Monday, July 19, 2010

New SEC Guidance on Climate Change Risk Disclosure – Part 3

In our last article, we examined the details and requirements of the new SEC guidance. In this article we will discuss the steps to assess and measure risk, potential benefits of a certification program, and also how climate change disclosures can be applicable to non-public companies.

Practical Steps to Assess and Measure Environmental Risk

What steps should a public issuer take to assess and measure its environmental compliance risk?

Some companies approach environmental compliance in an overly simplified manner: do what the law requires and nothing more. While this is not a bad starting place, it is not a complete answer and it does little to help public companies assess their risks for disclosure purposes.

In the same way that public companies adopted risk assessment methods for the assessment of control risks when making their certifications of internal control adequacy for Section 404 of the Sarbanes-Oxley Act, public companies should also adopt risk assessment methods for environmental risks. (While the assessment method may be the same as that adopted for Section 404 purposes, it does not necessarily have to be the same.)

An assessment method will identify the universe of compliance risks and, for each risk, assess its immediacy, its potential impact, and methods for controlling that risk. A rigorous control protocol will also track the design and implementation of controls for material risks and include a testing or audit regime to test both the design and the efficacy of those controls.

The COSO methodology adopted by most public companies for Sarbanes-Oxley Section 404 controls provides a convenient approach for developing environmental risk assessments and controls. In addition, an alternative environmental management system such as ISO 14001:2004 (International Standards Organization) may also apply.

ISO 14001:2004

The ISO 14001:2004 system was referenced in Executive Order 13423, which directed federal agencies to adopt systems for improving environmental compliance, reducing the consumption of natural resources and reducing air, water and waste emissions and improving overall environmental stewardship. As applied to federal agencies through subsequent government announcements, it requires federal agencies to implement plans to:

• Educate employees on environmental and sustainability issues;
• Implement procurement practices to reduce energy usage and improve sustainability;
• Reduce water consumption;
• Shift power consumption from fossil-intensive methods to green or renewable methods of power production;
• Reduce environmental impacts by shifting to more efficient buildings, production systems and transportation systems; and
• Reduce the environmental impact of the disposal of electronic devices by improving disposal methods and encouraging the use of electronic devices with minimal environmental impact upon disposal.

Through its rigorous method of identifying, assessing, controlling and managing risk, the ISO: 14001:2004 method (or equivalent) has been adopted by federal agencies for their compliance with Executive Order 13423. Likewise, public issuers might also adopt that same method.

An environmental assessment and management system under ISO 14001:2004 embraces the concept of Plan, Do Check and Act (PDCA), a system made popular by Dr. W. Edwards Deming, considered by many to be the father of modern quality control. Once Objectives, Roles, Resources, and Procedures are put in place, a GAP analysis is performed to identify areas of non-conformity or non-compliance. An Implementation phase is initiated, followed by monitoring and review to identify areas of opportunity for improvement. The system also calls for the establishment of a continuous improvement process.

ISO 14001 – Good for the Banking Industry?

ISO 14001:2004 is not industry specific and therefore lends itself for use by a myriad of industries and organizations, including banking. In 1999, UBS was the first international bank to obtain ISO 14001 certification for its worldwide environmental management system. Even local banks have seen the value in ISO 14001. Alpine Banks of Colorado has earned and re-certified in the ISO 14001 standard since 2006, and has won many awards for its sustainability initiatives, including the Green Leaf Award from Bank News. The time frame for the entire process, from start through certification can vary dramatically based upon a variety of factors including organization size, number and locations of branch operations, type of industry, management buy-in, and staff training. Organizations which currently have an established management system, such as ISO 9001:2008, already have an existing framework and understanding to more easily and quickly implement an ISO 14001:2004.

Typically, an organization should be ready to allocate at least 5 months and sometimes up to one year to reach certification status. Organizations have several options for implementation. The traditional method is to utilize the services of professional consultant/trainers. Additionally, with the growth of ISO 14001:2004, there are now a number of software programs which have been primarily developed to assist organizations in streamlining their record keeping and reporting responsibilities. Worldwide, as of 2007, over 154,000 certificates have been issued to organizations in 148 countries.

Measuring Greenhouse Gas Emissions

As GHGe (Green House Gas Emissions) have become the accepted unit of measurement for reporting and regulatory purposes, ISO has incorporated these measurement and reporting tools within the ISO 14001 family. ISO 14064 parts 1, 2 and 3 are international greenhouse gas (GHG) accounting and verification standards which provide a set of clear and verifiable requirements to support organizations and proponents of GHG emission reduction projects. ISO 14065 complements ISO 14064 by specifying requirements to accredit or recognize organizational bodies that undertake GHG validation or verification using ISO 14064 or other relevant standards or specifications.

It would follow therefore, that properly initiated, an environmental management system would include all conceivable steps in assessing, measuring and mitigating risk. Reverting our focus back to the various disclosure requirements which were enumerated in part 2 of this series, now armed with real data, measurements and impact reduction objectives, an issuer could conceivably translate that to a more positive disclosure report.

Private Companies

While this series has focused on the SEC Guidance and its effect on public companies, there have been some regulatory actions proposed and adopted that could affect private companies. The EPA recently issued reporting requirements for 10,000 facilities in the U.S. At present, those reporting requirements are mostly applicable to mining, minerals production, wastewater treatment and carbon dioxide sequestration facilities, but the EPA has suggested that it intends to broaden the scope of its GHGe reporting requirements over time. The most recently adopted provisions, announced in late June 2010, will begin taking effect in 2011.
On the legislative front, the proposed Kerry-Lieberman Bill (American Power Act) sets up a framework for cap and trade: the buying and selling of carbon credits. Other bills have also proposed cap and trade arrangements. While there can be no guarantee legislation of this type will be adopted in the U.S., the European adoption of cap and trade following the Kyoto Climate Change Protocol, indicates that the cap and trade framework is one that will be on the horizon for some time to come if it is not adopted in 2010.

