Appetite for change - Accountancy Nieuws

Appetitefor changeGlobal business perspectives on taxand regulation for a low carbon economy

ContactsGlobal Leader,Sustainability & Climate Change Tax Mark Schofield mark.schofield@uk.pwc.com +44 20 7212 2527Australia Michael Bona michael.bona@au.pwc.com +61 3 8603 3065Belgium Maarten Tas maarten.tas@be.pwc.com +32 2 710 7402Brazil & SOACAT Raimundo Christians raimundo.christians@br.pwc.com +55 11 3674 2452Canada Leanne Sereda leanne.a.sereda@ca.pwc.com +1 403 509 7586Central & Eastern Europe Peter Burnie peter.burnie@rs.pwc.com +381 11 330 2100China Gary Chan gary.chan@cn.pwc.com + 86 21 2323 3331FranceGermanyIndiaGuillaume GlonRémi MontredonFrank SchmidtFelix PlanitzGirish MistryHemal Zobaliaguillaume.glon@fr.landwellglobal.comremi.montredon@fr.landwellglobal.comfrank.r.schmidt@de.pwc.comfelix.planitz@de.pwc.comgirish.mistry@in.pwc.comhemal.zobalia@in.pwc.com+33 1 5657 4072+33 1 5657 4154+49 69 9585 6711+49 69 9585 6885+91 22 6689 1433+91 22 6689 1000Indonesia Anthony Anderson anthony.j.anderson@id.pwc.com +62 21 52890642Ireland Ronan MacNioclais ronan.macnioclais@ie.pwc.com +353 1 792 6006Italy Valentino Guarini valentino.guarini@it.pwc.com +39 02 91605807Japan Jun Takashima jun.takashima@jp.pwc.com +81 3 5251 2574Korea Sang-Keun Song sang-keun.song@kr.pwc.com +82 2 709 0559Luxembourg Wim Piot wim.piot@lu.pwc.com +352 49 48 48 1Mexico Arturo Mendez arturo.mendez@mx.pwc.com +52 33 3648 1013Middle East Dean Rolfe dean.rolfe@ae.pwc.com +971 4 304 3100The Netherlands Fred Klaassen fred.klaassen@nl.pwc.com +31 10 407 5439Singapore Sunil Agarwal sunil.agarwal@sg.pwc.com +65 62363798South AfricaKyle MandyChaya Lakhanikyle.mandy@za.pwc.comchaya.lakhani@za.pwc.com+28 11 797 4977+27 31 250 3766SpainPablo AzconaAraceli Zatarainpablo.azcona@es.landwellglobal.comaraceli.zatarain@es.landwellglobal.com+34 96 303 2032+34 96 303 20 48Sweden Lars Henckel lars.henckel@se.pwc.com +46 8 555 333 26SwitzerlandMarkus Hertelmarkus.hertel@ch.pwc.com+41 58 792 94 45Dr. Niklaus Honauer niklaus.honauer@ch.pwc.com+41 58 792 59 42UK Mark Schofield mark.schofield@uk.pwc.com +44 20 7212 2527US Matthew Haskins matthew.haskins@us.pwc.com +1 202 414 1570In this publication, the terms 'PricewaterhouseCoopers' and 'PwC' refer to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate andindependent legal entity.

ForewordMark SchofieldGlobal Leader, Sustainability & Climate Change TaxPricewaterhouseCoopers LLP (UK)This PricewaterhouseCoopers report examinesattitudes in the international business communitytowards environmental regulation, legislation and taxes.I believe that this is the most comprehensive surveyof its kind yet completed, because of the number ofparticipants and the range of industries and nationalitiesrepresented. Together they create a unique insight intocorporate thinking.In almost 700 interviews, conducted in 15 countries,executives shared their perspectives on the following:• the impact of climate change;• the government’s role in protecting the environment;• which environmental policy tools they prefer and why; and• the ingredients necessary for a global climate change deal.Climate change is testing the ability of the world’s leaders todevelop effective environmental policies through consultation.Many, in and out of government, are frustrated with thepace of negotiations, as evidenced during the challengingsummit in Copenhagen, but recriminations and defeatismare distractions. The message from business leaders in thissurvey is clear: focus on expanding the baseline commitmentsfrom (and post-) Copenhagen into straightforward policiesthat are applied consistently over the long term.Our research indicates what business leaders think, and whatthey are looking for, from government and environmentalpolicies. This creates a platform for constructive dialoguebetween business and government, which is ultimately whatbusiness really wants. For those struggling to find a globalconsensus, there is plenty of hope. While companies ofdifferent sizes and sectors do emphasise different concerns,attitudes around the world are strikingly similar. A largemajority of businesses, for example, are potential supportersof incentives, emissions trading schemes and carbon taxes.Political leaders who activate this potential have a goodchance of creating historic solutions to the unprecedentedchallenges facing our planet.Many executives believe that current government policies arenot sufficiently coherent or effective. But they remain ready tosupport policies that are consistent, clearly linked to savingthe environment, and developed in consultation with theprivate sector, so as to be effective when implemented.More cooperation among governments, internationalinstitutions and businesses will be required to preserve theenvironment so that subsequent generations can prosper.The findings here and on pwc.com/appetiteforchange areintended to encourage dialogue, identify opportunities forcollaboration and policy optimisation, and help governmentsand international institutions understand the viewsof businesses.I hope you find reading this report as interesting and thoughtprovokingas we have found researching it.

Contents1. Executive summary. 62. Why is government leadership essential? 83. Where are the opportunities for government? 124. How can policies find support? 225. What will new policies mean for business? 366. While managing uncertainty, businesses remain hopeful. 447. About the survey. 48

Section 1Executive summaryA uniqueinsight intocorporate thinking6 Appetite for change. PricewaterhouseCoopers.

• In the battle against climate change, governmentleadership is indispensable.• The business community is ready for, and supportive of,government action.• Business leaders around the world recognise the need formeaningful emissions targets.• Carbon taxes, emissions trading and incentives havewidespread support in the business community.• Businesses generally believe that existing environmentaltaxes, regulations and incentives are ineffective,inconsistent and unclear.• Businesses want clear long-term investment signals,and input into the formulation of direction andderivative policies.• Executives prefer the hypothecation of carbon andother environmental taxes, i.e. the use of taxes to fundenvironmental and low carbon programmes.• Government action on climate change will increasethe importance of regulatory compliance, reputationmanagement and stakeholder relations.• Corporate climate change strategies will affect operations,key performance indicators and innovations, around newproducts and services.• A growing number of businesses are developing strategiesto manage the uncertainty surrounding climate change,but they remain hopeful that governments and businesscan work together to create consistent policies that haltglobal warming.• More data can be found at pwc.com/appetiteforchange• Certainty and simplicity are the biggest challenges forcarbon trading; for carbon taxes, the key issues areflexibility and the availability of incentives.Appetite for change. PricewaterhouseCoopers. 7

Section 2Why is government leadership essential?In the battle againstclimate change,government leadershipis indispensable8 Appetite for change. PricewaterhouseCoopers.

In the battle against climate change, government leadershipis indispensable. Through legislation and regulation,governments exert a stronger influence on environmentalpractices than any other force motivating businesses (seefig. 1 below). As Bart Kuper, Tax Director of TNT HoldingB.V. in the Netherlands noted, “There are all sorts ofvoluntary initiatives to motivate groups in society to live morecarefully…it’s all very noble but…it’s not enough.”Only among the largest companies surveyed (those with morethan 5,000 employees) do a majority believe that voluntaryagreements are effective (see fig. 2 below). More than 80 percent of all executives surveyed, on the other hand, believeregulation and tax incentives motivate businesses to changetheir environmental behaviour. Tax charges are consideredeffective by 74 per cent of business leaders.Figure 1Top influencers are compliance, corporate reputation, costs and competitive advantageCompliance with legislation/regulationManage corporate reputationCost savingsCompetitive advantageKeep up with competitorsTax incentivesLead the fieldProtect economic sustainabilityManage exposure to taxes/leviesInvestor/shareholder pressureNew business venturesPositive outcomes for the environmentAttract/retain staff1 41 42 34 73 83 9444 784410101212131220201328202325272430232732173937334035383036383033355727343528292326201723191712Influential85%74%73%67%64%61%56%56%56%53%52%52%39%No influence at all Little influence Neither Fairly influential Very influentialI am now going to read out a list of factors which may potentially influence your organisation’s environmental behaviour, in terms of the efforts made to minimiseenvironmental impact and promote responsible environmental behaviour. For each factor, please indicate its influence on decision making by giving it a score from 1 to 5,where 5 is very influential and 1 is no impact at all. Base: Total (654)Figure 2A combination of carrot (tax incentives) and stick (regulation, tax charges) is requiredNo. of employeesEffective

