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March/April 2011

A Changing Climate for Climate Change

Although the topic of climate change continues to have the power to generate controversy, ASTM International Committee E50 on Environmental Assessment, Risk Management and Corrective Action has helped to provide clarity and definitions that businesses need in their attempts to master environmental challenges.

An ASTM Committee Provides Guidance Through Standards

To be sure, few issues have generated as much heated debate as has the topic of climate change. Beyond the headlines and the slogans, however, businesses have found they must take steps to deal with the potential impact of climate change and with a range of potential regulatory challenges.

More than 20 years ago, industry stakeholders formed ASTM International Committee E50 on Environmental Assessment, Risk Management and Corrective Action. The committee has been meeting twice a year since then to tackle a wide range of environmental issues. To address that diversity, E50 has spawned half a dozen subcommittees that now oversee more than 30 standards that affect everything from real estate to pollution prevention.

In 2007, with the growing focus on greenhouse gases and long-term environmental impacts, the committee began to develop standards to help business deal with climate change-related issues, so far resulting in the approval of two standards — ASTM E2718, Guide for Financial Disclosures Attributed to Climate Change, and E2725, Guide for Basic Assessment and Management of Greenhouse Gases.

“For the past few years the entire world has been interested in climate change, although many organizations have been involved in climate change issues for decades,” says Gwen Eklund, director of power generation and greenhouse gas services at TRC Environmental Corp., Austin, Texas, 2010 president of the international Air and Waste Management Association, and chairman of the climate change task group in Subcommittee E50.05 on Environmental Risk Management. But, Eklund says, members of the committee chose not to address the research, science or politics of the climate change issues.

Eklund says the two standards that E50 has produced so far relative to climate change meet very different needs. The first climate-related standard is designed to encourage consistent and comprehensive disclosure of financial impacts attributed to climate change by offering a series of options for climate change disclosures of assets and liabilities accompanying audited and unaudited financial statements. The second offers a uniform voluntary framework of basic options for greenhouse gas management strategies for unregulated smaller entities that want to address greenhouse gas associated with a facility’s operations to evaluate various solutions.

Financial Disclosures Related to Climate Change

With that general mission in mind, Subcommittee E50.05 took the ball and ran with it. Gayle Koch, a principal at Axlor Consulting, Cambridge, Mass., and leader of the drafting task force, explains that E2718 grew out of the development of ASTM standard E2173, Guide for Disclosure of Environmental Liabilities, with which she was closely involved. “When climate change disclosure became a major issue and petitioners were going to the [Securities and Exchange Commission] seeking to address this, E50 decided to develop a climate change standard that would be consistent with the existing environmental standard,” says Koch. Ceres (a network of investors and environmental organizations) had done a number of studies showing a paucity of climate-related disclosures by publicly traded companies. “It was clear that climate change would have material effects on many companies and you would expect disclosures — but there were almost none, particularly from a financial perspective,” says Koch. That was partly due to trepidation about the whole issue and partly due to the lack of definition around what to disclose and how.

The issue began to get more attention, especially in 2007, when a group of environmentalists, investors, pension fund managers and others petitioned the SEC to address the issue. That action eventually resulted in a formal statement of guidance from the SEC in 2010.

In the meantime, however, the E50.05 task group had begun to work toward the development of a standard, which at its most basic, simply required that if climate change has material impacts on a company, that fact should be disclosed. Koch says the committee actually completed two balloting processes as it refined the standard but waited to release it until the SEC’s guidance was published.

“We found no conflicts between our work and the SEC guidance, but ASTM provides a higher level of detail on implementation,” she says. Koch says that the ASTM standard is of great value to companies that are traded and publicly owned. There are also disclosure requirements for private companies if they are obtaining financing. Even with the ASTM standard and the SEC guidance, determining what to report is not simple. The ASTM standard provides “checklists to review and a way to evaluate the financial impact,” says Koch. Although there may still be uncertainties, the standard provides the guidance on how to evaluate financial impact and on what to disclose.

Assessing and Managing Greenhouse Gases

The development of the second Subcommittee E50.05 project, E2725, was managed by lead “drafter” Helen Waldorf, an energy and environment consultant based in Jamaica Plain, Mass., and second vice chairman of Committee E50. She explains that the motivation for the standard was the widespread expectation that greenhouse gases, which are already regulated by some states, are likely to be regulated at the federal level too. The federal government has already published an endangerment assessment, notes Waldorf, yet there is no clear path, particularly for small- to mid-size companies that want to prepare for increased regulation. “There are a lot of programs for green buildings and even for assessing financial liability, but there is nothing that really walks someone through this kind of process,” says Waldorf.

At issue has been the fact that mitigation is complex and must be considered in terms of business tradeoffs. Since the situation is very complicated, the committee crafted a basic guide that would provide a straightforward method with sufficient references so that users can understand where the ideas and the process came from and where to go for additional information.

“It is a three-tiered process. The person who is unfamiliar with the subject would find in the first tier the easiest, simplest and least expensive activities to reduce greenhouse gases,” explains Waldorf. Many of those steps are familiar energy-saving activities such as switching to more efficient lighting products or improving insulation. “That sets them on the path; if they complete those steps they can consider tier two, which often involves application of alternative technologies, like geothermal heating, solar panels or wind power,” she says. Tier two technologies may be more expensive but they have a proven track record.

Tier three, however, is targeted toward more experienced companies — preferably those with greater financial resources — and involves less proven and more experimental technologies, she says. “Tier three is also a planning stage where you begin to do research on some emerging technology and determine how it can fit with your long-term plans and strategy,” she adds.

While both standards are important, for the moment, Eklund says the financial disclosure standard seems to be getting the strongest reception. “Surveys have shown that the majority of corporations are still struggling with how much transparency to provide related to financial assets and liabilities associated with climate change, so this standard has immediate utility,” she says.

By contrast, the standard Committee E50 is currently developing — WK21812, Guide for Adaptation and Mitigation for Climate Change Risk — offers a series of options to address mitigation and adaptation to climate change, and may take a little longer to gain wide adoption. “Those things take longer to plan and accomplish,” says Eklund.

Eklund says she is pleased with the progress made so far but recognizes that with a topic like climate change there may continue to be controversies and points of disagreement. “We aren’t trying to prove or disprove climate change — that is out of our realm,” she says. What the committee does aim to do, she notes, is to provide reasonable guidance for companies that feel they must address these issues. “This is about providing methods that are practical and usable,” she adds.

Alan R. Earls is a writer and author who covers business and technology topics for newspapers, magazines and websites. He is based near Boston, Mass.