Regardless of whether environmental reporting is legally mandatory, companies that wish to take a leadership role in environmental stewardship can do so through their approach to reporting. By assessing, measuring, and controlling environmental impacts, and reporting on the results of those efforts, companies are able to lead in this effort by their own example.

About the authors:

Keith Winn is vice president of marketing and chief operating officer of GreenProfit Solutions Inc., a Ft. Lauderdale based sustainability consulting, certification and contracting firm. You may contact him at 800-358-2901 or [email protected].

Jonathan B. Wilson is a corporate and securities attorney at the Atlanta law firm of Taylor English Duma LLP. Mr. Wilson is also the founding chair of the Renewable Energy Committee of the American Bar Association’s Public Utility Section. You may contact him at 678-336-7185 or [email protected].

Wednesday, July 7, 2010

Sustainability Accounting

Climate Change has and is continuing to bring about substantial changes in how all business is operated and how it’s impacts are reported. Beyond altruism and transparency, international and national legislation and regulations to cap and reduce the emissions of GreenHouse Gases will play an ever increasing role within the emerging field of Sustainability Accounting.

What does this mean for professional accountants? A large opportunity. Accountants and accounting firms which take the time and the effort to become educated in this still evolving field, will also be positioning themselves as sustainability leaders and opening up new branding and marketing opportunities.

In order to fully understand the implications of Sustainability Accounting and the opportunities it presents, it is important to understand some of the more recent history of the environmental movement and how various regulatory issues have evolved worldwide. This article will discuss current and proposed legislation and new requirements for auditing and reporting plus techniques for the integration of sustainability into 'mainstream' reporting, both to management and external stakeholders. Specific focus will also be addressed for public companies, companies doing business outside the US, and governmental entities.

What is it?

In it’s broadest sense, Sustainability Accounting, is an environmental footprint measurement and reporting system for any business, Non-governmental organization (NGO), charitable or government organization. It is important to state that Sustainability Accounting here in the U.S., is today, with a few exceptions, mostly performed on a voluntary basis. It is based upon the theory that organizations are responsible for more than just financial profit and loss, but also the organization’s overall effect upon the environment, specific interest groups, stakeholders and communities. Organizations such as the Global Reporting Initiative (GRI) and the Prince’s Accounting for Sustainability Project are currently developing valuation methodology to take into account community indicators, human rights indicators, and content and materiality.

Using a more narrow definition, Sustainability Accounting is utilized to measure and report an organization’s impact, in units (tons) of greenhouse gas (GHG) emissions in compliance with various carbon trading systems and regulations. Accounting methods employed for this purpose are compatible with internationally accepted GHG measurement and reporting plans (schemes).

Accounting for Climate Change
Officially, the concept of required sustainability accounting began with the adoption of the Kyoto Protocol: a treaty to the United Nations Framework Convention on Climate Change (UNFCCC) aimed at fighting global warming. It was initially adopted in December 1997, and entered in force in February 2005, with 187 countries signing and ratifying the protocol. Under the protocol, 37 industrialized nations (known as Annex I countries) committed to a 5.2% reduction from 1990 levels in Greenhouse Gas (carbon dioxide, methane, nitrous oxide, sulfur hexafluoride) and two other groups of gas emissions (hydrofluorocarbons and perfluorocarbons) , with the remaining countries giving general commitments. The United States, a party to the UNFCC, did not sign nor ratify, although it is responsible for over 36% of 1990 emissions of all Annex I countries. However, American companies doing business in those countries which are parties to the Protocol are required to be in full compliance.

The Intergovernmental Panel on Climate Change, formed in 1988, is the leading body for the assessment of climate change, established by the United Nations Environment Programme (UNEP) and the World Meteorological Organization (WMO) to provide the world with a clear scientific view on the current state of climate change and its potential environmental and socio-economic consequences. In 1995, the IPCC issued it’s second assessment report which included providing values for global warming potential. These were the first units of measurement for converting various greenhouse gas emissions into comparable CO2 equivalents – the start and basis of this new emissions reporting, which is required under the Kyoto Protocol. For the first time in history, emissions could now be valued, inventoried, and traded, utilizing cap and trade strategies through financial exchanges. Each country is responsible to create a national authority to manage its greenhouse gas inventory and with it, provide accurate reports to the governing protocol authority.

The GHG Protocol Initiative was organized by the World Resources Institute (an environmental think-tank that goes beyond research to find practical ways to protect the earth and improve people’s lives) & World Business Council for Sustainable Development (a coalition of 200 international companies)in order to create a general accounting framework for inventorying and reporting of emissions. The GHG Protocol further categorizes these direct and indirect emissions into three broad scopes:

• Scope 1: All direct GHG emissions.
• Scope 2: Indirect GHG emissions from consumption of purchased electricity, heat or steam.
• Scope 3: Other indirect emissions, such as the extraction and production of purchased materials and fuels, transport-related activities in vehicles not owned or controlled by the reporting entity, electricity-related activities (e.g. T&D losses) not covered in Scope 2, outsourced activities, waste disposal, etc.
Accounting and Reporting Principles

The GHG Protocol Corporate Standard 2004, which is currently used by hundreds of organizations including auto manufacturers, cement companies, consumer goods manufacturers and dozens of other industries, provides the accounting and reporting principles that underpin and guide GHG accounting and reporting for scopes 1, 2 and 3 emissions. The five accounting and reporting principles described in the table below are further elaborated in the GHG Protocol Corporate Standard.

Relevance: Ensure the GHG inventory appropriately reflects the GHG emissions of the company and serves the decision-making needs of users – both internal and external to the company.

Completeness: Account for and report on all GHG emission sources and activities within the chosen inventory boundary. Disclose and justify any specific exclusions.

