ASDA is the UK's second largest supermarket retailer and is wholly owned by Wal*Mart, the world's largest retailer. ASDA has 356 stores, 23 depots and 160,000 colleagues (staff).

Julian Walker-Palin is the company's Head of Corporate Policy for Sustainability & Ethics. "Myself and the team sit as a central function within Corporate Affairs who work with the operational areas to formulate policy in these areas," he says. "We are also responsible for the external communication of our sustainability progress with Defra, NGOs, industry and other retailers."

Julian is a retail expert having been a manager in this area for over 10 years. He joined Asda last August and prior to that worked at Tesco.

What is ASDA's current carbon footprint and have you managed to make inroads on it in recent years?

"ASDA is still in the process of re-calculating its direct carbon footprint and so we don't have a figure which we can release at this point. However, broadly speaking the trend is moving downwards, in that we have consistently since 2005 reduced our direct carbon emissions, year on year."

Which parts of the business contribute most to greenhouse emissions?

"In terms of direct carbon emissions, the energy, particularly electricity, that we use in running our operations accounts for around half of our overall carbon emissions."

What steps have been taken to reduce these emissions in each of the areas?

"We have taken both practical and technological steps to reduce our energy usage. In a UK supermarket first, every store now has sub-metering with half hourly reports available for store management. This allows the store manager and his team to review the spikes in energy usage so that they can identify if there is a colleague activity which needs to be changed to reduce energy usage.

"During May '08 we are also carrying out a colleague engagement process on our '10 Step' energy management. This involves us running a campaign in every store to educate colleagues on how to use energy more frugally."

What targets have you set yourselves and are you on course?

"We have set a target against a baseline year of 2005 for existing stores to use 20 per cent less energy and new stores to use 30 per cent less energy by the end of 2009.

"With new stores, we opened our first environmental store last Autumn in Shaw, Oldham. This store was timber framed and was also fitted with an experimental natural ventilation system which uses external air temperature to lower the load on our heating and ventilation systems.

"Lighting in the store is smart-controlled and turns off when colleagues are not in a room. Salesfloor lighting also reduces at night time when higher levels are not needed but traditionally are used. Shaw has shown an energy saving of over 20% as compared to a standard store build.

"Our next environmental store which will open in November in Bootle, Manchester should smash our 30 per cent target. This store will have the following measures and will, we believe, take us up to and beyond our 30 per cent target:

"Timber framed; green roof to warehouse; recycled brick (locally sourced) and timber clad; 40 per cent fly ash cement content in structural slab; recyclable aluminium roof; locally sourced building materials and planting where possible; ground source heat pump; biomass boiler; rainwater harvesting; CO2 refrigerant; under-floor heating and cooling; north lights on roof and translucent wall on south facing façade to maximise natural daylight while minimising solar heat gain; sun pipes to increase natural daylight to colleague areas at rear of store; doors on all chiller cabinets; BREEAM rating "very good"; Carbon Trust rating "exemplar scheme.

"We are on track to achieve both targets."

What are the biggest obstacles you face in the battle for a low-carbon business?

"The term low-carbon business can be interpreted in a number of ways. ASDA is working hard in the Wal*Mart three key sustainability objectives: to be supplied 100% by renewable energy, to send zero waste to landfill and to sell products which enhance and protect the natural environment. At this point we have not set out to become a low-carbon business per se but a sustainable and environmentally and ethical responsible business."

Do you encourage carbon control over your supply chain?

"ASDA do encourage carbon control over our supply chain and seek to share our learnings on sustainability with our suppliers. We have carried out embedded carbon hotspot analysis across five of our fresh food supply chains: lamb, eggs, chicken, potatoes and milk.

"During 2008 we are rolling out a carbon management tool across 100 dairy farms to help them calculate their carbon footprint."

Do you feel that labels indicating individual products' carbon content may be useful or viable?

"Our work does not extend as far as including a carbon label onto our products as we do not believe that customers will understand nor use such a label to make active buying decisions, therefore such a label will not actively help to reduce embedded carbon in our supply chain. Our Retailers work such as our dairy farm toolkit however will help to reduce levels of embedded carbon."

How can government further encourage companies to tackle climate change?

"Government through the Climate Change Bill and in particular the new carbon budgets and the work of the Committee on Climate Change is taking proactive steps to help businesses reduce their own carbon and move the UK towards a low carbon economy. ASDA would welcome further work around embedded carbon to create a level playing field for the industry to lower levels of carbon without making a product uncompetitive in price."

What advice would you give to someone taking up your position at a retail company?

"Ensure that the business makes the link between reducing costs and gaining a competitive advantage with tackling climate change. The remit of such a role can be very wide and it is important also to ensure you keep a clear focus on the businesses priorities."

Counting The Cost Of Carbon – New Risks And Opportunities

In a letter to the Prime Minister in May this year, the CBI urged the government to clarify how it will invest revenues collected as part of the next phase of the EU Emissions Trading Scheme (ETS).

