So in this context, is CO2 "material" to the average business, and what are the implications of any answer? Very probably not. In fact, considering the range of inputs (and outputs) for virtually all services based companies, CO2 (as a product of energy use) will be negligible from a financial materiality perspective.
First, for something to be "material" it must have a price. So an associated question is, at what price per ton of CO2 does it become material to a business?
Clearly for some businesses, primarily energy companies, extractive industries, transportation industries, and primary producers such as steel factories, the raw energy inputs (and consequent CO2 content) increase the probability that CO2 is material to their business, if a price is placed on the CO2.
Also, any suggestion that CO2 is "not material" is not the same as saying that there does not, desperately, need to be limits (be they market driven or regulator imposed) on the production and dumping of CO2 into the atmosphere. After all, I cannot imaging cyanide ever being "material" to a person when measured by the 5% definition, when something very far less than 0.1% would kill that person.
The question becomes important when auditors look at a company's financial statements, and when the company (if publicly listed on a US exchange) has to produce their MD&A (Management Discussion and Analysis) as part of their filing with the SEC. In these cases, the "materiality" threshold becomes important, that where CO2 falls below that threshold, there is no reporting requirement.
So there are two key barriers today to mandated reporting of CO2 by companies.
- There is no price for CO2. Until there is a price, it cannot be "material". So, CO2 must have a price, through a Carbon Tax or through a Cap & Trade. Of course, the benefit fo a Cap & Trade system would be to allow the markets to create a price. The alternative benefit of a Carbon Tax (a sort of Tobin Tax) would be to create a revenue stream for governments that could be used to support "green" technology and infrastructrue investment - but I dream.
- The concept of "material" in relation to CO2 must be modified to be closer to what would be a "material" level of cyanide in a person, than the 5% level used to determine that something "material" financially.
Certainly the SEC released additional guidance earlier this year on reporting of CSR (Corporate Social Responsibility) and Climate Change related information. Unfortunately the nature of that guidance was simply a reminder filers that they must report "known trends" and "uncertainties". Sadly I expect that guidance will be inadequate.