Consistency: Use consistent methodologies to allow for meaningful comparisons of emissions over time. Transparently document any changes to the data, inventory boundary, methods, or any other relevant factors in the time series.

Transparency: Address all relevant issues in a factual and coherent manner, based on a clear audit trail. Disclose any relevant assumptions and make appropriate references to the accounting and calculation methodologies and data sources used.

Accuracy: Ensure that the quantification of GHG emissions is systematically neither over nor under actual emissions, as far as can be judged, and that uncertainties are reduced as far as practicable. Achieve sufficient accuracy to enable users to make decisions with reasonable assurance as to the integrity of the reported information.

On the Home Field

Although the U.S. is not part of the Kyoto Protocol, there have been significant regulations, guidance and even Executive Orders issued by two US Presidents as a means to begin tracking and reducing our country’s emissions. Various states have for years, required reporting from their largest emitters. This past November, the EPA published a list of 10,000 facilities of large emitting entities which are now required to publicly report or potentially be subjected to fines. With pressure from various large investment groups, the SEC published new “guidance” for 10-K and 10-Q reporters on disclosure of risks due to climate change. President Obama signed Executive Order 13514 essentially activating Executive Order 13423 (President Bush 2007) on establishing GHG reduction goals and strategies for all federal agencies. In the senate, the Kerry-Lieberman Bill proposes the start of a cap and trade system wherein large emitters are penalized, and low emitters are rewarded.

On the corporate side, large companies such as Walmart, have analyzed their GHG impacts, and have not only begun reduction initiatives, but have also started to encourage and soon perhaps, require their 160,000 suppliers worldwide to also reduce their GHG emissions through their ambitious Sustainability Index project. In response to pending and current legislation, as well as initiatives such as Walmart’s, many of the Fortune 500 companies have hired or appointed those with backgrounds in both environmental matters and accounting as Chief Sustainability Officers to manage and oversee their GHG initiatives.

The trickle-down effect to mid-size companies, NGO’s, and other organizations is accelerating. Perhaps fueled by the Gulf Oil leak, interest in the environment is again peaking and many companies are seeking to effectively position themselves as leaders in sustainability. As the Enron scandal provided the impetus for Sarbanes-Oxley, and the Banking collapse of 2008 has fostered in the consideration of a triple bottom line (people, planet and profit) business philosophy, it appears that the concept and establishment of more sustainable business practices combined with consistent reporting is on firm ground.

With an ever increasing consumer and regulatory demand for transparency, organizations of all sizes in virtually every industry will soon need professional sustainability reporting and validation services from a “Green Accountant”.

Keith Winn is vice president of marketing and chief operating officer of GreenProfit Solutions Inc., a Ft. Lauderdale based sustainability consulting, certification and contracting firm. You may visit their website at or contact him directly at 800-358-2901 or [email protected].

Monday, May 24, 2010

What You Can't See...

The Deepwater Horizon sinking and subsequent Gulf oil leak. A terrible tragedy, resulting in the loss of 11 lives. British Petroleum estimates that 5,000 gallons of oil is leaking into the Gulf of Mexico daily. However, independent scientists, viewing video and remote sensing data of the leak, estimate there could be nearly 20 times that leaking out each day. No matter what value is believed, most agree it is in dire need of being stopped.

So who is at fault? Transocean, owner of the Deepwater Horizon rig? BP, manager of the operation? Or could it be Halliburton, the company overseeing a cement-laying process just prior to the explosion?

Blame will be decided after armies of attorneys have their days, weeks, months and most likely, years in the court. Meanwhile, people are angry and frustrated: Miles of sludge on the coastal water, satellite images of huge brown areas of the Gulf, tarballs on the beaches, fishing fleets stuck in port, and those indelible images of marine life covered in the blackish brown ooze. The combination of economic, environmental, and social impacts cause a widespread concern by otherwise complacent people.

It’s images like these that fuel some of the latest “bursts” of environmental activism. Back in the 1960’s, highly public environmental disasters such as the Cayuhoga River fire in 1969 (actually the sixth on the river, caused by combustion of dissolved chemical loads) and daily smog in major cities, drove the populace to demand change, eventually producing historic legislation still in use today, including the Clean Air and Clean Water Acts and the National Environmental Policy Act (NEPA).

Oil leaks and the immediate damage they cause are easy to see, and most of us do not care who is at fault, just clean it up and make it go away. Billions will eventually be paid out by the above companies (and perhaps others as yet unnamed) in efforts to clean up, mediate, and compensate damages incurred. Thousands, perhaps, even hundreds of thousands of individuals, people like you and me, will be involved in actions in attempts to restore this body of water and all of its natural treasures.

Today, all eyes are on the Gulf, but what about the issues of Climate Change? Certainly, whether the public believes humans are contributing to climate change or not, most understand that greenhouse gases have the potential to cause damage on a planetary scale. Whole populations of both people and animal life can (and are) lose their lands and drinking water. Invasive pests, normally killed off by cold winters, are living through now milder climates and wreaking environmental and economic damage on huge areas of virgin forests. Coral reefs, the rain forests of the sea, are in a serious state of decline. So why is there little public outcry about this?

Imagery and emotion. There’s no sinister blackish sludge, and the now-overused photos of a polar bear on a small ice flow, or villagers in some faraway country pointing to a dry lake bed carry little feeling. Climate change is caused by a build-up of invisible gases, primarily CO2. You can’t see the threat: no immediate business interruption, no oil covered birds, nor can most people understand why CO2 would even be a problem. After all, we were all taught in school, that people exhale CO2, and trees utilize that CO2 to create Oxygen (O2). Plus, it’s a completely natural gas. Of course, this is not to mention society’s confusion. Our company performed an unofficial study amongst a sample group and over 40% stated that greenhouse gases were causing the breakdown of the earth’s ozone layer. So education is another hurdle.

