More than 1,000 UK companies must, from today (1 October 2014), include information on their carbon footprints in annual company reports
Under the Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013, which comes into effect today (1 October 2013), companies listed on the main market of the London Stock Exchange are required to report their scope 1 and 2 greenhouse-gas (GHG) emissions alongside their financial reports.
Firms must report total annual emissions of all the six primary Kyoto gases in tonnes of CO2 equivalent, as well as a carbon intensity ratio. The directors’ strategic report must also cover risks and opportunities posed by the environment to the business.
IEMA, which has campaigned for the introduction of mandatory GHG reporting since 2010, said the new legislation will help to ensure sustainability is being incorporated into corporate thinking.
“The changes to the Companies Act are significant, they put environment for the first time at the top table of company thinking, moving it from a bolt-on activity to being central to business strategy,” said Martin Baxter, IEMA’s executive director of policy.
“This will enable UK Plc to build for the long-term, ensure companies are able to thrive in the low-carbon economy, and establish their future viability during a time of economic uncertainty and growing environmental challenges.”
IEMA argues that the introduction of mandatory GHG reporting is an opportunity for all businesses to focus on their carbon footprints and to understand where they can cut emissions, environmental impacts and costs.
“Although non-listed large companies and SMEs will initially be outside the scope of the regulations, many will increasingly be asked to provide data by larger client companies,” said Baxter. “Preparing for GHG accounting will enable these companies to retain clients and achieve competitive advantage.”
For those businesses affected by the new reporting rules IEMA has published its five tips on how to get the best value from GHG reporting:
1) Accurate GHG reporting is vital
Mandatory GHG reporting will enable companies to benefit from focusing on energy spending and identifying efficiency opportunities. Getting the support of senior managers at board level is vital as they sign off the reports. It’s important to ensure that data and information is accurate; there is a risk to corporate reputation if you fail to report, or if simple errors are included and corrections have to be issued the next year. Delays in starting the process of data collation will increase the risks of mistakes and, potentially, the scale of the task.
2) Invest in staff and reporting systems
The staff that lead on GHG reporting will need to be well trained and have a strong understanding of environmental issues and data management, as well as experience in reporting. They will need to work across departments and build teams through collaboration particularly with the finance department.
3) Carefully scope what you are “responsible for”
The regulations do not specify an approach to follow (for example, a financial control or operational control) and do not specify a single reporting methodology. Companies are required to determine what they are “responsible for” in terms of scope 1 and 2 emissions. An early scoping process is therefore important, and stakeholder expectations should be considered carefully. Boundaries on what your firm is responsible for will need to be drawn, and the expectations of staff, customers, investors and other interested parties, must be carefully considered. Finally, be transparent about any assumptions that have been made.
4) Make GHG reporting relevant
Engage others in your approach to reporting, including your supply chain, staff and customers. Ensure reporting helps your organisation to address its most significant emissions and costs, and collect relevant data which will enable effective performance management. This should include relevant emission factors and targets. Think about who the report is written for; there are legal requirements, but external stakeholders will also be interested. Although there are no specific requirements for auditing or verifying the GHG data contained in company reports, verification can play an important role in improving the quality of data and, for that reason, many companies choose to carry out some level of assurance.
5) Be clear what you are reporting and ensure good quality data
Good data management systems will be vital in ensuring companies meet the requirements of the regulations. Having access to robust data and being flexible between different reporting requirements is key. Build a team that can design a system for reporting GHG emissions and energy consumption that enables monitoring and identifies areas that need to be managed. Don’t ignore gaps and if external help is required then get it in – the earlier the better. GHG data is inherently risky because, unlike financial data, there can be many variants and conversion factors. So make sure you build in sufficient checks and balances. Double and triple check.
Look out for our GHG software special
The October issue of the environmentalist will include a 10-page special report on software designed to help firms measure and report their GHG emissions.
