reduce risk

1
Risk Managing SustainabilityPresented byMark
DickinsonManaging DirectorEncore International
Limited28 October, 2009

• reduce risk
• reduce cost
• optimise

2
The Energy Cost Equation is becoming more
complicated
Consumption
Price
3
The Energy Cost Equation is becoming more
complicated
Tax
Reputation
Marketing
Consumption
Price
4
The Energy Cost Equation is becoming more
complicated
CRC
Reputation
Marketing
Consumption
Price
5
Energy / Carbon Investment

• Under current market conditions only a few energy
  / carbon investments make sense from a purely
  commercial perspective
• Organisations are once again trying to justify
  such investments based on corporate
  responsibility or marketing tickets
• In 2005 and 2006 and 2008 absolutely all energy
  and carbon reduction projects were No brainer
  Investments without any need for corporate
  subsidies
• Unfortunately they looked like commercial
  disasters in 2003, 2004 and 2007
• The challenge for energy consumers and carbon
  generators today is how to balance the energy
  equation and make effective investments that
  fulfil marketing and corporate social
  responsibility needs but also make economic sense

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Sustainability Challenges Facing Consumers

• Lack of appropriate measurement
• Lack of a clear objective
• Inadequate corporate governance

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Sustainability Challenges Facing Consumers

• Lack of appropriate measurement
• Lack of a clear objective
• Inadequate corporate governance
• The Solution is Risk Management

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Sustainability Challenges Facing Consumers

• Lack of appropriate measurement
• Lack of a clear objective
• Inadequate corporate governance
• The Solution is Risk Management
• Create a process that allows the solution to
  adapt to the changing business environment and
  your organisations commercial needs
• Create an environment that allows the correct
  decision to be taken at appropriate time

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RM for Sustainability Measurement

• If you are in a Carbon Management Scheme such as
  CRC or EU ETS, measure where you are
• Create a change control process to ensure this
  position is automatically updated as the
  information about your business changes
• Create a list of all of the possible energy /
  carbon reduction projects that your organisation
  could implement
• Accept that the value of these projects is
  changing everyday
• Create models to measure the change in value of
  these projects and how they will impact your
  standing on these carbon schemes

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RM for Sustainability Objectives

• Senior Management want you to have invested in
  energy / reduction and carbon projects when they
  will improve your reputation in the market and
  deliver a corporate return on investment
• They want you to have not invested when such
  projects will not improve you sustainability
  credentials or deliver a corporate return
• You can only judge yourselves against this
  criteria if you have perfect hindsight
• Risk Management helps you steer a path between
  these conflicting objectives

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RM for Sustainability Governance

• The CRC requires a robust corporate governance
  structure to be put in place
• All Energy / Carbon management processes should
  have a Steering Group led by a senior executive
• This group forces the company to quantify in
  monetary terms the value of Reputation and
  Marketing and regularly engages with the
  business to review them
• This group forces the organisation to recognise
  the reality of payback periods and ROIs that are
  available in this space and adjust its strategy
  accordingly
• This group exercises corporate governance on the
  groups forecast position in any relevant league
  tables and that the forecast benefit of any
  proposed investments is consistent with the
  business objectives

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RM for Sustainability In Practice

• Reporting for CRC / Other Energy / Carbon
  reduction schemes are developed and routinely
  re-run on forecast data
• Available projects for you organisation are
  identified and an evaluation model for each is
  produced
• All projects are re-evaluated every month to see
  how the project value has changed
• They are evaluated against changes in the
  companies objectives which are reflected in
  changing values associated with Reputation and
  Marketing and changing capital investment hurdle
  rates
• Projects that move up the rankings are developed
  through planning / contract negotiation until
  finally the economics mean that the time is
  correct to proceed to financial close
• At this stage the Return on Investment is locked
  in by selling the saving that the project with
  generate

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RM for Sustainability Why Bother?

• Risk Management allows your organisation to
  maximise its chances of achieving the correct
  objective at the correct time
• Today many consumers who have been risk managing
  energy for more than 2 years pay lt20/MWh for
  electricity and lt15p/therm for gas
• Their secret is routine measurement, rational
  quantitative objective setting and strong
  corporate governance
• The sustainability challenge requires nothing
  different but the measurement, control and
  governance.
• If you are paying more than 20/MWh for your
  electricity or more than 15p/therm for gas then
  you missed the risk management boat for this year
  and you need to join now for next year
• The Sustainability Ship is about to set sail
  Dont let your organisation miss the boat