We should all be angry about the situation in the Gulf and should press our political leaders to take actions, not only to ensure the rehabilitation of affected areas and compensate those directly impacted, but also to take steps to minimize the risk of this ever occurring again. Simultaneously, with the global eye, can a national (and international) focus on our planet’s health, similar to the environmental push and resultant legislation of the 1970’s, again be brought to the forefront, igniting change and introducing solutions to a system bogged down in political and economic quagmires?

History has taught us that, unlike the expression, what we can’t see CAN hurt us. Perhaps, in the vein of events from the 1960’s, this terrible tragedy will leave a legacy of positive change for our planet.

Joseph Winn is the President of GreenProfit Solutions, Inc. a sustainability consulting, certifying and contracting firm. For more information, please contact Joseph at 1-800-358-2901 or email [email protected].

Saturday, May 15, 2010

New SEC Guidance on Climate Change Risk Disclosure – Part 2

In our last article, we spent some time on the steps and actions leading up to the new SEC Climate Change Risk Disclosure guidance (hereinafter, the “Guidance”). In this article, we will examine the details and requirements of the new SEC guidance. In a following article we will discuss the potential benefits of a certification program, and also measure the relevance this action has on non-public companies.

What the Climate Change Guidance Really Means

The most important thing to realize about the Guidance is that it is not law, it is merely guidance. The requirements of public company disclosures, as set out in the Securities and Exchange Act of 1934 (the “1934 Act”) and Regulation S-K have not changed. The Guidance merely provides some gloss on how the SEC might interpret a disclosure issue if one arose. In addition, to the extent SEC staff provides comments on a public issuer’s financial report discloses, SEC staff are likely to refer to the Guidance when commenting.

The 1934 Act requires quarterly and annual financial reports (with quarterly reports on Form 10-Q and annual reports on Form 10-K) for companies with registered securities (defined in the regulations as “registrants”). The public disclosure requirements of the 1934 Act apply to all publicly-traded companies (i.e., those whose shares are traded on public exchanges like the NYSE and the NASDAQ) and those few companies who have so many shareholders that the public reporting requirements apply to them.

Attorneys, accountants and business people accustomed to working on financial reports under the 1934 Act are familiar with the touchstone of disclosure in those reports: the company must disclose those material elements of its business that a reasonable investor would consider to be material. Nearly all of the other regulations and guidance concerning financial reports spring from this basic principle. Information is considered “material” for disclosure purposes if there is a substantial likelihood that a reasonable investor would consider it relevant in deciding how to vote or make an investment decision.

Item 101 of Regulation S-K requires that the registrant disclose the material effects of compliance with any laws that might apply to the registrant. The Guidance states what should be obvious, that Item 101 “requires disclosure of the material effects that compliance with environmental laws may have on capital expenditures, earnings or the competitive position of a company”.

So, by way of example, if a registrant operates facilities with significant air or water emissions, the registrant should disclose in its financial reports its cost of complying with the Clean Air Act, the Clean Water Act and other environmental laws and the potential financial impacts of non-compliance. In contrast, a public company with no material air or water emissions would not have a duty to disclose its hypothetical liability where there is not reasonable likelihood of that liability coming to pass.

With respect to climate change, the general rule of disclosure under Item 101 means that the registrant must also disclose its actual costs of legal compliance and the potential costs of non-compliance. For example, if legislation imposed a system of emissions cap and trade, companies whose emissions exceed the stated caps, will be forced to buy “credits” and perhaps pay fines. Conversely, companies with emissions under a stated level, will be able to “sell” their credits and potentially improve their financial position. In addition, countries around the globe have and are continuing to assess fines to companies they believe are inflicting environmental damage to their nations.

Importantly, a registrant is not required (and is, in fact, prohibited) from making disclosures that are speculative. Unless and until emissions cap and trade legislation becomes law, a disclosure about the potential benefits of a cap and trade system would generally be ill-advised. In the same way that the benefits of prospective legislation are too speculative to disclose, the cost and expense of potential future legislation would also be too speculative to disclose.
Public reporting companies disclose in their quarterly reports on Form 10-Q and their annual reports on Form 10-K pending legal proceedings. Item 103 of Regulation S-K contains specific requirements about the extent to which particular items of litigation must be disclosed. Again, in general, materiality is the touchstone of disclosure.

The Guidance states that litigation disclosures under Item 103 must include any environmental enforcement actions and orders material to the registrant. As the Guidance notes, there already have been enforcement actions (notably in the State of New York) with respect to the accuracy of environmental disclosures in financial reports. There are also several lawsuits pending in which private litigants have sued companies over alleged climate change resulting from the emissions of those companies. Public companies who are defendants to such suits would be required to disclose them, applying the same materiality standards applied to any other kind of litigation.

If national climate change legislation, including a cap and trade system, became law, disclosures of potential or hypothetical litigation might be appropriate under Item 103. Until such potential legislation becomes law, however, disclosures of hypothetical or potential contingencies under Item 103 are premature. Disclosures must include “such further material information, if any, as may be necessary to make the required statements, in light of the circumstances under which they are made, not misleading.” See 17 CFR 230.408 and 17 CFR 240.12b-20.

In quarterly and annual reports, public issuers provide a discussion of the issuer’s financial results and future prospects called “Management’s Discussion and Analysis” (or “MD&A”). Item 303 of Regulation S-K requires an issuer “to disclose known trends, events, obligations or uncertainties that will, or are reasonably likely to, materially affect the company’s liquidity, capital, resources or operations”. In addition, companies are also required to disclose any other information the company believes is necessary to an understanding of its financial conditions, changes in financial condition and results of operations.