Signed by CBI Director-General Richard Lambert and BT Chief Executive Ben Verwaayen among others, the letter noted that the government is likely to collect between £300m and £400m per year from 2008 to 2012, “and several times that in subsequent years”.

In particular, the CBI urged the Prime Minister to commit to investing the revenues in helping to support business as they make the difficult transition to a low carbon economy. The move by the CBI is just one indication that the cost of carbon emissions will soon begin to have a tangible financial impact on industry, and will therefore move up the agenda for finance directors.

If they haven’t already, energy intensive industries will soon feel the effects of the Climate Change Agreement, while others must plan for the Climate Change Levy.

Some may have been lulled into a false sense of security by the first phase of the ETS, suggests Richard Geldard, President of the Association of Taxation Technicians. “What happened was an over-allocation of permits, so it wasn’t causing any real pain.”

“The first phase covered about 1,500 installations, but in the second it will be a lot more. Companies need to set plans for their emissions because of the progressive cap into the second phase. If they fail, they will have buy credits on the market,” says Geldard.

A slow start on a long journey

Many companies have yet to make the most basic preparations for what is to come, suggests Helenne Doody, Innovation and Development Specialist at the Chartered Institute of Management Accountants (CIMA). “Research published by UK Trade & Investment in May 2007 shows that less than 10% of UK companies are monitoring their carbon emissions, and only around 18% have a plan to reduce them,” she says.

Companies wanting a glimpse of how the UK political and regulatory environment might develop in future could do worse than keep a watch on Australia, suggests Richard Geldard. Their 2007 election saw Prime Minister John Howard unseated partly because of his perceived inaction on environmental issues. “Issues like the worsening droughts have put environmental issues and climate change right at the top of the political agenda. They’re having problems and it will be interesting to see how they deal with them,” he says.

In the UK, disclosure is becoming a significant issue for companies, with more stringent requirements for them to publish formal reports of the environmental impact of their activities, says Helenne Doody. “We started to see this with the EU Accounts Modernisation Directive of 2005. This requires companies to publish a Business Review and KPIs which are subject to audit. Then, since 1st October 2007 there has been a new requirement for environmental reporting for quoted companies. If they don’t report this they must give good reasons why not. So then it becomes an issue for investors,” she says. “The Climate Change Bill – which is going through the Commons now – may contain an amendment requiring companies to disclose their emissions,” she says.

A need for greater certainty

Preparing company reports is of course one of the functions of a company’s finance arm, but carbon emissions will be unfamiliar territory to many finance directors, suggests Dr Steve Priddy, Director of Technical Policy Research at the Association of Chartered Certified Accountants (ACCA). “It takes accountants out of their comfort zone, partly because it isn’t a cash transaction, and also because it’s a multi-disciplinary area,” he says.

Nevertheless, some emissions can be directly related to costs, he points out. “A company can ask how much is spent on business miles, and how many are really needed. A colleague of mine was talking to a contractor who was surprised to learn that he travelled 15,000 miles in a year. They worked out ways of reducing that by half over three years. The finance director can contribute to emissions reduction by costing air miles,” he says.

Lack of clarity in the legal and regulatory framework has also been a barrier for finance professionals suggests Richard Geldard of the Association of Taxation Technicians. “We survey our own members and many are calling for stronger legislation. They know what is coming but they need more certainty. Accountants like to measure and they like to be certain,” he says.

Companies should be taking a strategic approach to the financial risks of carbon emissions, says Helenne Doody. “There are reputational and strategic risks from emissions, and that is a financial risk. As a minimum, companies must think about what they need to measure, and gathering data,” she says. “But it can be complicated. Business travel is straightforward, but then there are more indirect emissions, such as in the supply chain or from consumer activity, for example,” she says.

Preparing for a low carbon economy

Compliance with regulation and protecting reputation are the main drivers at present, suggests Doody. Both will present tougher challenges in the near future. From around 2010 we will see league tables for companies in specific sectors, she suggests. This could have a significant impact on some companies, such as those that do business with the public sector, for example. In the retail sector, construction plans are also likely to be closely scrutinised for their emissions, she says.

The second phase of the EU ETS and the growth of the marketing in trading carbon allowances will be more familiar territory for finance professionals, says Doody. “A recent survey by an accountancy staff recruitment company suggests the new generation of accountancy professionals see that as part of their role,” she says. “Whether a company has surplus allowances will have a direct impact on profitability. It will feed into decision-making – investment decisions about new sites, or new technology,” she says. In the day to day running of a company the finance function may be tasked with raising internal invoices or transfer charges for carbon emissions, she suggests.

Carbon trading is just one part of a whole new area of economic activity created by our response to climate change, and this brings great opportunities as well as risks, emphasises Richard Geldard. “In Europe we’re seeing the growth of a significant industry in photovoltaics – solar technology – in Germany, and a lot of work on renewables in Spain and the Nordic countries. UK plc has to wake up to the fact that there are tremendous opportunities to innovate,” he says.

Key questions:

• What data are we collecting about our energy use?
• What reporting and compliance requirements do we face?
• What are the financial risks and opportunities of reducing our carbon footprint?