Section 2Why is government leadership essential?Compared to a dozen other behavioural drivers, includingcost savings, reputation and competition, regulatorycompliance is viewed by 85 per cent of business executivesas the most influential. More than half of executives believe itis ‘very influential’.Business leaders believe that stable, properly enforcedpolicies protect fair competition and facilitate long-termplanning. Put simply, businesses want to be assured thattheir international peers are helping to bear the costs andresponsibilities of changing environmental behaviour. Ninetyfive per cent agree that tax and regulation will help the worldreach a climate deal (see fig. 3 opposite). Clare Luehman,Emissions Trading and Sustainability Manager at IncitecPivot Ltd. says, “We need to have a baseline of regulationsfrom government to ensure that all companies operate to thesame level.”Long-term planning is vital for the transition to a low carboneconomy. Developing the necessary economic ecosystems,especially new technologies, requires large capitalexpenditures. As a US executive explains, the environmentalissues that are most likely to affect her business, “will bedriven by legislative and regulatory changes in the US. Theway we expand facilities and distribute capital investmentmay all be affected.”Figure 395% feel tax and regulation will have some role in achieving targetsTotal (%)UKFranceGermanySpainSwedenNetherlandsCzech RepublicCanadaUSARussiaBrazilChinaIndiaSouth AfricaAustralia3 50 452 34 6446 524 70 244 21 7153 4368 324 50 392 50 486 46 4310 80 104 42 5440 586 50 447 53 4053 45No roleSome roleSignificant roleGovernments are expected to agree a new global climate change deal inCopenhagen which should include targets on national greenhouse gas emissions.Which of the following best reflects your experience of the role that tax andregulation will have in achieving these targets? Base: Total (654)Note: This question was asked before the UN Summit in Copenhagen, where notargets were agreed. However, an agreement on targets is expected in the near future.10 Appetite for change. PricewaterhouseCoopers.

pwc.com/appetiteforchange95% agree thattax and regulation will helpthe world reach a climate dealAppetite for change. PricewaterhouseCoopers. 11

Section 3Where are the opportunities for government?The businesscommunity is readyfor, and supportive of,government action12 Appetite for change. PricewaterhouseCoopers.

As demonstrated previously, the business community isready for, and supportive of, government action. Whenenvironmental policies are unstable and unclear, businesseslook to governments for leadership. Speaking at the climatechange meeting in Copenhagen, JohnsonDiversey’s ChairmanCurt Johnson said, “Once industry adopts a mindset thatequates greenhouse gas emissions with waste, we’ll makeprogress in ways and to an extent that we have never seenbefore. This will be good for the planet and good for ourbusinesses. But we must act and we must act now.” 1 A largemajority of business executives believe that governmentsshould help lead the behavioural changes that will both guideand encourage such action.Figure 4Just under half think government should take the lead on changeTotal (%)27 10 18 44UK 14 8 10 68France 26 4 24 44Germany50 28 2 20Spain 14 18 11 57Sweden27 13 60Netherlands 18 11 29 43Seventy one per cent of businesses believe governments,either alone or in cooperation with the private sector andindividuals, should provide leadership (see fig. 4). Executivesin the UK and China are most likely to say governmentsalone should have primary responsibility for leading change.However, even in the US and South Africa, where more thanone third of companies believe the market alone should lead,the majority of business leaders still feel the government mustplay the leading role.Czech RepublicCanadaUSARussiaBrazilChinaIndia21 11 14 5424 10 6 6021 14 38 2330 7 6344 20 16 2016 16 6834 12 22 30Many organisations across the world already expect tochange the way they conduct business in the next two tothree years, as a result of climate change (see fig. 7 on page17). Business leaders in Brazil, India, China and Russiaare more likely to be sceptical that changes are imminent.Russian business executives are most likely to expect noimpact from climate change in the next few years.South AfricaAustraliaA combination30 37 3328 15 58IndividualsBusiness (the market)Who do you think should have primary responsibility for leading behaviouralchange in relation to climate change? Base: Total (654)Government1Press Release, WWF, Dec 13, 2009 downloaded from www.worldwildlife.org 15 December 2009Appetite for change. PricewaterhouseCoopers. 13

Section 3Where are the opportunities for government?In recent polls of the public, Russians are among thenationalities that express the least concern about theseriousness of climate change, but this alone does notexplain the attitude of Russian business leaders. In the US,the individual level of concern is the same as in Russia. AGlobeScan/BBC World Service poll found that 46 per centof Russians and 45 per cent of Americans consider climatechange a “very serious” problem. (In the European Union, thepercentages are markedly higher, ranging from 59 per cent ofUK citizens to 77 per cent of Spanish citizens.) 2Other studies show that the number of Americans who believeglobal warming does not exist or has been exaggeratedis actually increasing. 3 Although Americans may be moresceptical than Russians about global warming, only 11 percent of US executives expect their businesses to experienceno changes within three years as a result of climate change.In contrast, 47 per cent of Russian business leaders predictno changes (see fig. 5 opposite).Figure 5Relationship between the relative impact of climate change and thosebelieving the government should help lead change.Number of respondents100%90%80%70%60%50%40%ChangedoperationsalreadyThink governmentshould helplead changeThe different attitudes may be responding to differentindications from government. As part of the post-Kyotoclimate change deal, Dmitry Medvedev has offered to holdRussian greenhouse gas emissions at 25 per cent below 1990levels. The ceiling is comparable to other European nationsbut allows for emissions growth in Russia. Due to changesin Russia’s economy since 1990, its current emissions arealready approximately 34 per cent below the 1990 level. 4The proposed national cap, then, suggests that business asusual can continue, at least for a few years. This is significantfor Russian executives, who are the most likely to look togovernment to lead the behavioural changes necessary tostop global warming.30%20%10%0%Global AverageBase: Total (654)European UnionUS & CanadaSouth Africa& AustraliaBrazilExpectno morechangeChinaIndiaRussia22009 GlobeScan/BBC World Service poll. The Pew Global Attitudes survey conducted from May to June 2009 found that 44 per cent of Russians and 44 per cent of Americansconsidered global warming a very serious problem.3Pew Research Center, “Searching for Clues in the Global Warming Puzzle,” 27 October 2009. Lydia Saad, “Increased Number Think Global Warming is ‘Exaggerated’” Gallup, 11March 2009. Dana Blanton, “Fox News Poll: Where Americans Stand on the Issues,” Fox News, 18 May 2009.4As of 2006, the most recent official figures available under the UN Framework Convention on Climate Change, Russia was emitting greenhouse gases at 34 per cent below1990 levels (excluding land use, land-use change and forestry). United Nations Framework Convention on Climate Change, 28 January 2009, Geneva, Document code: FCCC/ARR/2008/RUS.14 Appetite for change. PricewaterhouseCoopers.

Section 3Where are the opportunities for government?To be meaningful, the targets need to be sufficientlyambitious, and backed by legally binding frameworks,which may include regulations, taxes and emissions tradingschemes. UK law, for example, mandates emissions of 34per cent below 1990 levels by 2020, and the government hasoffered to raise the target as part of a global agreement. Notsurprisingly, only six per cent of UK business leaders (thesecond lowest percentage worldwide), expect climate changewill not affect them in the next few years. To be effective,national targets also need a monitoring and verificationregime, which has been proposed in the Copenhagen Accord.The absence of legal clarity, on the other hand, discouragesinvestment in change. Like the US Congress, the AustralianParliament is debating legislation to curb greenhouse gasemissions, and the outcome is still uncertain. Seventy percent of US and Australian businesses are not confident aboutlong-term investments as a response to current environmentalpolicies. It is also very difficult for US companies to predicthow much carbon abatement is going to make economicsense, with no clarity on the path of carbon prices. Even inthe UK, long-term confidence is low. Only in China and Indiado large majorities of business leaders feel confident (see fig.14 on page 23).To create a long-term investment strategy, companies mustforecast both likely policies and their outcomes. In the case ofclimate change, a critical outcome is the price of carbon fiveor ten years in the future. This would be difficult to predict forany mature, consistently-regulated commodity or pollutant.Carbon is neither.Carbon taxes, emissions trading schemes and incentiveshave widespread support in the business community.There is a surprising abundance of carbon tax supporters.Sixty four per cent of businesses endorse the idea. BartKuper, Tax Director of TNT Holding B.V., believes: “If we allthink we’re going to win the game by giving incentives topeople who behave well, instead of levying a tax for thosewho pollute, then we are a long way from home. If we only dothis by sending out carrots and not using sticks, we will runout of carrots.”Many environmental taxes are currently too low to be material,and only 13 per cent of businesses report paying a carbontax. In the European Union, for example, environmental taxesaccount for about one sixteenth of tax revenues, and overallrevenues from environmental taxes declined between 1999and 2007. 8 “None [of the environmental taxes] makes adifference because they are so fragmented,” according to anexecutive in the Netherlands, “They’re not even on our radar.”“If we all think we’re going to win the game by givingincentives to people who behave well, instead oflevying a tax for those who pollute, then we are a longway from home. If we only do this by sending outcarrots and not using sticks, we will run out of carrots”Bart KuperTax Director, TNT Holding B.V.8European Commission, “Taxation Trends in the European Union: Main results” 2009 edition.16 Appetite for change. PricewaterhouseCoopers.