Discussing “known trends, events, obligations or uncertainties” is a potential bottomless pit. While management will be aware of immediate and obvious trends (such as increasing or decreasing sales, or increasing or decreasing costs of goods sold) there is an infinite list of potential contingencies that might impact the issuer’s financial performance. In the MD&A, however, the issuer is not required to identify every possible contingency, but rather only those “known trends, events, obligations or uncertainties” that are “material” to a reasonable investor’s decision to invest or vote securities.

Item 503(c) of Regulation S-K helps issuers draw the line between “known trends” and mere speculation by providing that the issuer must disclose "the most significant factors that make the offering speculative or risky" (emphasis added).

By way of example, an actual lawsuit that is pending is more significant than a threatened lawsuit that has not been filed. A threatened lawsuit is more significant than the risk of a possible future lawsuit that has not yet been threatened.

Put into this context, the disclosure of climate change impacts should be ranked against the issuers other known trends and contingencies. If the issuer reasonably believes that certain environmental or climate change impacts are more significant than other contingencies, that belief should guide its disclosure.

By way of example, if an issuer had facilities in low-lying coastal areas that might be threatened by an increase in sea level brought about by an increase in global temperatures, that might be a contingency with the potential to impact the issuer’s financial statements. Whether that risk is one that should be disclosed in a financial report, however, will depend on the relative immediacy and potential impact of that risk in comparison to other risks that the issuer faces. Ultimately, while the Guidance discusses these types of disclosures and provides some color on how issuers should consider them the Guidance does not change the law regarding disclosures and does not necessarily require issuers to disclose new or different kinds of risks.

The practical impact of the Guidance, however, is to raise the awareness of public issuers regarding environmental and climate change risks and costs. In light of the Guidance, public issuers should not reasonably be able to claim surprise if future enforcement actions challenge the adequacy of disclosures of these kinds of risks.
Because the disclosure of contingencies, however, requires a weighing of immediacy and impact against other potential risks, a well-advised issuer will adopt a consistent theoretical construct for considering and weighing the immediacy and impact of risks for disclosure purposes. Part of that theoretical construct, many issuers may conclude, is a process for assessing and measuring the potential impact of environmental and climate change risk. It is to this end that we will address some practical steps issuers may take to perhaps mitigate their environmental and climate change risks in Part 3 of this article series.

About the authors:
Keith Winn is vice president of marketing and chief operating officer of GreenProfit Solutions Inc., a Ft. Lauderdale based sustainability consulting, certification and contracting firm. You may contact him at 800-358-2901 or [email protected].

Jonathan B. Wilson is a corporate and securities attorney at the Atlanta law firm of Taylor English Duma LLP. Mr. Wilson is also the founding chair of the Renewable Energy Committee of the American Bar Association’s Public Utility Section. You may contact him at 678-336-7185 or [email protected].

Thursday, April 22, 2010

Happy Earth Day!

Happy 40th Anniversary! It was 40 years ago today that United States Senator Gaylord Nelson held an environmental "teach-in", an event which evolved into an international idea of planetary sustainability.

So join in, and take a step back, look at what can be done for the planet and each other. Don't worry, there's no need to buy a card (but feel free to put your creativity to the test and make an Earth Gift using only things you'd otherwise throw away)!

Sure, the mantra is repeated around the world this time of the year: "Earth Day Every Day" But what does that mean? Don't drive for the day? Recycle extra well on April 22nd?

Here at GreenProfit Solutions, we try to make that oft-repeated statement ring true. How? We consider the potential environmental impacts from nearly every activity we engage in.

As an example: From minimizing driving distances through combining stops to being as fuel-efficient as possible by avoiding rapid starts and stops as well as maintaining all vehicles, we seek to reduce our transportation footprint.

  • We seek to educate others about new progress made in sustainable projects around the world, and how to apply them here.
  • In fact, our Facebook fan page has over 50 links already speaking about exactly that.
  • The efforts don't end there, but, if interested, simply Contact Us for more details.

Interested in doing something exciting for Earth Day/Week? The Federal Government is hosting a number of discussions, roundtables, and various activities around the country. If you're in DC, take a moment to visit the NASA Earth Day area at the National Mall. Unable to make it to the nation's capital? Check out the Earth Day Network and search out events in your area.

Of course, more importantly than attending events is remembering the meaning of Earth Day. The first year was to point out glaring environmental ills: illegal dumping, polluted waterways, and toxic power plants. While these types of things continue to occur, there is more awareness and monitoring (from companies, the public, and EPA); it's in a company's best interest to be as environmentally-responsible as possible. Today, Earth Day should be looked at as a way to bring people together, independent of the dividing forces, in a joint effort to make the world we live a better place. Sustainability is a continually-evolving goal; why not approach it together?

So what are you doing for Earth Day?

Joseph Winn is the President of GreenProfit Solutions, Inc. a sustainability consulting, certifying and contracting firm. For more information, please contact Joseph at 1-800-358-2901 or email [email protected].

Monday, April 19, 2010

Clothing - The Forgotten Piece of a Business' Sustainability Program

You have it, I have it, but do we know that much about it? Sure, we deal with it every day, and it’s with you nearly all the time. I’m talking about clothing of course. So common, it often becomes the overlooked item in sustainability initiatives. Recycled content, chlorine free, certified paper? Check. Energy efficient lighting (with recycling program for spent fluorescents)? Implemented years ago. Company uniforms? Well, yes. What about them?

Clothing has a variety of impacts, depending on the type, content, and cleaning style. The material may be produced using large amounts of pesticides, chemicals, and even unsustainable forestry activities. Shoes using leather, suede, or rubber, as a start, can also be sites of concern. Even the traditional “dry cleaning” operation emits enormous concentrations of pollutants, while some of the chemicals may remain within the garment. So are there alternatives?

In fact, there are many ways to reduce the environmental and social impacts of a wardrobe.


