Common pitfalls to avoid with Carbon Reporting

Anna-Lisa Mills FIEMA CEnv details the many drivers for carbon reporting. Whether it’s for legal compliance reasons (such as the Streamlined Energy and Carbon Reporting (SECR) regulations1), to meet investor or stakeholder expectations, to identify cost saving opportunities, or to address the climate emergency, an increasing number of organisations are publishing their carbon footprint.

Anna-Lisa Mills, FIEMA, CEnv, MSc, BSc (Hons), PGCE, is Director for True North Sustainability. Anna has developed an online SmartCarbon Calculator tool and worked with a range of organisations across the public, private and third sector from multinational corporates, housing associations, NHS Trusts, to a range of SMEs such as small Architect practices and environmental consultants. In this work, Anna-Lisa has noticed a pattern of common errors and pitfalls to avoid. Some of these relate to SECR compliance, as outlined below. Box 1 looks beyond compliance and outlines general weaknesses when compared against recognised guidance, frameworks, best practice, and stakeholder expectations.

Common pitfalls with SECR compliance:

• Reporting CO₂ and not CO₂e (often this is due to a legacy issue from CRC reporting).
• Reports not stating a recognised methodology that has been followed. Examples of recognised methodologies include:
  • The GHG Reporting Protocol (GHGP) - Corporate Standard
  • UK Government reporting guidelines
  • International Organisation for Standardisation’s standard: ISO 14064-1:2018
  • The Climate Disclosure Standards Board Framework.

These standards are based on key principles, (e.g. for the GHGP these are relevance, completeness, consistency, transparency and accuracy; typically most standards apply similar principles – see Box 2) and disclosures should indicate that these principles have been applied (e.g. statements on omissions, estimates and assumptions).

• No intensity metric is published which can provide an indication of efficiency over time (e.g. tCO₂e per full time equivalent employee, square meter occupied, unit of production or £M turnover etc.).
• Missing conversion to fuel consumed to energy consumed (kWhs) for transport data.
• Lack of clarity on energy efficiency measures implemented and planned.

The UK government’s guidance suggests reporting should be as transparent and complete as possible – so it should not just focus on mandatory reporting; the templates in the guidance provide thoughts on additional voluntary disclosures.

A reminder of the benefits of reporting - it:

• Supports commitment to Ethics, Responsibility and Sustainability.
• Can help improve organisational reputation.
• Demonstrates a commitment to continual improvement.
• Transparency helps identify opportunities for financial savings.
• Enhances staff engagement, recruitment, and retention.
• Meets legal drivers where relevant.
• Meets stakeholder expectations. Of note is the growing youth movement, inspired by Greta Thunberg.
• Evidence moral responsibility – taking action on the climate emergency.

Does SECR apply to your organisation?

The key question is whether any part of the organisation is required to prepare a Directors’ Report under Part 15 of the Companies Act 2006, and if it is quoted or considered large by meeting two or more of the following criteria in a financial year:

• More than 250 employees

• Annual turnover greater than £36m

• Annual balance sheet total greater than £18m

If these conditions are met then the organisation is within the scope of SECR regardless of its activities in the public, charitable or education sectors.

Notes:

• A statutory de minimis exemption exists for companies that can confirm their energy use is 40MWh or less over the reporting period. Where this is the case, companies need to include a statement in their report confirming that they are a low energy user. (If preparing a group report, the low energy user threshold applies to the energy consumption of the parent group and its subsidiaries).
• Eligibility/exemptions under the Energy Savings Opportunity Scheme or CRC Energy Efficiency Scheme have no bearing on SECR; nor does having part of the organisation defined as a Public Body under the Public Contracts Regulations provide an exemption from SECR.
• All companies that meet the qualification criteria must comply or explain rationale.
• There is no option for exemption from SECR (unlike ESOS where ISO 50001 certification exempts the organisation from the need to submit an ESOS report).
• This is an annual reporting requirement (unlike ESOS which applies every 4 years) and in subsequent years the organisation will need to report base year and previous year as well as current year.
• Quoted companies (listed on FTSE Main Market) must also report; Global energy use kWh and state what proportion of your energy consumption and emissions are related to emissions in the UK and offshore area.