pwc.com/appetiteforchangeFigure 7Most are expecting some change in the way they conduct business as a result of climate change.Total (%)155925UK67222France5446Germany146620Spain181864Sweden207010Netherlands185721Czech Republic295021Canada66034USA115928Russia47473Brazil126226China206018India304624South Africa37720Australia87815No changesSome changesSignificant changesWhich of the following best reflects your views on the likely level of change in the way you conduct business as a result of climate change over the next 2-3 years?Base: Total (654)Appetite for change. PricewaterhouseCoopers. 17

Section 3Where are the opportunities for government?To significantly affect environmental behaviour in this area, taxrates would have to increase worldwide, and they are highlyunlikely to apply uniformly across regions, as some executiveshope. Still, despite some unrealistic expectations, the bulkof evidence suggests that business leaders would supporta carbon tax (see fig. 9 on opposite page). Businesses thatalready pay a carbon tax are slightly more likely to endorseone. Sixty eight per cent of carbon tax payers are supporters.In a separate survey of Irish tax directors, 61 per cent saidthey supported introducing the carbon tax rather thanpostponing it. 9Figure 8Few companies are currently paying any form of carbon tax or levy.13 22 26 14 0 23 18 25 22 7 27 2 0 4 7 5Businesses that already pay acarbon tax are slightly more likelyto endorse one -68%of carbon tax payers are supportersTotal (%)UKFranceGermanySpainSwedenNetherlandsCzech RepublicOrganisation having to pay any form of carbon tax or levy? Base: Total (654)Figure 10Fewer than one fifth of companies are currently involved in anemissions trading schemeCanadaUSARussiaBrazilChinaIndiaSouth AfricaAustraliaThe support for carbon taxes seems anchored by a feelingthat taxes are an effective method of reducing greenhousegas emissions. Seventy four per cent of executives agree thattax charges effectively encourage businesses to reduce theirenvironmental impacts. More companies believe incentives(86 per cent) and regulation (83 per cent) are effective, butsignificantly fewer believe market trading schemes (59 percent) and voluntary agreements (45 per cent) are effective(see fig. 2 on page 9). Interestingly, the proportion ofexecutives who think market trading schemes are effective isactually lower than the proportion who support the idea of atrading scheme.17 16 20 14 32 13 7 29 20 17 10 12 28 18 10 8Total (%)UKFranceGermanySpainSwedenNetherlandsCzech RepublicCanadaUSARussiaBrazilChinaIndiaSouth AfricaAustraliaCurrently involved in any form of emissions trading scheme? Base: Total (654)9In September 2009, PricewaterhouseCoopers asked 250 Irish tax directors whether they would like the proposed €20 per tonne carbon tax to be introduced in December 2009or deferred.18 Appetite for change. PricewaterhouseCoopers.

pwc.com/appetiteforchangeFigure 9Support for a carbon tax.Total (%)UKFranceGermanySpainSwedenNetherlandsCzech RepublicCanadaUSARussiaBrazilChinaIndiaSouth AfricaAustralia5 13 19 38 2610 26 42 226 6 14 52 2222 28 32 187 39 14 29 117 10 53 304 4 32 39 2132 11 32 18 72 10 20 40 288 24 26 24 187 13 10 37 332 12 12 56 1810 4 8 28 502 6 10 34 4813 10 43 333 20 48 30Don’t knowNot at all supportiveNot very supportiveFairly supportiveVery supportiveHow supportive are you of a carbon tax? Base: Total (654)Figure 11Support for an emissions trading schemeTotal (%)UKFranceGermanySpainSwedenNetherlandsCzech RepublicCanadaUSARussiaBrazilChinaIndiaSouth AfricaAustralia4 11 17 34 3410 22 50 186 14 26 36 188 12 36 28 1611 29 25 21 143 3 23 30 4018 11 54 1811 18 25 36 118 22 36 346 23 18 31 2210 17 7 27 402 52 462 6 26 662 6 18 7410 10 10 17 535 10 10 43 33Don’t knowNot at all supportiveNot very supportiveFairly supportiveVery supportiveHow supportive are you of an emissions trading scheme? Base: Total (654)Appetite for change. PricewaterhouseCoopers. 19

Section 3Where are the opportunities for government?A company that already participates in an emissions tradingscheme is also more likely to support the idea (see fig. 12).Figure 12Support for an emissions trading scheme increases with participationEnergy, utility and mining firms are most likely to be involvedin trading. Thirty four per cent of them participate in and76 per cent support emissions trading. In contrast, only 12per cent of retail and consumer goods companies tradeemissions and 62 per cent support the idea.92%of businesses agreethat government should offer moreincentives to invest in environmentallybeneficial activities and technologiesPercentage supportive1009080All non-tradingbusinessesTechnology, Information,Communications,Entertainment & MediaRetail & Consumer GoodsFinancial ServicesEngineering,Construction &Industrial ManufacturingAll trading businessesEnergy, Utilities & MiningAcross all industries, 82 per cent of businesses that tradeemissions support trading. This compares with 65 per centof non-trading businesses that are supportive. The 17-pointgap appears wide next to the 5-point difference in supportbetween carbon tax payers and those who do not pay acarbon tax. The trading profits some companies have mademay contribute to this divide. Businesses that have soldallowances for windfall profits in the last few years are likelyto support trading. These include some European utilitiesand developers of projects that sell allowances through theclean development mechanism (CDM). The fillip from CDM isevident in the high percentages of supporters in Brazil, Chinaand India (see fig. 11 on previous page).7060500 5 10 15 20 25 30 35Percentage participatingBase: Total (654)20 Appetite for change. PricewaterhouseCoopers.

pwc.com/appetiteforchangeLimiting the policy debate to carbon taxes and emissionstrading ignores the most popular policy tool in the businesscommunity – incentives. Ninety two per cent of businessesagree that government should offer more incentives to investin environmentally-beneficial activities and technologies (seefig. 13 below). Eighty nine per cent believe financing for greentechnology is important to ensure the effectiveness of a globalclimate change deal (see fig. 6 on page 15). This compares to78 per cent that believe a global carbon market is important.82% of businesses thattrade emissions support tradingFigure 13Most are in favour of incentives, but current criteria are too onerous, it is unclear what incentives do exist and they are insufficiently motivatingThe government needs to offer more incentives tosupport investment in environmentally beneficialactivities, processes & new technologies1 5 22 70Agree92%Meeting criteria required by current taxincentives is too onerous to makethe incentives worth applying for14 7 24 38 1755%It is clear what tax incentives existand how to apply for themCurrent tax incentives are sufficiently motivatingto make businesses change their behaviour5 22 40 24 856 28 43 19 532%24%Don’t knowStrongly disagreeSlightly disagreeSlightly agreeStrongly agreeThinking about environmental tax incentives, how strongly do you agree or disagree with the following statements about government policy? Base: Total (654)Appetite for change. PricewaterhouseCoopers. 21

Section 4How can policies find support?Businesses generally believe thatexisting environmental taxes,regulations and incentives areineffective, inconsistent and unclear22 Appetite for change. PricewaterhouseCoopers.

