Climate change a deal maker

Business News
Thursday 10/5/2007 Page: 16

THIS year's $US32 billion ($A40 billion) takeover of US power utility TXU was famous for being the world's biggest private equity deal, but it has also become renowned for the role of environmental activists. Private equity investors Kohlberg Kravis Roberts & Co and Texas Pacific Group won support for their takeover after promising environmental groups they would scrap plans for eight coal-fired power stations TXU had planned to build. They also agreed to reduce TXU's carbon emissions to 1990 levels by 2020 and link executive remuneration to its handling of climate change issues.

Speaking at a business briefing last week, Freehills senior solicitor Paul Branston, who recently returned from studying in the US, believes the TXU case is a sign of what could be more common across industry. The blurring of traditional lines was highlighted by activist group Environmental Defence's decision to hire an investment bank to provide advice on the deal.

Freehills partner John Taberner said there was a growing expectation the federal government would introduce an emissions trading scheme in Australia, following the Business Council's support for the concept. This would most likely involve putting a cap on greenhouse gas emissions, thereby creating a price for excess emissions.

Mr Branston said this would have most impact on sectors that were large emitters of greenhouse gases, such as power generators, big users of electricity, car manufacturers and transport companies. It meant that project developers in these sectors would need to create emissions offsets. Mr Branston said listed companies would need to review their disclosure practices, and may need to start reporting their carbon liabilities.

This would be particularly important in prospectuses and takeover battles, and in extreme cases could result in legal action by investors if they believed a company had not fully disclosed its risks. Ratings agencies and financial analysts would start to build carbon liabilities into their analysis, while fund managers would evaluate the exposure of companies to climate change.

While carbon emitters were likely to face increased risks, Mr Branston said the introduction of an emissions trading scheme would create many opportunities. He anticipated increased demand for carbon-related services, such as measuring emissions and facilitating trade in carbon credits. Other opportunities included providing clean or renewable energy, providing sequestration schemes, such as planting trees, and developing technology to reduce emissions.

Minter Ellison partner Glen McLeod, who heads the firm's recently established climate change taskforce, urged companies to take early action. "Companies that are seen to be at the forefront of responding to climate change will be favoured by customers and investors as awareness of this issue continues to grow," Mr McLeod said.