Next steps and going beyond compliance:

Whilst the legislation focuses on measuring and reporting, there is no requirement to improve performance. However, organisations might like to consider going beyond compliance by (e.g.):

• Declaring a climate emergency and demonstrating how you are working towards mitigation and adaption.
• Setting a carbon reduction target.
• Implementing a carbon reduction plan.
• Developing a climate risk and opportunities register.
• Developing a climate adaptation strategy.
• Reporting wider scope 3 categories (I.e. looking at emissions you can influence such as within your supply chain).
• Conducting a materiality review and identifying carbon hotspots to focus on.
• Benchmarking performance against peers and competitors.
• Appointing an independent third party to conduct an external verification audit.
• Lack of evidence of leadership and management buy-in (e.g. for reporting, decarbonisation or declaring a climate emergency).
• Starting the process too late, perhaps due to underestimating the time and resource required.
• Not aligning reporting cycles with financial reporting cycles, so there is a lack of comparability of data.
• Lack of allocated and/or adequate resources, often due to coinciding deadlines and conflicting priorities.
• No documented approach to boundary setting (e.g. operational control, financial control, or equity share). This is a requirement of the GHGP and UK Government guidelines. This could impact, for example, on where business travel should be reported (scope 1 or scope 3) or electricity consumption (scope 2 or scope 3).
• Poor data collection and internal collation and control processes.
• Poor quality data (e.g. low confidence in completeness and accuracy).
• Basic information on travel (e.g. using default ‘average car of unknown fuel’ and flights not broken down into domestic/short-haul/long-haul or international nor class of ticket).
• A base year that is no longer relevant and therefore hinders the ability of stakeholders to track progress over time (e.g. taking credit for carbon reductions that are associated with outsourcing services or operations).
• No documented base year recalculation policy (e.g. associated with acquisitions, mergers, divestments, insourcing and outsourcing, as well as changes to methodology or calculation processes).
• No documented significance threshold, above which structural changes would trigger a recalculation of the base year (e.g. where there has been a ±5% impact on emissions as a result of a change).
• Omissions of fugitive emissions of fluorinated gases from the reported figures (e.g. from air conditioners, refrigerators, cooling systems, heat pumps and some fire extinguishers). Although volumes of these might be small, the global warming potential of these gases can be many thousand times higher than carbon dioxide and are therefore important to measure, manage, report and reduce².
• Data collection and calculation across excel spreadsheets which are often found to contain data and formula errors (e.g. incorrect emissions factors applied, emissions factors that haven’t been updated annually, using the emissions factors from the wrong year (i.e. that doesn’t coincide with the majority of the data etc)). Uncontrolled excel spreadsheets present an ongoing risk of human error.
• Incorrect units (e.g. flights recorded in miles and multiplied by the factor for kms etc).

Box 1: Common weaknesses with carbon reporting in general Although the points below are not specified within SECR legislation, they would be expected in standard practice and many are requirements of the GHGP and UK Government guidelines or expected by stakeholders who might read your carbon footprint report. Lack of assigned responsibility or documented competency expectations for the roles involved in gathering and processing data. Lack of internal auditing and quality checks processes. Omission of impacts associated with transmission and distribution of electricity (T&D)3, radiative forcing (RF)4 of air travel and well to tank (WTT)5 for fuel. Confusion over reporting of green tariff electricity. All electricity from the gird, whether green tariff or not, should be multiplied by the grid average emissions factor. It is optional but more transparent to dual report green tariff electricity, against both market and location factors but certificates of origin should be obtained. Claims of carbon neutrality based on green tariff only (see point above relating to dual reporting). Omissions of some data sets. (It is not uncommon to have difficulty obtaining energy consumption information from Landlords or apportioning shared office space). It is good practice to document any omissions, exclusions, assumptions, and estimates (including methods for any estimates). One useful approach would be to complete a review of properties, assets and equipment and confirm included within the scope of your footprint. Commonly omitted entities include buildings, departments, meters, and equipment. It is also common to have trouble obtaining travel data from expenses records, with regards to obtaining distance relating to multiple modes of transport (e.g. car, taxi, train, flights, ferry etc). Systems not in place to track mileage for hybrid or electric vehicles, and to correctly calculate the carbon impact of such vehicles. Travel agents or other third parties providing incorrect data (for example, it has been known for travel centres to provided the CO2 impact of air travel (not CO2e) and without RF included, therefore significantly understating the impact of the organisation’s activities).