Businesses generally believe that existing environmentaltaxes, regulations and incentives are ineffective,inconsistent and unclear. When asked about seven differentfactors related to environmental policy, less than half ofbusinesses agreed with the government’s current approach.Fewer than 15 per cent strongly agreed (see fig. 14 below).One of the greatest concerns among business leaders isthe inconsistency of policies and enforcement, both withinand among nations. For example, the EU Emissions TradingScheme was established in 2005, but emissions trading islimited elsewhere. Only 41 per cent of utility companies in thissurvey are involved in an emissions trading scheme, whichin part reflects their uncertainty about the impact of suchschemes on company behaviour, given weak carbon prices.This kind of regulatory diversity creates what are perceivedas unfair advantages and unnecessary costs. Peter Dobney,Group Manager, Resources and Energy, Amcor Limited, says“There are currently environmental efficiency regulations inevery state [in Australia] and there are huge inconsistenciesbetween them.... This generates enormous compliance costs.I would like to see an end to the state regulations and forthese to be replaced with a single national scheme.”Less than half of businesses agreedwith the government’s current approachFigure 14There is work to be done in convincing organisations about all aspects of government tax and regulatory frameworksAgreeEffective engagement withbusinesses over env. policies163536946%Sufficient priority given to businessissues re. climate change1837331043%Confident making long terminvestment/business decisions1935321143%Consistent long-term env. taxand/or regulation policy223531939%Clear policy re environmentaleconomic instruments224029736%Joined up thinking betweengovernments of different countries263428735%Joined up thinking betweendepartments/bodies/agencies273429635%Strongly disagree Slightly disagree Slightly agree Strongly agreeHow strongly do you agree or disagree with the following statements about the government’s environmental tax and regulation framework? Base: Total (654)Appetite for change. PricewaterhouseCoopers. 23

Section 4How can policies find support?Conflicting policies can become perverse incentives thatreward the status quo over more environmentally-friendlybehaviour. In the US, the Environmental Law Instituteestimates that fossils fuels received approximately USD 70billion in direct spending and tax relief in the period from2002 through to 2008. During the same period, traditionalrenewable fuels received about USD 12 billion, and thecontroversial fuel corn ethanol received just under USD17 billion. 10 Outside of the Organisation for EconomicCo-operation & Development (OECD) countries, Chineseincentives for renewable energy, particularly wind and solarpower, have fostered a rapid build-up in capacity, yet alongwith Russia and India, China remains one of the world’slargest subsidisers of fossil fuels. 11Business leaders bear some responsibility for thecontradictions. Generally, they will seek exceptions,promote competition between governments, and protectthe status quo when it benefits their stakeholders. Businessexecutives do, however, strongly support the consistentimplementation of environmental policies across regions andover the long term. Particularly as operations spread acrossborders, legal differences often create more disadvantagesthan advantages.Chris Lenon, Global Tax Director at Rio Tinto explains, “Weapply our standards on a global basis and we stick to thesestandards. That’s a decision that the Group has taken…. Wewant there to be one measure of what a tonne of carbon is“We apply our standards on a global basis and we stickto these standards. That’s a decision that the Grouphas taken…. We want there to be one measure of whata tonne of carbon is because that way it will be easierto comply and to operate on a global basis on a levelplaying field.”Chris Lenon, Global Tax Director,Rio Tintobecause that way it will be easier to comply and to operate ona global basis on a level playing field. We seek certainty andconsistency. Our fundamental issue is that our investmentsare very long-term investments, so if you can’t predict whata potentially significant cost is going to be, over the life of aproject, it’s difficult to evaluate any project.”A lack of coordination within and between governmentscreates uncertainty about long-term investments and otherbusiness decisions that could be affected by environmentalpolicies. Clearing the uncertainty is critical for the transitionto a low carbon economy. The utilities sector, for example,needs to plan investment in cleaner generation and muchneededpower infrastructure on time-scales of up to a decadeor more.10Adenkike Adeyeye, James Barrett, Jordan Diamond, Lisa Goldman, John Pendergrass and Daniel Schramm, “Estimating US Government Subsidies to Energy Sources: 2002-2008,” Environmental Law Institute, September 200911The Economist, “A long game,” 5-11 December 2009. International Energy Agency, “World Outlook: 2008 Edition”24 Appetite for change. PricewaterhouseCoopers.

pwc.com/appetiteforchangeSixty two per cent of business executives, however, believetheir governments have not created clear economic signalsabout environmental issues. Fifty seven per cent feel theirgovernments do not have consistent, long-term taxes andregulations (see fig. 14 on page 23). For example, althoughincentives are popular in theory, 62 per cent of businesseshave difficulty understanding what incentives exist (see fig. 13on page 21). When they do discover relevant incentives, 55per cent of business executives are discouraged from actuallyapplying by the perceived administrative burden. With theseexperiences in mind, it is not surprising that 71 per cent ofexecutives believe that existing incentives do not changeenvironmental behaviour.Businesses want clear long-term investment signalsand input into the formulation of direction and derivativepolicies. Ninety six per cent of the survey respondents agreethat an important element of an effective global climatechange deal is sending a clear long-term signal that supportsinvestment in low carbon technology (see fig. 6 on page 15).Incentives remain the favoured way of sending such a signal(see fig. 2 on page 9) despite the difficulties businesseshave with existing incentives (see fig. 13 on page 21). Eightysix per cent of Spanish executives believe there should betax incentives for becoming carbon neutral, for example,even though the stop-and-start implementation of recentsubsidies has created a volatile solar power market (see fig.15 opposite).Figure 15Should the tax system include incentives to become carbon neutral?Total (%)UKFranceGermanySpainSwedenNetherlandsCzech RepublicCanadaUSARussiaBrazilChinaIndiaSouth AfricaAustralia23 6736 508 8624 648643 5343 467 6828 6228 529024 7210 8810 8427 6348 45Depends on extent of incentivesVery/fairly good ideaWhat do you think of the idea that the tax system, as it applies to companies,should include incentives for companies to become carbon neutral, to encourageenvironmentally-beneficial activity in the business community? Base: Total (654)Businesses want clear long-terminvestment signals and input intothe formulation of those signals andderivative policies.Appetite for change. PricewaterhouseCoopers. 25

Section 4How can policies find support?Incentives take advantage of two important influences oncorporate environmental practices – creating competitiveadvantage and generating cost savings (see fig. 1 on page 9).Sixty seven per cent of respondents agree that incentives forcompanies to become carbon neutral are a good idea (seefig. 15 on page 25). A further 23 per cent remain cautious butare potential supporters, saying their endorsements woulddepend on the extent of the incentives.Regulations and taxes will create costs for businesses,but they may at the same time create a level playing field,as well as opportunities for new sources of competitiveadvantage and new ways to burnish reputations (which isanother important behavioural influence). When asked if theyview regulation as a potential opportunity, 53 per cent ofbusinesses say, ‘Yes’ (see fig. 16 opposite).In developing new taxes and regulations, governmentscould build on existing goodwill through more cooperation.Fifty nine percent of global CEOs believe the key to smarterregulation is more dialogue between government andbusiness and ‘co-designing’ policies. 12 John T. Disharoon,Sustainable Development Manager, Caterpillar Inc., believes,“Regulators have good motives but don’t fully understandthe implications for business in terms of compliance, so itis important to ensure that business gets involved in policysettingat the earliest stage.”Figure 16Around half see environmental regulation as an opportunity for businessTaxRegulation12 22 26 23 146 17 22 26 27Major opportunityMinor threatMinor OpportunityMajor threatFor each of these two forms of government intervention, tell me to what extent yousee them as an opportunity vs. a threat to your organisation’s competitiveness.Base: Total (654)“Regulators have good motives but don’t fullyunderstand the implications for business in terms ofcompliance, so it is important to ensure that businessgets involved in policy-setting at the earliest stage.”John T. Disharoon, Sustainable Development Manager,Caterpillar Inc.Neither/Nor12For further discussion of CEO views on collaboration with government, see “Rethinking and Reshaping the business environment: Government and the Global CEO,” PSRC,January 201026 Appetite for change. PricewaterhouseCoopers.

