Mandatory Carbon Reporting

As companies get ready for the UK Government’s forthcoming Greenhouse Gas Emissions (Directors’ Reports) Regulations 2013 (to be introduced in April 2013), greater focus is already being placed internally by corporate sustainability practioners, as well as those responsible for writing their company’s Annual Report, on key issues such as:

a) The scope, accuracy and robustness of their current greenhouse Gas (GHG) reporting

b) The changes necessary to comply with the proposed requirements of the draft legislation

c) The quality of underlying data systems – in the UK the Carbon Reduction Commitment (CRC) Energy Efficiency Scheme, which is also a mandatory requirement for large energy users in the UK, has helped to prepare companies for this level of data management for their UK-based sites  but many listed companies have global operations that could be captured by the new mandatory carbon reporting regulations, which may not be so well prepared

It is true that reporting on annual GHG emissions is not an entirely new practice for most FTSE listed companies. Over 90% of leading UK companies[i] currently report their GHG data either as part of their annual report or in a stand-alone CSR or sustainability report. Additionally, half of the FTSE350 currently disclose their Scope 1 and 2 carbon data to the Carbon Disclosure Project (CDP)[ii], which has become the de facto benchmark framework for GHG reporting globally.

But more than simply the technical requirement to report, it may be interesting for us to consider the wider implications of mandatory reporting for companies and their operations. How will it change the way companies manage their GHG emissions internally? Will it result in a genuine reduction in GHG emissions? Will other countries/regions soon follow suit?

The latter two questions would be difficult for us to attempt to answer here but on the point of how companies will adapt, I believe we will see companies respond in several ways:

1. For many companies, GHG reporting will move from being a once-a-year scramble  for data to a full-year exercise – companies will want to have a better handle on both data and performance trends knowing that their GHG reporting is now a matter of regulatory compliance
2. The application of both internal auditing and external verification to corporate GHG reporting will become more robust, lowering the tolerance for gaps or estimations (particularly with respect to scope 1 and scope 2 GHG emissions)
3. As a result of the above two points, many companies will need to undergo a significant upgrade in the management systems that support their reporting – whether it be in terms of more robust tools for data collection and analysis; the level of training and guidance provided to those responsible for GHG accounting; or the level of control applied to GHG (and perhaps wider CSR/sustainability) data.

So we expect to see a dash for data as companies get themselves ready to report. For more perspectives on the proposed mandatory GHG reporting requirements in the UK, see my recent blog on Budgeting for Mandatory Carbon Reporting.

Declaration of interest: Readers should note that Corporate Citizenship is a CDP consultancy partner in the UK and supports a number of companies each year in reporting and assuring their GHG performance data.