October 20, 2009
Number crunching and tree hugging … two images not normally associated with each other. But a Ryerson professor’s research using accounting methods appears to have proven that new green technology enhances profit margins, which may affect everything from how investors value companies to carbon trading.
Dr. Vanessa Magness’s research is now being hailed as “very important” by industry leaders like Doug Baker, chairman of the board at the Canadian Institute of Chartered Accountants and himself managing director of an oil and gas company – Thoroughbred Energy Ltd. of Calgary.
The business case
“One of the things we have always needed is hard evidence to support policy change,” he says. “I think Dr. Magness is helping provide that.”
Her research could also lead to greater transparency for shareholders seeking to compare value among corporations, adds Dr. Kate Bewley, associate professor of accounting and auditing at Toronto’s York University.
“It is going to help shareholders determine whether companies are accurately reporting progress made in embracing green technology and their approach to environmental preservation. We can finally accurately measure it,” she says.
The carbon angle
There is yet another major plus arising from her work, says Christine Schuh, Canadian climate change leader at PricewaterhouseCoopers in Calgary. Now that industrial emissions are being regulated and carbon credits can be swapped around the globe, industry, government and indeed all stakeholders need ways to accurately measure and audit those emissions.
Ms. Schuh is part of an International Federation of Accountants committee trying to create global standards through which the accounting profession can measure and monitor CO2 emissions.
“Our work runs in tandem with what she has been doing,” says Ms. Schuh. “In the end we will be able to do things like ensure environmental regulatory compliance, increase transparency for shareholders and then audit and verify when it comes to trading in carbon credits.”
The first steps
So called “green accounting” has been Dr. Magness’s consuming passion since writing her master’s thesis on it at the University of Toronto in 1993. But in days well in advance of the current concern for environmental preservation few universities were willing to accept a PhD candidate whose research was crunching numbers to prove green business was good business.
“I finally found a professor at the University of Manitoba willing to take me on for my doctorate,” says Dr. Magness, associate professor at Ryerson University’s Ted Rogers School of Business in Toronto. “Of course in those days there was neither the technology available nor the widespread interest in environmental preservation.
“Now everything has changed and there are quite a number of people engaged in similar research,” she says.
What that translates into is an end to the excuse not to embrace green technology because the cost would make oil and gas exploration and production unprofitable, Dr. Magness says.
The research
“My research clearly shows that much of new technology does not reduce profitability but increases it,” she says.
Dr. Magness started with data from Environment Canada that tracked the level of emissions of pollutants, such as carbon dioxide, arsenic and lead, involved in producing a barrel of oil between 1993 and 2006.
What she found was that emissions had dropped significantly.
“The conclusion I reached was it had to be the new technology that made the difference,” she says.
At the same time profitability of the oil industry increased in ways that could not be attributed to increased oil prices or simply selling more oil and oil-based products.
“What I started to find was the new technology allowed the industry to create new and profitable businesses,” she says.
For example, when the electricity market was deregulated in Ontario in 2000, refineries began to use excess heat created by their processes to co-generate electricity and both use it for their own purposes and sell the surplus back into the provincial grid, she says.
Other companies used technology designed to remove pollutants from smokestack emissions to collect compounds like benzene and profitably sell them to existing markets.
“Having to spend the money on environmental protection technology caused companies in the industry to become more innovative,” Dr. Magness says.
The next challenge
Dr. Magness’s next move – if she can find the financial support – is to extend her research into the U.S. oil industry.
Perhaps the greatest challenge, however, is how to spread the news of her research to a much wider audience.
“There is little awareness of how important this research is and the implications it has for industry,” says Dr. Bewley. “The problem is the academic publications she has written for just don’t have that wide an audience.