pwc.com/appetiteforchangeBusiness leaders do recognise that government leaders tryto collaborate with the private sector in many cases. Forty sixper cent of all business executives believe their governmentshave effectively engaged business over environmentalpolicies, and this engagement has created support (see fig.14 on page 23) . Forty three per cent of executives thinktheir governments are prioritising business issues during thedevelopment of climate change policy (see fig. 14 on page23). In Germany, 52 per cent of businesses feel their climatechange-related issues are given priority, possibly as a result oftheir government’s long-term, multi-faceted green agenda.Figure 17Retail sector feels least engaged by governmentEnergy, Utilities & MiningFinancial ServicesIndustrial Products544944495448545653Business leaders do recognise thatgovernment leaders try to collaborateTechnology, Information,Communications andEntertainment & MediaRetail & Consumer Goods566356656152Among small businesses, 13 a slim majority also feel theirviews are solicited and accepted by government. This positiveview, however, may have a weak foundation, especially whenapplied to climate change policies, such as carbon taxesand regulation. Small business executives are least likely tobelieve that climate change regulations and taxes will affecttheir profits, investments and operations in the next twoto three years. When the long-term price of carbon and itseffects on small businesses become clear, attitudes may shiftamong firms of all sizes.Retail (alone)666657Base: Total (565) of which (53) are retail companies.0 10 20 30 40 50 60 700% 10% 20% 30% 40% 50% 60% 70%DisagreeGovernment incorporates industry viewsGovernment encourages behavioural changeClimate change policies address business issues13This survey defines a small business as any respondent who reported having fewer than 250 employees. This may include subsidiaries owned by larger organisations.Appetite for change. PricewaterhouseCoopers. 27

Section 4How can policies find support?EmployeesFigure 18Medium-large businesses feel least engaged by governmentAll companies5001+1001-5000251-1000Up to 2505656505755496464595354504446410 10 20 30 40 50 60 700% 10% 20% 30% 40% 50% 60% 70%DisagreeGovernment incorporates industry viewsGovernment encourages behavioural changeClimate change policies address business issuesTo gather business support, governments may needspecial efforts for the retail and consumer sectors and fororganisations with 1,001-5,000 employees (medium-largebusinesses). These types of businesses feel least engagedby environment policies. Two thirds of retail executives(see fig. 17 on page 27) and 64 per cent of executives atmedium-large businesses (see fig. 18 opposite) believe thatgovernments have not encouraged businesses to changeenvironmental behaviour significantly. The same proportionsthink that climate change policies do not give sufficientpriority to business issues. Among all companies, 55 per centof executives feel the same way.Certainty and simplicity are the biggest challenges forcarbon trading; for carbon taxes, the key issues areflexibility and incentives. As suggested by the strongsupport for both policies, most business leaders do not seecarbon taxes and trading as mutually exclusive. A Chineseexecutive provided a good summation of a common viewthat “both of them are good ways to encourage companiesto reach emission targets. In practice, it really depends ona company’s nature and type of business.” Asking businessleaders to state a preference, however, reveals the attitudesthat drive and inhibit support for each policy (see fig. 19 onpage 30 and fig. 21 on page 31).28 Appetite for change. PricewaterhouseCoopers.

Section 4How can policies find support?Figure 20Overall, opinion is divided on ways of encouraging behaviourTotal (%)UKFranceGermanySpainSwedenNetherlandsCzech RepublicCanadaUSARussiaBrazilChinaIndiaSouth AfricaAustraliaEmissions Trading Scheme47 41 1236 46 1830 66 434 48 1839 46 1440 50 1046 46 729 36 3652 40 846 36 1933 50 1770 26 460 28 1276 2453 37 1043 48 10Carbon TaxNeither/Don’t knowThinking about these two different ways of encouraging responsibleenvironmental behaviour, which do you prefer from a corporate point of view?Base: Total (654)Many business leaders outside the EU share the fear thattrading schemes will require a new, complex and costlyinfrastructure. They also agree that a carbon tax would be“easier to understand,” “more equitable” and “more difficultto falsify.” A significant number of executives believe thatmarket trading will simply not reduce emissions despite thecontrary evidence of the EU ETS and the North Americanacid rain program. They fear trading schemes will simply shiftallowances across borders, as opposed to reducing totalemissions. A South African executive says, “Emissions tradingwill be abused. Europe and the US will dump it into the skyand buy the credits from Africa.” Executives in Russia andAustralia show particularly strong support for a tax.Carbon trading supporters make similar arguments (see fig.21 on page 31). An Australian trading supporter believes,“Taxes have no impact on reducing emissions. If youcan afford the tax…you keep emitting.” “Tax,” accordingto a Brazilian executive, “is subject to tax dodging andcorruption.” Trading advocates emphasise the flexibility topurchase allowances when the technologies that reduceemissions are not available or affordable. They also believethat a rewards-based market system is the most efficientmethod of directing investment towards the reduction ofgreenhouse gas emissions.Outside of the EU, the majority of companies prefer a markettrading mechanism to a tax as the best way to encourageresponsible environmental behaviour. Worldwide 68 percent of businesses support the idea of emissions trading(four per cent more than support a carbon tax) (see figs. 930 Appetite for change. PricewaterhouseCoopers.

pwc.com/appetiteforchangeFigure 21Reasons for supporting emissions trading schemesActively support emissions tradingImpact:• Allows government to set a ceilingon emissions levelsFlexible:• Gives companies choice overwhat’s best• Accommodates companiesthat cannot reduce emissions inabsence of right technologyMarket-based:• Belief that market is a bettermechanism for developing themost efficient solutionsVoluntary (not mandatory):• More acceptable to private sectorReward-based (not penalty):• Scope to reduce cost/makemoney, opportunity to becost neutral• Brings competitive advantage• More acceptable to private sectorStimulus:• If money is saved, investmentin cleaner/greener technologicalsolutions will inevitably followConcern over carbon taxExecutives prefer the hypothecationof carbon and environmental taxesImpact:• There is no specific ceiling setfor emissions - governmentmust estimate the appropriatecarbon price.Burden:• Already feel over-burdenedwith taxEnforcement:• Requires government control toprevent tax evasion/avoidanceLost opportunity:• Revenue raised would not beused for environmental initiativesImpact on products and services:• Companies would try to recoupby passing cost onto consumerDemotivating:• No opportunity to benefit, onlya cost• Disincentive to growth, badfor economyand 11 on page 19). Companies in India, Brazil and Chinahave a very positive attitude. They are not currently subjectto emissions targets but many profit from emissions tradingby selling carbon credits through the Kyoto Protocol’s cleandevelopment mechanism. In China, 28 per cent of businessesparticipate in an emissions trading scheme, and 92 per centof all businesses support the idea (see fig. 10 on page 18 andfig. 11 on page 19).Executives prefer the hypothecation of carbon andenvironmental taxes, i.e. the use of taxes to fundenvironmental and low carbon programmes. New taxproposals always raise concerns about increasing costs andcompetition from lower-taxed regions, but there is a strongcase for balancing carrots and sticks in environmental policy.Business leaders would of course prefer that newenvironmental taxes do not increase their tax obligations.In the EU, offsetting environmental taxes with other taxreductions is formally called Environmental Fiscal Reform(EFR). Evidence from Denmark, Germany, the Netherlandsand Sweden suggests that EFR usually makes the taxsystem more business-friendly, according to the EuropeanEnvironmental Bureau. Sweden, for example, revised itsenergy tax system in 1991. The Swedish government creditsthe resulting combination of credits and incentives withreducing carbon emissions by nine per cent (as of 2006),while the economy was growing by 44 per cent. 16 The carbontax was accompanied by a reduction of general energy taxesby 50 per cent and new exemptions to further incentivise theuse of low carbon energy. 1716Gwladys Fouché, “Sweden’s carbon-tax solution to climate change puts it top of the green list,” guardian.co.uk, 29 April 2008.17Bengt Johansson, “Economic Instruments in Practice 1: Carbon Taxes in Sweden,” Swedish Environmental Protection Agency, 8.Appetite for change. PricewaterhouseCoopers. 31

Section 4How can policies find support?The success with offsets in Denmark and Sweden occurredbefore the financial crisis. In this period of enormousgovernment deficits, it is probable that governments will needto increase taxes. The best chance for garnering businesssupport for new taxes is to combine them with either offsetsor some measure of hypothecation.Business executives are unlikelyto support environmental taxes...which are designed primarily to raisegeneral revenue.Figure 22Taxes are paid by many organisations, but effectiveness is felt to be lowVehicle Excise DutyFuel DutyLandfill TaxAir Passenger DutyClimate Change LevyCongestion ChargeAggregates LevyWhich of the following specific taxes are paid by your organisation?Base: UK only (50)Landfill Tax (38)86%84%76%66%64%52%8%18 29 37 16Climate Change Levy (32)25 22 47 6Business executives are unlikely to support environmentaltaxes, such as the UK’s air passenger duty (APD), whichare designed primarily to raise general revenue. In 2007UK business leaders rated the APD the least effectiveenvironmental tax, 18 and they remain sceptical today. Onlynine per cent of UK businesses currently believe the APD iseffective (see fig. 22 opposite). When increases in the APDwere announced recently, Willie Walsh, the chief executive ofBritish Airways, was quoted as saying: “The Government’sown figures show that British airlines already meet theirenvironmental costs, so there can be no ‘green’ justificationFuel Duty (42)Congestion Charge (26)Aggregates Levy (4)Vehicle Excise Duty (43)Air Passenger Duty (33)33 29 29 1038 31 31Not at all effectiveFairly effective75 2540 40 2158 33 6 3Not very effectiveVery effectiveHow effective do you feel the following specific taxes have been in changing yourorganisation’s environmental behaviour? Base: UK only (base sizes in brackets forthose paying each tax)18Saving the Planet 2007 - PricewaterhouseCoopers LLP, UK32 Appetite for change. PricewaterhouseCoopers.

