and the economy) supposed to function? Production of many basic materials and supplies we use daily are carbon intensive. Are you seriously suggesting we effectively ban the production of steel, cement….oh, and food – which accounts for almost 50% of all C02 production? Even production of wind farms and solar panels is hugely C02 intensive. Are you going to effectively bankrupt the companies that produce them as well, because they can’t offset the C02 they produce?
What you are suggesting is not practical or realistic in any way. It looks to me like you haven’t really thought any of this through properly, and are just jumping on a bandwagon to try and promote your “corporate accountability network” – which I guess is currently looking for funding?
I am saying that we will have to radically change what we consume – as 11,000 climate scientists are saying today, as well
So the fact is many basic materials may not be basic materials at all any more. OR, government will have to allow carbon use but only as part of a co-ordinated plan for offset, which does not exist now. In other words, assuming all companies must be carbon neutral has to be the default norm.
I am assured steel will be carbon neutral.
I know cement will never be with known technology.
And food can be.
Without compulsion though they never will be
What would you prefer? Compulsion or the end of human life? Do you think that is even a choice? And why, if so?
I assure you I have thought this through
I suggest it’s you who has not
Actually, if you read IPCC5 scientists aren’t predicting ” the end of human life” as you so dramatically put it. They are predicting a 1.5C rise by 2100 if we do NOTHING. Which will affect certain countries and peoples, but will not end human life on earth. And that is if we do NOTHING.
But back to your basic point: without carbon offsetting most industries will NEVER be C02 neutral. But you specifically ban it – and force companies to measure their whole supply chain as well.
By doing that you are essentially banning most industrial production. Including food – which again will never be carbon neutral without offset.
I note that you fail to mention a point I made about the companies that produce wind farms and solar cells. They and their supply chains are hugely carbon intensive. By your rules, not allowing offset, are you going to ban or bankrupt them as well? I would have thought you wanted these things?
So as I say, it does look like you have just rushed into writing something to try and get funding for your CAN, whilst the environment is a hot topic. Nobody could take what you are proposing seriously because what you are suggesting would essentially prevent any large scale industry. It also in itself is totally unworkable. It is hard to enough to measure a single company’s C02 emissions, let alone their whole supply chain, and ten without being able to price carbon or offset it you make the accounting part of the problem insoluble.
I guess it is just as well that you don’t really know what you are talking about, and haven’t done any research into the subject before making your pronouncements – other people are way ahead of you when it comes to environmental and carbon accounting. Their (sensible) suggestions are being used already and continually worked on and improved whilst you remain (and will continue to do so) very much at the periphery.
That is such a gross misrepresentation of IPCC5, which says it likely that 2 degrees will be exceeded that you are clearly not serious as to intent
To claim what you do is to wilfully misrepesnt the truth
Please don’t call again
And for the record – of course I am saying many – maybe most – businesses must change
That is exactly what climate science now says if we are to survive
And no one is doing carbon accounting on the balance sheet as yet – as I can assure you world experts who have seen this have assured me – which is why this one is already getting a serious life
You’re in for a nasty shock……
Shell. I wonder how it would work with Shell (or BP, or Exxon, ro Total etc).
I note that in the period 2021 to 2025 Shell will give back to shareholders (dividends and share buybacks) circa $25 billion per year
(yes you did read right & I imagine the other oil&gas “majors” will do something similar).
The EU in 2017 invested circa Euro30bn in renewables.
I’m guessing that Shell spends more meeting the expense claims of its employees than it does on renewables.
There is something deeply mad about the above & I can imagine the lobbying that is going on against having to put the climate disaster onto balance sheets. How would one do that with oil&gas companies who for the most part are keen to keep the fossil show on the road.
You are right to be mad……
Actually Shell has just bought a floating wind turbine company as part of its plan to invest 2-3bn a year into renewable power by 2025.
It is better that Shell return cash flow to shareholders than invest in more oil and gas. The simple fact is that despite the best will in the world, we will still need oil for 10-20 years and gas for much longer. The key is concentrating on the cheapest and easiest way to cut carbon first and then as technology matures move onto the next.
As much as we would love everyone to drive electric cars, the cheapest one VW can make at the moment is 30,000 euros for a golf sized one and that shuts most people in developed markets out let alone emerging. We need battery technology advancement to bring costs down.
A wind turbine?
One?
But it can see no other reason to invest billions?
Really?
I totally agree that companies must be totally accountable for their climate emissions.
If companies put in the same effort as they do with trying to avoid tax, off- shoring accounts etc tracing the full carbon trail of their supply lines then there is no problem. Your previous commentator Janet though obviously a troll has to wake up to the fact that it is essential to transition to a far lower “standard of living” that the affluent West enjoys now and that companies will be only producing bare essentials and there will be no more more unlimited growth (except for desirable green industry & agriculture) and no more increasing profits.
Do you have any plans for a book about your past profession and its problems? I fully agree with your post BTW.
Oddly, I met my agent to discuss this last night…..
Good!
This will be a long time in the development stage
A stocking filler if ever there was one
Wait and see
‘A wind turbine – one?’
Well actually EOLFI a wind turbine company.
https://www.bloomberg.com/news/articles/2019-11-05/shell-to-buy-offshore-wind-developer-eolfi-in-clean-power-bet