Let’s start with cotton. A wonderful, soft material that has been the staple of many regions for over a century. Today, the vast majority of cotton in clothing comes from conventionally grown crops; these can be sprayed with any number of pesticides and fertilizers. This promotes a monoculture, or single-crop, situation. The natural properties of the land are rarely attended to, so more fertilizer and soil will constantly be required, thus entering a continuous cycle. According to the Organic Trade Association, organic cotton is “grown using methods and materials that have a low impact on the environment. Organic production systems replenish and maintain soil fertility, reduce the use of toxic and persistent pesticides and fertilizers, and build biologically diverse agriculture.” Currently, nearly 1% of global cotton production is organic, but it is growing fast. Sales in some product categories are increasing nearly 50% annually. Consider organic cotton for the next set of company clothing runs and make a difference!

Small addition: In personal experience, organic cotton is often softer than the conventional equivalent, but seems to shrink more on the first wash. Plan size orders accordingly.


It’s not just for floors! The latest trend in sustainable fashions, bamboo clothing has a lot going for it. The plant is one of the fastest growing on the planet, doesn’t require large amounts of pesticide or fertilizer, and can be grown organically. However, is it really as “green” as retailers would have customers believe?

  • In the effort to climb aboard a growing fad, bamboo plantations are showing up around southeast Asia. Some of these plots were previously productive forest, home to countless species of plants and animals.

Sustainable and deforestation don’t go well together.

  • The process of converting the fibers of bamboo into soft clothing requires using strong chemical solvents. These may end up in emissions, wastewater, and even in the final product (Yes, what you’re wearing). Unfortunately, don’t expect a unique approach to the process, as all bamboo clothing is produced at only one facility in China.

Sustainable and water/air pollution also are unwelcome bedfellows.

In fact, according to the Federal Trade Commission (FTC), bamboo fabrics are nothing of the sort. In August 2009, they issued a Consumer Alert regarding the sale of bamboo. Here’s a small segment: “The Federal Trade Commission, the nation’s consumer protection agency, wants you to know that the soft ‘bamboo’ fabrics on the market today are rayon. They are made using toxic chemicals in a process that releases pollutants into the air. Extracting bamboo fibers is expensive and time-consuming, and textiles made just from bamboo fiber don’t feel silky smooth. There’s also no evidence that rayon made from bamboo retains the antimicrobial properties of the bamboo plant, as some sellers and manufacturers claim. Even when bamboo is the ‘plant source’ used to create rayon, no traits of the original plant are left in the finished product.

The Verdict

So, while the use of bamboo in furnishings can be a sustainable endeavor (with the use of low-VOC adhesives and varnishes), it would appear that, for now at least, bamboo just isn’t the bright green clothing item we would all love it to be. However, it is also not the worst, as the benefits on the plant growth side cannot be ignored. Examine the material options available for your needs and budget, then see, if, despite the negatives, bamboo really is your best environmental option.

Look for the second part of sustainability in clothing for information on dry cleaning, shoes, and other common clothing concerns.

Organic Trade Association - Organic Cotton Facts
FTC - Have You Been Bamboozled by Bamboo Fabrics?

Joseph Winn is the President of GreenProfit Solutions, Inc. a sustainability consulting, certifying and contracting firm. For more information, please contact Joseph at 1-800-358-2901 or email [email protected].

Friday, April 16, 2010

Cutting Costs with "Green" Tax Incentives - Part 1

The Energy Policy Act of 2005 (EPACT) is one of the most comprehensive and sweeping energy legislation packages ever passed. Signed into law by President George W. Bush on August 8th, 2005, the bill authorized massive tax benefits, reductions and deductions, plus loan guarantees in an effort to spur action on a new energy policy.

Buried among these voluminous new initiatives now part of the IRS Tax Code, was the new Deduction of Energy Efficient Buildings granted under Title 26, now known simply as Section 179D. Specifically, Section 179D offers substantial tax benefits to commercial property owners to upgrade their buildings and make them more energy efficient. The legislation was targeted to expire in 2008, however, the American Reinvestment and Recovery Act of 2009 extended the benefits of this bill through 2013. Perhaps due to the enormity of the legislative package, or a lack of understanding, the IRS reports that less than 2% of all commercial property owners have taken advantage of this tax saving opportunity.

There are special rules for government owned buildings, wherein the tax benefits may be transferred to a project manager or architect, but for purposes of this article, we will focus on how banks, as building owners and leaseholders, can leverage these benefits.

About the Actual Deduction

Under Section 179D, deductions are based on areas of energy savings and total square footage of a building. The regulation provides commercial building owners and leaseholders with a deduction for implementing energy-efficient commercial building property in their buildings between December 31, 2005, and January 1, 2013. The deduction is available whether the respective space is new construction or already existing and applies to the year in which the energy-saving property was made ready for its intended use. It is divided into three categories:

  • Lighting
  • HVAC & hot water
  • Building Envelope

The maximum deduction of $1.80 per square foot requires a 50% reduction in total annual energy and power costs (compared to a reference building that meets the minimum requirements of American Standard of Heating, Refrigeration and Air Conditioning Engineers (ASHRAE) 90.1-2001), not to exceed the amount equal to the cost of energy efficient commercial property placed in service during the taxable year. A partial deduction of $.60 per square foot requires a 16 2/3% reduction in energy consumption, and can be achieved through improvements in one of the previous 3 categories (Lighting, HVAC, Building Envelope). With recent technological advances in lighting, as well as the generally lower costs compared to the other categories, this deduction is considered the “lowest hanging fruit”. A partial deduction for Interim Lighting affords the bank a deduction between $.30 - .60 per square foot and requires a 25 – 40% reduction in lighting power density (50% in the case of warehouses). As many banks have multiple branches, and this is a per building incentive, the deductions can be quite substantial.