pwc.com/appetiteforchangefor these additional taxes.” 19 The UK government has, in fact,already concluded that the APD did not produce significantreductions in air travel. 20Figure 23Majority feel that the ‘giving back’ to the environment from taxes is importantTaxes that are labelled and promoted as ‘environmental’ arequalitatively different than those designed to raise generalrevenue. Pollution taxes not only compensate for the failure ofthe market to price pollution, as on a more fundamental level,the goal is to reduce pollution.If a pollution tax is not offset by a tax reduction, it isreasonable to expect that governments should seek to gainthe maximum environmental benefit by investing the fundsinto further pollution reduction measures, which supportthe overall policy objective. Hypothecated (or reserved) taxproceeds could fund tax and other incentives as well asdirect investments that balance the perceived penalties of taxcharges and thereby generate support for and confidence intax policy.TotalEuropean UnionNorth AmericaBrazil, Russia,India and China4 7 27 615 8 30 575 11 37 452 4 16 78Between 1990 and 2005, Denmark reduced per capitaCO 2emissions by 15 per cent, using a combination oftaxes, incentives and significant investments in renewableenergy (especially wind power) that help provide affordablealternatives to heavily taxed coal power. 21 Eighty eight percent of businesses would like to see similar investments andincentives in their regions; however, only 31 per cent areconfident that monies raised from environmental taxes aredirected to environmental initiatives (see fig. 23 opposite).Other1 6 27 64Not at all importantFairly importantNot very importantVery importantHow important do you feel it is for business to see that monies raised fromenvironmental taxes and regulation are being/would be directed to ‘green’/environmental projects and initiatives? Base: Total (654)19Budget 2009: how changes to Air Passenger Duty will affect passengers. By Charles Starmer-Smith, Telegraph.co.uk 22 Apr 200920Source: Antony Seely, ‘Air passenger duty: introduction’, House of Commons Library, Standard Note SN/BT/413, Last updated 16 June 200921Charles Komanoff, “Revenue Recycle: Lessons (or not) from Europe,” www.carbontax.org, 25 March 2008Appetite for change. PricewaterhouseCoopers. 33

Section 4How can policies find support?In some cases, hypothecation may not be the most efficientway to direct funds into environmental projects. It may alsonot generate sufficient funds for green initiatives. On theother hand, for governments that shift a significant portion oftheir revenue to green taxes, hypothecation of all the revenuefrom those taxes will simply be impractical. But whetherthrough hypothecation or other means, governments thatlink new taxes strongly with environmental outcomes have amuch better chance of garnering business support. As onerespondent indicated, “If designed properly, a carbon tax canwork. The key design element is that it has to be linked toenvironmental progress.”Figure 24Fewer than a third are confident that ‘giving back’ will become a realityTotalEuropean UnionNorth AmericaBrazil, Russia,India and China24 42 26 525 40 27 523 47 26 321 39 31 8Other33 43 13 4“If designed properly, a carbon tax can work.The key design element is that it has to be linked toenvironmental progress.”Not at all confidentFairly confidentNot very confidentVery confidentHow confident are you that monies raised from environmental taxes and regulationare being/would be directed to ‘green’ or environmental projects and initiatives?Base: Total (654)34 Appetite for change. PricewaterhouseCoopers.

pwc.com/appetiteforchangeGovernments that link new taxesstrongly with environmentaloutcomes have a muchbetter chance of garneringbusiness supportAppetite for change. PricewaterhouseCoopers. 35

Section 5What will new policies mean for business?Government actionon climate change willincrease the importanceof regulatory compliance,reputation managementand stakeholder relations36 Appetite for change. PricewaterhouseCoopers.

Government action on climate change will increasethe importance of regulatory compliance, reputationmanagement and stakeholder relations. Sectors thathave already been heavily impacted by climate change aremore likely to report that regulatory compliance, reputationmanagement and stakeholder relations influence theirenvironmental policies. These influences are likely to becomemore important among all industries as the impacts of climatechange widen.In this survey and in PricewaterhouseCoopers 2010CEO Survey, executives in the entertainment, media,communications, technology and financial services sectorswere some of the least likely to report a large impact on theway they conduct business as a result of climate change(see fig. 25 opposite). Executives in the energy, utility, miningand metal sectors were most likely to report that the climatechange and environmental debate had already affectedcorporate strategy.The power generation and transport sectors, for example, areexpected to contribute 70 per cent of the projected increasein world energy-related CO 2emissions to 2030. 22 Theyhave a triple role in climate change responses – increasingthe share of renewable or cleaner generation in their ownoperations, participating in new business ventures to developinnovative cleaner energy solutions and, also, promotingbetter energy efficiency and cleaner energy initiatives amongtheir customers.Figure 25Energy, utilities and mining firms are most affected by climate changeTelecommunications, Information,Communications, EntertainmentFinancial ServicesRetail, ConsumerAll sectorsIndustrial ProductsEnergy, Utilities, Mining0 5 10 15 20 25 30 350% 5% 10% 15% 20% 25% 30% 35%Report a ‘very big’ impactBase: Total (654); Telecommunications, Information, Communications, Entertainment(54); Financial Services (110); Retail, Consumer (118); All sectors (654); IndustrialProducts (203); Energy, Utilities, Mining (80)The power generation and transportsectors are expected to contribute70 per cent of the projectedincrease in world energy-related CO 2emissions to 203022Estimate by the International Energy Agency (IEA)Appetite for change. PricewaterhouseCoopers. 37

Section 5What will new policies mean for business?Utilities, along with other heavily impacted industries,are more likely to report the influence of regulation andlegislation on their environmental policies (see fig. 26opposite). There also appears to be a relationship betweencompliance and reputation; heavily impacted firms are moreconcerned with reputational management and stakeholderpressure. One possible reason is that laws and regulationsestablish minimum standards, penalties and incentives thatimpact competitiveness and corporate reputations. Miningexecutives, for example, need to maintain a good reputationwith local communities in order to gain and retain access toresources. As Anders Lundkvist at LKAB in Sweden explains,“We need good relations with the authorities so we aresensitive to public opinion.”In the industrial products sector, many companies arerelatively energy intensive, and source natural raw materialsand create emissions and waste during production. As aresult, they are generally familiar with the need to complywith regulation and maintain a good reputation. This hasbeen the case for at least 20 years in most jurisdictions,and has increased significantly in the last few years as theclimate change debate has gathered momentum. In the nexttwo to three years, for example, proposed EU standardsPercentage of respondentsFigure 26Any aspect of environmental performance published?8080%7070%6060%5050%4040%3030%2020%1010%00TotalTelecommunications, Information,Communications, EntertainmentFinancial ServicesDo you currently publish any aspect of your environmental performance, forexample in an annual sustainability report? Base: Total (654); Telecommunications,Information, Communications, Entertainment (54); Financial Services (110); Retail(53); Consumer Goods (65); Utilities (41); Industrial Manufacturing (53); Engineering &Construction (50)RetailConsumer GoodsUtilitiesIndustrial ManufacturingEngineering & Construction38 Appetite for change. PricewaterhouseCoopers.

pwc.com/appetiteforchange9080Figure 27Related influences on environmental behaviour90%80%RegulatorycomplianceReputationmanagementwill require engineering and construction companies toproduce what approximates to ‘carbon neutral’ domesticand commercial buildings. Also, various national stimuluspackages announced at the G20 summit in London in March2009, contained significant investments in infrastructure thatwere associated with the need for climate change mitigationand adaptation.706050403070%60%50%40%30%LightlyimpactedcompaniesAll companiesBase: Total (654)All companieswith 5000+employeesHeavilyimpactedcompaniesStakeholderpressureStaff recruitment& retentionLarge local employers share a heightened sensitivity toreputation. Firms of more than 5,000 employees are also morelikely to report a connection between environmental behaviourand attracting or retaining staff (see fig. 27 opposite). Almost40 per cent of executives consider employee recruitment andretention influential in their environmental policies, althoughthis is the smallest percentage of all the influences covered inthe survey.“We need good relations with the authorities so we aresensitive to public opinion.”Anders Lundkvist, Director,LKABAppetite for change. PricewaterhouseCoopers. 39

