A head start on mandatory reporting

The countdown has begun for all quoted businesses listed on the Main Market of the London Stock Exchange following the Government's announcement that they will have to report their levels of greenhouse gas emissions from April next year. Christine St John Cox , AEA carbon management knowledge leader, explains what companies should be considering.

Our experience has shown that identifying data sources and collecting data can take longer than companies expect, and with the emissions of many businesses and valuable brands open to scrutiny for the first time, it will be important to get reporting right to avoid any problems.

In addition, there is a growing awareness among investors and other stakeholders that the reduction of emissions is also critical. So companies will need to think about how they present their reports to demonstrate that they are taking responsibility for their emissions and addressing the associated risks.

Evidence has shown that even the most proactive quoted businesses may need to reconsider their approach, as the Environment Agency’s most recent report on environmental disclosures by quoted companies shows that in 2009/10 annual reports, only 22% were reporting this information in line with government guidance.

Although further details on mandatory reporting are not expected until later this autumn, the good news is that companies can get ahead on the issue by starting to review their emissions data and data recording processes now. They will then be in an excellent position to understand the requirements when they are announced, the implications for their business and what they need to do to comply.

Whilst it isn’t confirmed what the requirements will contain, we can assume that it is likely to be similar to those in the draft regulations. Therefore the legislation is likely to include Scope 1 and Scope 2 emissions, both in the UK and overseas. Scope 1 and 2 emissions are defined under the GHG protocol as:

·Scope 1 – Direct GHG emissions are emissions from sources that are owned or controlled by the organisation. For example, emissions from combustion in owned or controlled boilers, furnaces and vehicles.
·Scope 2 – Accounts for GHG emissions from the generation of purchased electricity by the organisation.

Many organisations are beginning to tackle Scope 3 emissions but it is unlikely to be included in the new requirements. Scope 3 covers a wide range of sources including those which are more challenging to measure, including supply chains and waste. It is worth considering if your business can report Scope 3 emissions to stay ahead of the competition.

As a first step companies should therefore map their operations to assess the emissions which fall under these headings as this should help to identify any all-important gaps. This can be set out in a diagram which quantifies the emissions for each business process including transport.

Classic gaps include where an international business might miss out emissions in certain parts of the world, or where another fails to capture all emissions from company fleet travel. We also find that businesses sometimes only capture emissions associated with metered data, rather than estimate any gaps in the dataset.

Participation in the CRC Energy Efficiency Scheme will stand companies in good stead for reporting some Scope 1 and 2 emissions emitted within the UK. Under the CRC Scheme certain energy and fuel use already has to be reported if the business used more than 6000MWh through a half-hourly electricity meter in 2008.

Even if businesses are reporting under the CRC Scheme in the UK, a review of global Scope 1 and 2 emissions data is an essential first step. It is also important to remember that not all UK emissions are covered by the CRC Scheme. It’s possible that there are emissions associated with unmetered or tenanted premises, and potentially company-owned transport, that have not been captured or estimated to date. Exploring these emissions would enable a company to report its complete footprint.

While considering data sources it is also important to assess how often data is analysed, how it is recorded and most importantly if discrepancies or changes are monitored. When a business captures its overall emissions footprint on an annual basis, it leaves insufficient time to address an increased footprint during the reporting year. Although energy data can be monitored effectively, often other aspects of the emissions footprint e.g. transport, aren’t considered until a reporting year has gone by.

Overall mandatory reporting will lead to greater transparency of year-on-year performance so there is a need to ensure that significant changes are detected earlier in the annual cycle to prevent any end-of-year surprises.

We also recommend setting up a consistent data collection process that enables stakeholders across the business to report performance in the same format as this will increase confidence in data quality. Organisations that conduct an in-depth review of their emissions data and data recording processes in this way will be very well placed to undertake consistent transparent reporting which is compliant with the new rules. Robust reporting procedures can also help to deliver reductions in carbon emissions and the associated financial savings.

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