Norwich Union is the UK's largest general insurer with a market share of around 15 per cent, with a focus on insurance for individuals and small businesses.

It is a leading provider of life, pensions and investment products and one of the largest financial adviser (FA) providers. FAs provide over 70 per cent of the company's long-term savings business in the UK.

Tom Oxley manages the UK Corporate Responsibility programme at Norwich Union and RAC. His major projects include climate change, flooding and other environmental matters. He also runs the diversity agenda, contributes to product development and supports corporate responsibility reporting.

He is a member of the United Nations Environment Programme for the Finance Industry, is a conference speaker and CIM lecturer and a youth volunteer leader with Norfolk International Projects.

He also has eight years PR experience in the UK with Institute of Public Relations awards for crisis management and client relationship management.

Norwich Union reduced C02 emissions by 12.6 per cent in 2007. How was this achieved?

"Our Energy Managers came up with approximately 50 ideas from gas boiler optimisation to removing lights in cold drink machines and an automated PC shutdown system. We saved 3.9 per cent electricity, 12.3 per cent gas and 4.8 per cent water with a very fast return on investment for the easier, low-cost options. The next years' savings will be increasingly difficult unless more investment is made.

"Importantly, we also audited our buildings and stopped paying utilities in those where we didn't have staff. We also used less as some buildings closed."

How do you advise clients to become carbon neutral companies like your own?

"We don't advise our clients generally to be carbon neutral. But we do have a product called Prestige which enables our commercial insurance customers to audit, reduce, re-audit and offset their carbon."

Tell us about your Energy Steering Group and its achievements

"The Energy Steering Group was conceived to bring to life the Aviva [parent company] environment policy, in particular achieving operational efficiencies and meet the key performance indicators around utility reduction (electricity, gas and water.) The team sits mainly within the operational services area and sets the strategy for the Energy Working Group to fulfil the tactics. It also liaises with and has input from the corporate responsibility team to share best practice across the company through another team which deals with waste, travel and the RAC fleet."

Your transport fleet has increased: does this pose a problem for your carbon neutral status?

"The biggest challenge to us is our RAC patrol fleet. It is also our biggest opportunity and we're saying to the industry 'have you got the technology to match our vision?'

"We are desperate to be efficient and meet our service standards to members and so you see there are operational and ecological desires at work which feed off each other."

What measures have been taken regarding waste and recycling?

"We recycle about 88 per cent of our waste - we have no 'personal' bins in offices - though much of this is glass from RAC Auto Windscreens. They have a repair over replace policy. It's great. For every 40 windscreens, the waste glass fits into a skip. For every 40 repaired screens, the waste will fit in the palm of your hand.

"As for a target, we're striving to increase our recycling, aiming for zero non-compostable waste to landfill by 2015."

Do financial institutions have any particular responsibility in the field of climate change?

"Two reasons to say yes: insurance does because the effects of incidences and frequency of windstorms and flooding impacts customer trauma and our own bottom line.

"Second because for investors there are provable returns in investing in low-carbon and other socially-responsible industries.

"Oh and I almost forgot - if as a PLC you are on the FTSE4Good and Dow Jones Sustainability indices, you are more of an attractive investment."

What is your proudest low-carbon achievement?

"Car-sharing with my partner. It can be done, even though we live at different houses. At work a guy from our travel team infused a shuttle-run between our employment sites into the local park and ride - that was so neat, relevant and sustainable."

What are the biggest obstacles to reducing GHG emissions?

"The lack of available, affordable and sustainable alternatives to fossil fuels and the hardware to run them. That and my lovely colleagues in HR on Antico 8 in Norwich who don't seem to be able to turn off the lights in the meeting rooms. I'm onto you!"

How does the current economic climate affect the push to reduce emissions?

"If you see operational and ecological efficiency strategies as brother and sister, they are part of the same family. In the context of a tough economic climate they both still have a place at the table, irrespective of the main driving force."

What are you working on right now?

"A project to do with the effects of climate change. We've designed a major flood simulation project in Boroughbridge - a delightful community in the Vale of York. We're understanding how best to work in areas which could flood and what the community wants from the authorities, services and insurers. We're educating each other and increasing resilience in the event of a flood. Increased education equals increased resilience - and that reduces our customers' trauma."

What advice do you have for others charged with climate change reduction?

"Keep going and never give up looking for the big idea."

What Price Carbon? The Markets Decide

While it is for scientists to assess the environmental costs of emissions, the price of carbon and the value of carbon offsets will be determined by markets. This applies just as much to mandatory schemes as voluntary ones. In effect the UK government requirement for organisations to participate in cap and trade schemes is a mandate to join a market where the rising cost of carbon will incentivise cuts in emissions.

To date, the carbon market has been dominated by trade in carbon allowances such as those issued by governments as part of the EU Emissions Trading Scheme (EU ETS), and certificates for carbon reduction projects that comply with the Kyoto principles, for example.

Carbon markets may serve a particular geographic region, and may be more or less tightly regulated. Companies may purchase allowances or certificates to comply with regulations, as a response to the concerns of stakeholders, or to exploit fluctuations in prices. According to the World Bank, the global carbon market was valued at $64 billion in 2007.