Box 2: The principles of the Greenhouse Gas Protocol. 1. RELEVANCE Ensure the GHG inventory appropriately reflects the GHG emissions of the company and serves the decision-making needs of users – both internal and external to the company. 2. COMPLETENESS Account for and report on all GHG emission sources and activities within the chosen inventory boundary. Disclose and justify any specific exclusions. 3. CONSISTENCY Use consistent methodologies to allow for meaningful comparisons of emissions over time. Transparently document any changes to the data, inventory boundary, methods, or any other relevant factors in the time series. 4. TRANSPARENCY Address all relevant issues in a factual and coherent manner, based on a clear audit trail. Disclose any relevant assumptions and make appropriate references to the accounting and calculation methodologies and data sources used. 5. ACCURACY Ensure that the quantification of GHG emissions is systematically neither over nor under actual emissions, as far as can be judged, and that uncertainties are reduced as far as practicable. Achieve sufficient accuracy to enable users to make decisions with reasonable assurance as to the integrity of the reported information.

Notes:

1. The Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018 (“the 2018 Regulations”) implement the government’s policy on Streamlined Energy and Carbon Reporting (SECR). SECR Regulations apply to all large businesses (as defined in the Companies Act), Limited Liability Partnerships and quoted companies. The definition of “large” is the same as applies in the existing framework for annual accounts and reports, based on sections 465 and 466 of the Companies Act 2006. The qualifying conditions are met by a company or LLP in a year in which it satisfies two or more of the following requirements:

• Turnover £36 million or more

• Balance sheet total £18 million or more

• Number of employees 250 or more

If applicable, companies must publicly report their carbon footprint for the first financial year that starts on or after 1st April 2019, and each subsequent year.

2. If the organisation has well maintained equipment, there could be zero f-gas leakage, but it is recommended that you make reference to this zero figure. It is recommended that organisations complete a check against asset lists (e.g. check catering, archives, and data centres too). Contractors should provide maintenance records which record top-up values. Check for disposal records (e.g. for old units) and confirm what has happened to the gas in these units.

3. Transmission and distribution (T&D) factors account for losses associated with the national grid.

4. Radiative forcing is a measure of the additional environmental impact of aviation. These include emissions of nitrous oxides and water vapour when emitted at high altitude. The UK government advises that organisations should include the influence of radiative forcing RF in air travel emissions to capture the maximum climate impact of their travel habits.

5. Well to Tank (WTT) fuel conversion factors, can be used to account for the upstream Scope 3 emissions associated with extraction, refining and transportation of the raw fuel sources to an organisation’s site (or asset), prior to combustion.

References:

1 The Greenhouse Gas Protocol Corporate Accounting and Reporting Standard. Revised Edition. World Resource Institute and World Business Council for Sustainable Development.

2 Environmental Reporting Guidelines: Including streamlined energy and carbon reporting guidance (March 2020) UK Government Department for Business, Environment and Industrial Strategy.

Please note: the views expressed in this blog are those of the individual contributing member, and are not necessarily representative of the views of IEMA or any professional institutions with which IEMA is associated