To summarize:

Improvements can be made in three categories

  • Lighting
  • HVAC
  • Building Envelope
  • Each can achieve a $0.60 deduction per sq. ft.
  • Lighting is considered the “low hanging fruit” due to rapid ROI and lower upfront costs

Three Year “LookBack”

What about banks which may have already made significant investments in energy upgrades? Fortunately, the IRS rules allow banks to take deductions on qualified upgrades completed during the 3 prior tax years. For qualifying institutions, this is simply found money.

Certification of Qualified Property

To insure receipt of expected credits, the taxpaying entity must certify the property meets all energy-conservation claims, and establish the total annual energy savings required for obtaining a partial deduction. The guidelines provide information about the software programs that must be used in calculating these power and energy expenditures.

Additionally, the property must be certified as an energy-efficient commercial building property by a qualified individual. These individuals may not be related to the taxpayer and must be an engineer or contractor properly licensed in the jurisdiction where the building(s) is/are located. The certification need not be attached to the tax return, but Section 1.6001-1(a) of the IRS regulations state that taxpayers are required to maintain books and records that would satisfy investigation into the applicability of the deduction.

Note: The preceding article is not legal nor accounting advice and should not be relied upon without the advice and guidance of a professional Tax Advisor familiar with all relevant facts. It is always highly recommended that you consult with your own attorney and accountant regarding any IRS Tax Code issues.

Joseph Winn is the President of GreenProfit Solutions, Inc. a sustainability consulting, certifying and contracting firm. For more information, please contact Joseph at 1-800-358-2901 or email [email protected].

Wednesday, April 14, 2010

New SEC Guidance on Climate Change Risk Disclosure - Part 1

What does the Securities and Exchange Commission (SEC) have to do with sustainability? On January 27th, 2010 the SEC published guidance for public companies on the reporting of impacts potentially contributing towards climate change. Additionally, they disclose the effects climate change may and can have on a company’s profitability. While some public and corporate officials are stating that the risks cannot as yet be properly assessed and the requirements are premature, most major investors, which have been supporting the new guidelines, are pleased. Why has the SEC taken this action and is this information really pertinent to an investor?

Let’s take a look at what has been occurring over the past decade. Many states and local governments have enacted their own legislation resulting in greater regulation of greenhouse gas emissions (GHG). GHG legislation on climate change is currently pending in Congress after the House of Representatives approved a bill, later amended in 2009 by the Senate, to limit a company’s emissions of greenhouse gases through a system of “Cap and Trade”. Even the EPA has begun to require large emitters to disclose and report their data.

Since the 1990’s, 186 countries have supported the efforts of the Kyoto Protocol, and the European Union Emissions Trading System (EU ETS) which is the mechanism that controls the Cap and Trade system of allowances and credits for carbon and other greenhouse gases. While the U.S. has never ratified this treaty, U.S. companies doing business in those countries are required to comply.

Climate change risk has not gone unnoticed by the insurance industry. In their 2008 report, major investment firm Ernst & Young stated that climate change was the top strategic risk. They explain it as being, “long-term, far-reaching, and with significant impact on the industry” (Climate Change Greatest Strategic Risk to Insurance Industry). It remained on the top 10 for 2009 (Top 10 Risks Most Likely to Affect the Insurance Sector During 2009). Partially as a result of these reports, the National Association of Insurance Commissioners (NAIC) created an industry standard of mandatory disclosure. Designed for state regulators, it highlights potential financial risks due to climate change as well as actions taken to mitigate them. New actuarial models are in development along with new products specifically designed to cover these new risks.

So what are the risks to a public company? Legislation and new regulations can certainly have a significant effect on capital expenditures. Cap and trade allowances could also force a high emitter to buy credits, creating a negative effect on cash flow. Even companies not subject to new regulations could be affected if their own supplies and services are suddenly only available at a higher cost. As with any challenge, there will be companies well-positioned to benefit from current and proposed legislation. For example, those with “credits” (businesses emitting below their quota) may be able to sell them as investment instruments to improve their own capital position.

Let’s not forget the potential physical effects of climate change. Sea level rise, melting of permafrost, availability of clean water, greater temperature extremes, and increase in storm intensity can all have deleterious effects on a company’s operation and even demand for their products. For example, warmer winters may reduce seasonal demand for heating supplies, while a burst of extreme cold can overwhelm distribution infrastructures; banks holding significant debt in coastal properties could be at higher risk; drought or flooding could negatively impact agricultural firms.

According to the SEC, the new disclosure guidance is simply an extension of regulations pertaining to environmental issues implemented in the early 1970’s. Focused primarily on disclosure guidelines, the original rules sought to monitor compliance regarding material discharge and environmental protection, for use in potential litigation. The current standards have evolved to “provide that information is material if there is a substantial likelihood that a reasonable investor would consider it important in deciding how to vote or make an investment decision, or, put another way, if the information would alter the total mix of available information.” (SEC Release #33-9106 (PDF))

To the CFO, properly assessing risk can be a complex issue, especially when considering the effect climate change may have on future company operations. Granted, there is a delicate balance in disclosure between compliance and stock valuation and demand. Currently, companies who are making some efforts on disclosing climate change risks are simply “burying” them in their 10-K form. It appears this practice is no longer acceptable with the new guidance requirements.
Are there any actions a company facing climate change risks may employ to comply with the full disclosure requirements and still show the company in a positive light? One method suggested is certification, primarily through an internationally recognized program and certification body. The International Standards Organization (ISO) has developed their ISO 14001:2004 Environmental Management System to assist companies in developing or transitioning to more sustainable systems and practices. Their newly developed standards ISO 14064 and 14065 provide an internationally accepted framework for measuring GHG emissions and verifying claims.

In our next article, we will examine the details and requirements of the new SEC guidance, discuss the potential benefits of a certification program, and also measure the relevance this action has on non-public companies.

Keith Winn is the VP Marketing/COO of GreenProfit Solutions, Inc. a sustainability consulting, certification, and contracting firm. You may contact Keith at 1-800-358-2901 or email [email protected].