Section 5What will new policies mean for business?Corporate climate change strategies will affect operations,key performance indicators, and innovations, around newproducts and services. Despite the paucity of clear signalsfrom governments, large organisations are leading a drive inthe business community to invest in environmental policies.About two-thirds of larger firms have environmental policiesthat exceed requirements, compared with only about half ofcompanies with fewer than 1,000 employees.Larger organisations, for example, are much more likely tobe changing their operations as a result of climate change.Sixty two per cent of executives at firms with more that 1,000employees, for example, say they are becoming carbonneutral compared to only 35 per cent of organisations withfewer than 251 employees. “There are many areas where wego beyond the mandatory level of legislation on a voluntarybasis,” according to an interviewee, “We wouldn’t do that ofcourse if we didn’t see value in it.”Corporate climate change strategieswill affect operations, key performanceindicators, and innovations, around newproducts and services.Figure 28Over half feel their environmental policies go beyond what is actually required, and undertake external reportingNumber of employeesTotal (%)Up to 250251-10001001-50005001+42 5751 4652 4836 6334 66AlignGo beyondWould you say your environmental policies are set to align with your legislative or regulatory responsibilities or do they go beyond these requirements? Base: Total (654)40 Appetite for change. PricewaterhouseCoopers.

pwc.com/appetiteforchangeFor most businesses, becoming carbon neutral will requirethe integration of carbon and energy management systemswith operations and key performance indicators. Ratherthan being just an annual number crunching exercise, thesesystems will inform investment decisions and therefore needto be readily available and reliable. For long term or strategicinvestments in infrastructure or energy projects (producingand consuming), companies need to understand sensitivitiesto different policy, carbon price and climate scenarios.Business executives currently consider reputation the secondmost important influence on environmental behaviour aftercompliance (see fig. 1 on page 9), but the influence of otheroperational and strategic issues is likely to grow. Cost savingsis already the third most important influence. One cost beingtargeted by an increasing number of businesses is energy.Across sectors, pressure on margins and cash flows hasreinforced the need for energy efficiency. New technologiesand shorter payback periods (of two to four years, forexample) are creating many options for businesses as they tryto identify projects that are competitive within their portfolios.Figure 29The impact of climate change on different sectors90%8080%7070%6060%5050%4040%3030%2020%1010%00While 58 per cent of business leaders say they have alreadychanged the way they conduct business as a result of climatechange, 84 per cent expect changes in the next two to threeyears (see fig. 5 on page 14 and fig. 7 on page 17). Theincrease in activity will be greatest in some of the sectorswhich are least impacted to date, such as financial services,communications and entertainment.All sectorsFelt impact alreadyRetail & ConsumerEnergy, Utilities& MiningIndustrial ProductsExpect impactTelecommunications,Information,Communications& EntertainmentFinancial ServicesNet changeAppetite for change. PricewaterhouseCoopers. 41

Section 5What will new policies mean for business?The results of PricewaterhouseCoopers 2010 Global CEOSurvey suggest the changes are likely to be related to newproducts and services, reducing emissions and allocatingcapital. There is an increasing realisation among businessexecutives that climate change presents both risks andopportunities, but that it is fundamentally about change thatwill create demand for innovative products and services.The first to market with these innovations are likely to be at aclear advantage.Today’s heavily impacted industries consider new productsand services the second most likely outcome of climatechange policies such as emissions trading schemes,carbon taxes, energy efficiency standards and reportingrequirements. Many heavily impacted sectors also expectcompliance with these policies to be costly. Energy CEOs,for example, foresee more cost and barriers to growth thanutilities CEOs.To prepare for these changes, 61 per cent of CEOs that hada climate change strategy last year maintained their climatechange investments through the financial crisis. Seventeenper cent actually increased funding. New regulations,taxes and trading schemes are likely in the next few years.Businesses that are not already monitoring these policiesand planning for their likely consequences will not be able toadapt as quickly.Business executives revealed they were, in fact, counting onoutpacing their peers through environmental policies. Sixtyseven per cent of all the executives in this survey said theyexpect to create a competitive advantage (see fig. 1 on page9). For those already exceeding environmental requirements,the number increases to 74 per cent.Figure 30Potential impacts of climate-change initiativesGlobalEngineering& ConstructionConsumer GoodsEnergyIndustrialManufacturingRetail & DistributiveWholesaleUtilitiesTICEFinancial ServicesOur response to climate-change initiatives will provide a reputational advantagefor my company among key stakeholders, including employees. Respondents whostated ‘agree’ or ‘strongly agree’. Base: Total (1198)GlobalEngineering& ConstructionConsumer GoodsEnergyIndustrialManufacturingRetail & DistributiveWholesaleUtilitiesTICEFinancial Services61%65%62%71%63%54%67%59%54%47%49%40%62%70%46%67%52%39%Climate change initiatives will lead to significant new product and service opportunitiesfor my company. Respondents who stated ‘agree’ or ‘strongly agree’. Base: Total (1198)42 Appetite for change. PricewaterhouseCoopers.

pwc.com/appetiteforchangeFigure 30Potential impacts of climate-change initiativesGlobalEngineering& Construction35%33%GlobalEngineering& Construction34%36%Consumer Goods38%Consumer Goods37%EnergyIndustrialManufacturingRetail & DistributiveWholesaleUtilities65%34%29%45%EnergyIndustrialManufacturingRetail & DistributiveWholesaleUtilities53%31%27%55%TICE34%TICE27%Financial Services19%Financial Services20%My company will need to reduce its emissions significantly. Respondents who stated‘agree’ or ‘strongly agree’. Base: Total (1198)Compliance with climate-change initiatives will be a significant expense formy company. Respondents who stated ‘agree’ or ‘strongly agree’. Base: Total (1198)GlobalEngineering& Construction30%37%GlobalEngineering& Construction23%29%Consumer Goods25%Consumer Goods21%EnergyIndustrialManufacturingRetail & DistributiveWholesaleUtilities41%40%24%62%EnergyIndustrialManufacturingRetail & DistributiveWholesaleUtilities56%28%14%40%TICE24%TICE15%Financial Services21%Financial Services12%My company will benefit from government funds or financial incentives for “green”investments. Respondents who stated ‘agree’ or ‘strongly agree’. Base: Total (1198)Climate-change initiatives will slow growth in my industry. Respondents who stated‘agree’ or ‘strongly agree’. Base: Total (1198)Base: Total (1198)Appetite for change. PricewaterhouseCoopers. 43

Section 6While managing uncertainty,businesses remain hopefulBusinesses haveproven through actionand investment thatthey are committed toreducing their impacton the climate44 Appetite for change. PricewaterhouseCoopers.

Businesses have proven through action and investmentthat they are committed to reducing their impacts on theclimate. They are improving energy efficiency, driving downcarbon emissions and seeking out low carbon businessopportunities in an effort to secure their own futures.The speed of transformation is increasing, as manyexecutives report pressure from customers, investors andemployees to make their businesses more sustainable.A growing number of businesses expect to be affectedby climate change, and they are developing strategies torespond, even though government policies remain uncertain.The results of this survey, combined with larger trends inpolitics and business, suggest some important inputs forthose strategic calculations.• Political momentum is building for carbon-related taxes.Supporters of environmental taxes share the perceptionthat they are a simple and effective policy tool. Therecent announcements of carbon taxes in Ireland andFrance and the revisions to the European Union EnergyTax Directive, currently out for consultation, reflect agrowing level of support. If progress slows in the US andat the international level, pressure will also increase ongovernments in Europe and North America to introduceborder taxes in sectors covered by carbon regulations.In response to the growing momentum for tax changes,businesses are more closely monitoring tax policydevelopments and engaging with policymakers.• There will not be a common global price for carbon inthe short to medium term. Emissions trading is viableand popular among participants, especially in the majoremerging economies of India, China and Brazil. But thecreation of a global price is a long-term enterprise. Inthe short and medium term, businesses are appraisinginvestments using a shadow price of carbon thatcovers a range of scenarios and varies for differentnational outcomes.Emissions trading is viable andpopular among participants• New regulations and standards are likely. Governmentsare expected to complement market measures withnon-market regulations, such as stricter standards onfuel and energy efficiency in transport, appliances andhomes, and encourage more sustainable practices.Business executives have concerns that such measureswill hinder growth through new costs and inconsistentimplementation. However, they also recognise theeffectiveness of well-designed regulations and are tryingto anticipate how regulations may change the competitivelandscape. For example, businesses are looking forclimate change and environmental investments that reducecosts, such as energy efficiency.Appetite for change. PricewaterhouseCoopers. 45

