Five ways SMEs can get ready for the carbon tax
The Gillard government proposes introducing a carbon tax in Australia from July 1 next year.
Small business owners who have not started to reduce their carbon footprint should seriously start assessing the impact the carbon tax will have on their business.
Full details of the carbon tax will not be known until July 10 but the executive director for advocacy for the Green Building Council of Australia, Robin Mellon, says SMEs need to start preparing energy-saving measures now.
“I would ask could small businesses not afford to think about the long-term issue?” Mellon asked.
“I understand there are issues about survival and a lot of issues about risk management but it’s more about good business management and less about ethics and environmental thinking. Plus it saves you truckloads.”
Mellon says SMEs that are reducing their carbon footprint are making decisions not just based on environmental factors but also on economic factors.
“We’ve heard from our own members – ‘if you pollute more it will cost you more. If you pollute less, it will cost you less’. The latter can only be a good thing,” he said.
Many SMEs want to reduce their carbon footprint immediately but do not know where to begin. A major challenge is the financial constraints SMEs have to work with.
Building Green Business director Richard Nicol says the first thing SMEs should do is measure their carbon footprint and energy use.
“A lot of them just want to find out where they can save money,” he says. “That’s understandable but they are missing out on a lot of opportunities.”
Nicol recommends finding a suitable qualified carbon footprint assessor.
That will provide you with an overall outlook on how you can save energy in the most affordable way and the government also provides a certificate IV course in environmental management.
Nicol recommends a three-step plan for SMEs trying to reduce energy consumption.
“Start with low-hanging fruit,” Nicol says.
Make sure lights are turned off, avoid computer standby use and get rid of unnecessary appliances like hot water tanks. Change your recycling strategy, make alternative travel arrangements and consider video conferencing.
“This is what I call the easy stuff,” Nicol says.
After that he says it is crucial to engage your biggest asset – your staff.
“They are the people who actually work in the environment,” Nicol says.
“Tell them why you are reducing your carbon footprint. The next step is to communicate this to your other stakeholders.”
The next key step is to spend money on replacing lights, reconfiguring appliances such as air conditioning and installing new equipment such as solar energy sources.
“A good carbon assessor will make those recommendations for you,” Nicol says. “It doesn’t matter what the price of the carbon tax will be or even if it doesn’t come in. More and more customers will be asking ‘what are you doing to reduce your carbon footprint?’ ”
The physical location of a business is one element many people forget when trying to reduce their carbon footprint.
Choosing the right building – such as a Green-Star accredited building – will set your business on the way to minimising its carbon footprint.
Sustainable building design is becoming a mainstay in the Australian construction industry with T5 lighting, reduced water-flow taps, passive air-conditioning and motion detectors some of the sustainability initiatives common in many workplaces.
“A few years ago we would have laughed at the concept of carbon neutral buildings,” Mellon says.
But not all businesses can relocate to a green-start accredited building.
Brian Carson is a principal consultant for Think Property with more than 20 years of experience in accommodation strategies, project management and lease negotiations.
Many of his clients are SMEs based in buildings that were built to a standard before the carbon legislation was contemplated.
While Carson admits buildings that already have energy reductions in place will come at a premium price he worries that SMEs are not thinking about the long-term benefits of greener buildings.
“A carbon tax will drive a lot of small businesses to buildings with even lower rental. This will turn them to buildings without energy efficient capabilities,” he says.
“SMEs are not sophisticated enough to realise that by reducing emissions they are also reducing operating costs in the long term.
“I would always advise my clients to look at a longer lease. It will spread the costs out over time and the depreciation period will not hit as hard.”
Environmental reporting can be an effective way of communicating the environmental impact a business has to a wide range of stakeholders.
Still mainly utilised by larger organisations and government it is seen as a requirement from customers and the public and it can be a useful tool for attracting employees.
Director of privately-held business at Grant Thornton Australia, Bill Shew, says environmental reporting should not be a requirement only for larger organisations.
“It comes down to the type of industry, not the size of the business,” he says.
“We are seeing some pressure in certain industries – agriculture, farming and resources.
“Small business environmental reporting may be more website-based and having the information out there for due diligence purposes. Communicating via social media can be effective and this is something we expect to see more of.”
But many SMEs do not have time or resources to compile reports showing water use, waste management and greenhouse gas emissions among other environmental sustainability outcomes.
Often a single-page carbon footprint report or an energy reduction plan is a lot more effective than a sustainability report. That will cover most of the relevant information.
Energetics climate change consultant Chris McPherson advises SMEs to make their environmental reports descriptive rather than overly technical.
“For every industry stakeholder priorities will be different. Have a look at a company in a similar industry you admire to get an idea of what to include. Better still ask your relevant stakeholders what they want to know,” he says.
The introduction of a carbon tax will inevitably increase energy costs for SMEs, which should carefully consider how those costs will impact on their suppliers and customers.
In many cases customers will face the full brunt of the carbon tax.
“If energy costs are going up it is unavoidable for the average small business owner not to pass those costs on to the end user,” McPherson says.
Shew predicts SMEs will seek alternative supply chain routes and will continue to find the best price they can get.
McPherson says it is important to carefully consider what industry you are in when deciding on pricing strategies.
For example businesses in the gas or electricity industry may be able to pass increased costs on to their customers. It may be specifically written in the contract. That is called a captive customer.
“Everyone in this basket will be fine,” McPherson says.
But he says most medium-sized businesses fit into another category, one where businesses can pass costs on to the end user because the industry they are in will lift general prices within the dynamics of the market.
McPherson says businesses that manufacture in Australia and sell at global prices will be hit hardest by the carbon tax.
“Particularly businesses in steel, aluminum and the fertilizer industry,” he says.
“They can’t afford a cost increase and can’t really afford to absorb it. They may look at switching manufacturing plants overseas, change what they sell, how they sell it or look at offering more services and less products.”
Products carrying logos such as “Greenhouse Friendly” or “Energy Rating” have been seen as a great way to market your product or service but in recent years concerns that green product accreditation schemes were not independently checked and monitored have led to accusations that some companies were engaged in “greenwashing”.
But Nicol says there are a growing number of green accreditations to satisfy increasingly astute consumers.
“There have been surveys to show people are willing to pay extra for a product that has environmental benefits,” he says.
Nicol says the construction industry is leading the way in green accreditation but for other types of products and services the public has no standard with which to compare production methods in their purchasing decisions.
“For consumers the market is a minefield, particularly for fast-moving consumer goods,” Nicol says.
“Building products have a ‘good environmental choice’, which is an internationally recognised accreditation scheme.”
Nicol nominated Forest Stewardship Council Certification (timber) and Marine Stewardship (fishing practices) as other leading internationally recognised certification schemes.
Mellon says the GBCA recognises that some products represent best practice and encourages SMEs to aim for relevant product certification schemes.
“If small businesses want to increase product sales they must choose to sell products with a good lifespan and that are responsibly sourced,” he says.
“Greater awareness for consumer groups is something we want to see more of.”