Thursday, April 1, 2010

*April Fools 2010** - Important Announcement

The past year has been full of promise, achievement, and wonder for my company, GreenProfit Solutions. We have assisted numerous businesses in becoming more effective stewards of the global environment and their community. Additionally, the entire structure changed when a new partner was brought aboard. I stubbornly relinquished the title of CEO, and am now relegated to simply, President. However, (massively important) titles aside, our efforts have been impressive. Once a simple “green business” program, the offerings now range from comprehensive sustainability assessment services, product retrofits, ISO consulting/certification, and employee teambuilding exercises.

Not too shabby for a new business.

Of course, nothing can remain the same for long, and as the times change, so will we. No longer is it worth “sticking to our morals” for a single cause, even if it may be one which will guide the future of our planet. Hot off the heels of the President’s recent announcement of offshore drilling expansion and Google’s name change to Topeka, we, too, will be making some changes. Dismayed with the progress of “sustainability” and “green” in society, GreenProfit Solutions has decided to “follow the dollar” and make a shift in industry: Coal and petroleum extraction systems.

“Pump, baby, pump” will be the new slogan for the company. Or “dig, you, dig”, really, whatever gets the uninsured and underpaid employees to pull that energy-rich fuel out of the earth.

Solar, wind, geothermal, you ask? Solar is just some light, and why harness light when you can create it with wonderful incandescent bulbs! Psh, can you hold a pound of wind? What about geothermal? No, because you’d burn your hand on the molten lava (which we do not cover our employees against, so don’t do it). The future is in the oldest stuff we can find, because, to be honest, it’s cheap for us, and we can charge whatever we want for you, our forever customer!

So to better reflect our commitment towards this end, we will be changing our name to Fool’s Gold Power, at least for today. Because, since we’ve completely abandoned our morals and beliefs, we may do something entirely different in the future.

Don’t be surprised if we’re GreenProfit Solutions again tomorrow.

Friday, January 8, 2010

KPMG Survey Suggests Green Shift in Car Buying

It appears the Auto industry is finally starting to focus on more fuel efficient vehicles. This according to a new global survey of 200 auto executives recently published by KPMG. Could it be they are finally listening to the public?

Hybrid vehicles placed at the very top of their list of alternative fuel technologies for the next five years, followed by battery electric, fuel cell electric and bio-diesel respectively.

Biodiesel technology is low on the list of priorities for auto industry research, according to the survey that was released Thursday.

When asked to rate which were the most important alternative fuel technologies to the auto industry over the next five years, hybrid systems were ranked first followed by battery electric power, fuel cell electric power, and biodiesel, respectively.

In the past, styling was ranked as major feature. No more though. The feature auto executives believed makes the biggest impact on customers' purchasing decisions is fuel efficiency, which was ranked the highest, while the "environmental friendliness" of a vehicle ranked second, followed by safety innovation in third. Styling did not even make it into the survey results.

"Automotive manufacturers are in the challenging position of being asked to compete on both technology and cost. With global consumers still feeling the pinch of the recession, those OEMs who can deliver on this equation will be in the driver's seat," Gary Silberg, national automotive industry leader for KPMG, said in a statement.The survey was conducted September through November 2009.

Now, let's see how they can make those large suv's and trucks truly more fuel efficient. A listing of fuel efficiency and emissions and interactive chart can be found at the EPA's Green Vehicles website.

The survey was conducted September through November 2009.

Keith Winn is the VP Marketing/COO of GreenProfit Solutions, Inc. which assists businesses in becoming environmentally responsible. You may view their website at or e-mail Keith at [email protected] .

Saturday, January 2, 2010

New Year's Resolution

Traditionally, at the start of a new year, resolutions are tossed about promising exercise or eating habit modifications. There’s nothing wrong with these, but, honestly, how many are forgotten by January 3rd? This year, why not make a resolution that’s truly achievable, and can also benefit yourself, your community, and the planet?

My New Year’s resolution is to engage in a variety of sustainable practices throughout the year.

Ok, so what does that mean? Sure, I’ll recycle what I can, compost foodstuffs, and work to save energy, paper, and other resources, but is that really what the resolution is aiming to achieve? Sustainability is about more than just saving energy or recycling; it’s a state of mind. Now before you run off thinking this writer is off his rocker, take a moment to think about that claim. As a company, our efforts to help businesses become more sustainable encompasses office conservation practices, yes, but it also envelops a comprehensive strategy including business development, marketing, hiring, and nearly every other department within the enterprise. Only by incorporating a “triple bottom line” (People, Planet, Profit) mindset into the core decisions of a company can they aim to become truly sustainable members of society.

How can this concept be transposed into a New Year’s resolution? Simply engage in the same activities you’re used to (at home, in the office, out with friends, namely, wherever you may be), only now, consider how each affects society (both as individuals and a group), financial stability (locally and abroad), and the environment. Remember the phrase, “You can have it good, fast, or cheap, but you can only pick two”? Well, the triple bottom line seeks to provide all three of its pillars simultaneously. While good, fast, and cheap are traditionally difficult to combine, sustainable approaches benefiting society, the financial well-being of all producers/sellers, and the environment from production site to sales location are achievable.

Consider a company’s sustainability policies when making a purchase: Do they support fair wages and social programs throughout the production chain? Are their environmental impacts documented and in the process of being minimized? Does their profit in one location damage the community in another? Questions along this line can give consumers a strong idea of how a company views true sustainability.

Along with a quality product/service, a company with a strong commitment towards sustainability is likely to thrive.

For the new year, take these ideas to heart, spread them to your friends and family, and help create a world where the principles of sustainability are automatically considered in all aspects of life. Now that’s a New Year’s resolution worth keeping. Sure beats that exercise machine you (be honest) won’t use again!

At least until January 2nd, 2011.