Section 6While managing uncertainty, businesses remain hopeful• The requirements for business to report credible orverified greenhouse gas data are increasing. Thefoundation of climate change policy is credible data aboutgreenhouse gas emissions. Unfortunately, as businessexecutives have noted, governments do not have agood record of coordinating environmental policies. As aresult, companies may already submit emissions data inmultiple formats for different purposes or regulations, evenwithin the same jurisdiction. To meet these obligationsefficiently, organisations are investing in good datamanagement systems.Businesses are actually hopingfor more government action onclimate change• The lull in public interest is temporary. Public interest andengagement in climate change has lost out to concernabout the economy and jobs since the credit crunch inlate 2008. As economies come out of recession, climatechange will increase in importance as a consumerissue. Many businesses are preparing by maintaininginvestments to strengthen their environmental credentialsand create new products and services.• Global warming of three or four degrees is possible.The scarcity of clear, long-term public policies combinedwith tight public purses will continue to inhibit investmentin low carbon infrastructure. This jeopardises the goal ofholding global warming below the two degrees Celsiustarget referenced in the Copenhagen Accord. Businessestrying to anticipate the potential risks of climate changeare considering warming of three or even four degreesCelsius, particularly where markets, longlife assets orsupply chains are vulnerable to climate impacts, suchas in regions that are coastal, highly reliant on wateravailability or vulnerable to extreme weather events.Despite the rising tide of corporate action, business leadersworldwide want their governments to help lead the transitionto a low carbon economy. For over a decade, global CEOshave picked over-regulation as one of the top three threatsto their organisations. Yet, businesses are actually hopingfor more government action on climate change. Thereis widespread support for all the major policy options –carbon taxes and regulation, in addition to incentives andemissions trading – and the support is strikingly consistentacross regions.This is an opportunity for government. Business leadersare eager not only to be involved in developing smartenvironmental policies, but also to see more policycoordination at the national and international levels.They remain hopeful that governments and business canhalt climate change together.46 Appetite for change. PricewaterhouseCoopers.

pwc.com/appetiteforchangeThis is an opportunity forgovernment. Business leadersare eager not only to be involvedin developing smart environmentalpolicies, but also to see morepolicy coordination at the nationaland international levelsAppetite for change. PricewaterhouseCoopers. 47

Section 7About the survey48 Appetite for change. PricewaterhouseCoopers.

The survey comprises almost 700 interviews worldwide,covering 15 countries: US, EU (UK, France, Germany,Netherlands, Spain, Sweden and Czech Republic), China,Canada, Russia, Brazil, India, South Africa and Australia. Thesample was drawn from the top companies in each territoryby turnover, with a particular focus on industries likely to bemost affected by existing environmental policy and legislation.Respondents are the ‘person in the organisation responsiblefor setting company policy and strategy towards managingits environmental impact and the main costs associated withthis’, which, for most companies, tends to be the CorporateSocial Responsibility Director, Sustainability Director, theEnvironment Director, the Financial Director or the Headof Tax.Fieldwork commenced in September 2009 and concluded atthe end of November 2009.Market Qualitative QuantativeEU UK 3 50France 2 50Germany 2 50Netherlands 1 28Spain 1 28Sweden 1 30Czech Republic 1 28BRIC Brazil 3 50Russia 2 30India 3 50China 3 50North America USA 3 90Canada 3 50Australia 3 40South Africa 1 30Total 32 650Figure 31Respondent profileSectorTICE (8%)RoleFinancial Services (17%)EnvironmentalFinance/Tax17%27%CIPS (72%)Health, Safety & Environment15%CSR/Sustainability9%Other32%Company sizeForeign operations

About PwC: Global Sustainability& Climate Change Tax NetworkThe global financial crisis has created extreme shorttermpressures on businesses, but they remain focusedon understanding the implications of climate change anddeveloping sustainable business strategies.Tax considerations are critical as businesses andgovernments collectively look to address these challenges.As governments around the world start to introduce taxes,incentives and regulation as a key component of their policiesaround sustainability and climate change, this presentsbusinesses with a range of new opportunities and risks. Thetax implications of these opportunities and risksrequire assessment.Opportunities include the chance for businesses to gaincompetitive advantage, for example by adapting theirbusiness models, technologies and product ranges in orderto become more sustainable, and in doing so, benefitingfrom the various incentives available to them. Risks includethe inability to adapt to what is required of businessesby consumers and governments, the costs of emissionstrading, and the reputational and financial risk of penalties forfailing to observe, or comply with, environmental taxes andregulation, which are increasingly coming into play in differentjursidictions worldwide.From a business perspective, it is hard to keep track ofthese taxes and regulations emerging in response to climatechange, as in most territories, they are still evolving. Inmany cases, the measures introduced are complex, not yetharmonised with other international legislation, and uncertainin terms of the potential tax impact.This is, perhaps, even more of an issue for businesses in thecurrent economic climate, with the added pressures on costcontroland risk management. Businesses need to be fullyaware of potential tax liabilities or implications in order to beable to manage these effectively, and should undoubtedly beasking themselves questions such as:• Which environmental taxes do we (or should we) currentlypay? How much are we paying in environmental taxes asa proportion of our total tax contribution?• Which environmental regulations do we need to complywith, around the world?• Are we proactively managing our exposure toenvironmental taxes and the tax impact ofenvironmental regulation?• Are we using the tax incentives available to us in eachcountry / region, and are we considering these as part ofour investment strategy?• What is the impact of changing consumer and businesspreferences in relation to our supply chain, businessmodel and product range? What are the tax implicationsof this?• Do we understand all the tax implications of the emissionstrading schemes which we (or one or more of our globalsubsidiaries) are part of, or have obligations under?• Have we properly scoped the tax implications of anyinvestments or projects either at home or in foreignjurisdictions (e.g. under the CDM) which have beenentered into as part of the corporate response to climatechange and sustainability?At PwC, we have a dedicated team of advisers to supportbusinesses with these and many other important strategicand ethical challenges they face around climate change andsustainability in its broadest sense.

PwC is the leading tax adviser globally by reputation, witha very strong lead over the competition 1 working with anumber of the world’s leading organisations and institutionson their tax issues in relation to sustainability and climatechange. We have a specialised global team of tax expertsworking as part of our wider cross-functional network, whoare already well-versed in sustainability and climate changetaxes and regulation. Our specialists have built up theirexperience through their involvement with governments andbusinesses on the successful establishment, implementationand management of climate change taxes and regulations indifferent territories around the world.A powerful combinationof qualified tax specialists,cross-functional capability,industry expertise, in-depthexperience…and a passion tomake a difference.At PwC, our approach is to go to market through industryspecialisms, as we believe that each industry sector has itsown unique set of issues and opportunities. As such, ourSustainability & Climate Change Tax network draws on the indepthknowledge and experience of our industry specialists,which covers all industries affected by environmental taxesand regulation, including renewable energy.In summary, what we bring to you is a combination of ourestablished leadership reputation for tax advice, our globalteam of cross-functional specialists, our relevant, in-depthindustry knowledge and expertise, added to the experiencethat we have built up in this area over the 20 years thatour Sustainability & Climate Change practice has beenin operation.Perhaps most importantly, we have a passionate belief in theability of taxes and regulation in response to climate changeto make a difference to the behaviours or businesses andconsumers, and ultimately to help save the planet, withoutdamaging the global economy. For further information or tocontact us, please see the inside front cover.1The Global Tax Monitor recognises PricewaterhouseCoopers as the leading tax adviser globally by reputation, with a very strong lead over the competition. These results are based on theyear-ending Q3 2009 figures, with a sample size of 3,282 primary buyers of tax services globally.Launched in 2000, the Global Tax Monitor (GTM) is an independent survey conducted by research agency TNS, that examines the competitive position of the top firms in the tax advisorymarket - globally, regionally, nationally and on an industry basis. It provides a comprehensive measure of firm reputation, client service and brand health, gained currently from just over 3,000telephone interviews annually with key decision makers (CFOs and Tax Directors) in 31 key markets.

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