Less is more

Some mechanisms in the emerging carbon markets will be familiar to businesses from their involvement in financial markets, but there are aspects that are genuinely new. “This is the first time a global market has been established for the public good,” says Ian Johnson, former World Bank Vice President for Sustainable Development. “It’s also a market for a commodity that you can neither smell, taste nor touch. And the less you produce, the more money you make, so it’s a strange new concept,” he says.

But enough has been agreed at an international level – primarily through the Kyoto Protocol and the EU Emissions Trading Scheme (EU ETS) – to establish generally accepted principles for carbon trading. As well as setting out principles for reporting and reducing emissions at a national level, the Kyoto Protocol introduced three market-based mechanisms: Emissions Trading, the Clean Development Mechanism (CDM), and Joint Implementation (JI).

JI and CDM set out the ground rules that individual projects must meet if they are to count as reducing or removing gas emissions. JI enables industrialised countries to work together on projects, while the CDM is designed to prevent developing countries from being unfairly penalised in the move to a low carbon economy.

The Kyoto Protocol allows countries with spare emission units – expressed as tonnes of CO2 – to sell their excess capacity. It also defines other tradable instruments such as removal units (RMU) which are equivalent to beneficial changes in land use; emission reduction units (ERU) which are generated by a joint implementation project; or a certified emission reduction (CER), which is generated by a clean development mechanism project activity. Although the EU ETS developed independently of the UN negotiations that led to the Kyoto Protocol there are links between them. In 2004, the European Parliament formally adopted a directive which in effect enabled units acquired through Kyoto-approved projects to be recognised within the EU ETS.

While the EU ETS is dominated by high emitting industries whose participation is mandated by governments, there has also been a growing interest in voluntary emissions reductions and the tradable instruments they produce. Both voluntary carbon markets and mandatory trading schemes have attracted a certain amount of criticism, with doubts expressed about how they are regulated and the environmental benefits of the transactions they encourage.

New frontier

“Accusations that carbon markets are like ‘Wild West’ are less and less fair,” suggests Sam Fankhauser, Managing Director Strategic Advice at research firm IDEAglobal, and formerly an economist at the European Bank for Reconstruction and Development. Those parts of the market that warrant such descriptions only represent a tiny proportion of the total he suggests.

CDM has been the target of recent criticism, particularly for the way it handles the issue of so-called “additionality” – whether the benefits claimed for offset projects would have happened anyway. Tackling this has made the approval process for CDM projects too lengthy and complicated according to some observers. “To some extent CDM is a victim of its own success. There have been bottlenecks in the approval process, but by 2012 it will have been responsible for reductions of 1.6 billion tonnes – that’s a lot of carbon,” says Fankhauser.

“We’re seeing more professional companies like the mainstream financial institutions – JP Morgan, Goldman Sachs – get involved. In a parallel development, we’re seeing the growth of derivatives and services,” he says. The most significant development in market services was the recent launch of the Carbon Ratings Agency (http://www.carbonratingsagency.com/about-us/overview/index.html), which aims to bring the independent scrutiny and transparency to offsetting projects we have grown accustomed to in financial markets from firms such as Moody’s or Standard & Poors.

In essence the ratings represent an independent assessment of how likely a project – whether voluntary or part of a CDM or JI agreement – is to achieve the intended volume of certified emission reductions. The ratings will make it easier to compare projects for both buyers and sellers, and help to create a new class of asset.

Market forces

Although still comparatively small, the voluntary carbon markets are growing fast.

Companies are buying carbon credits for many reasons, says Andreas Arvanitakis, a senior analyst at the Point Carbon consultancy. “The reasons vary, it can be because of their CSR policies, or to demonstrate to government that their sector is taking action, or because they think that at some point they will have to become used to buying and selling,” he says. Public opinion and the need to protect a company’s reputation appears to be having an effect, particularly for sectors that are seen as high emitters.

“In the transport sector airlines are a good example. Shipping is a significant emitter but it’s not in the public eye the way airlines are. So we have seen airlines offer carbon offsets to passengers and customers, although of course the uptake has been quite small. But now we’re seeing airlines like BA, easyJet, Cathay Pacific buying UN-approved offsets,” he says.

Because of its inherently global reach and public visibility aviation is set to be an important test-case for market approaches to setting the price of carbon as opposed to more hands-on approaches such as direct taxes. “The ICAO [International Civil Aviation Organisation] is in effect the United Nations of aviation. It ought to be ICAO’s job to come up with a solution but it hasn’t done so,” says Arvanitakis. “The EU has tried to come to an agreement with ICAO on jet fuel, but has been stonewalled. So the EU has decided to go it alone and introduce a emissions trading scheme for all flights taking off or landing in the EU. But this is likely to be challenged legally by governments and airlines individually, so it is not clear what the way forward will be,” he says.

Key questions:

• After reductions and direct costs, what will our emissions cost us?
• What expectations do our stakeholders have about offsetting?
• Do we need outside help in formulating an offsetting strategy?