GHG and sustainability reporting - next steps for business and government
IEMA executive director for policy Martin Baxter, offers his take on the recent mandatory reporting announcement and what he thinks could be on the reporting horizon...
The positive decision by Government to introduce mandatory reporting of GHG emissions for all FTSE listed companies has been widely welcomed. The decision, which will mean over 1,800 companies will have report on their GHG emissions, was however initially delayed by Government.
Nevertheless, although some time has been lost, this decision does reinforce the UK's leadership position, as we are the first country in the world to introduced mandatory greenhouse gas emission reporting for listed companies.
This was timely as world leaders were gathering for the Rio+20 Earth Summit, where sustainability reporting was part of the corporate agenda. So what does GHG reporting and sustainability reporting mean for business - what are the expectations, how does it relate to the wider reporting context in the UK and internationally, and what are the business and environmental benefits?
Broader Climate Change Reporting
The new GHG reporting requirements are important in offering a specific perspective on a company - i.e. the previous year's GHG emission performance and previous years for comparison where available. GHG reporting can deliver significant benefits with around 70% of companies surveyed by IEMA saying that GHG reporting will deliver cost savings, and 77% saying it will lead to environmental benefits.
However, GHG emissions reporting doesn't cover the strategic issues about how companies are responding to the whole issue of corporate climate change or future sustainability, by for example how they plan for future climate change risks such as flooding or water shortages.
The context of a company's carbon emissions performance is important, not just in terms of whether performance is improving over time, but how this compares to their planning for meeting future national emissions reduction targets. As more countries move towards binding emissions reductions, so the pressure on companies to respond and 'match or exceed' such ambitions grows by setting future targets.
More broadly, IEMA research shows that companies are increasingly looking at their indirect 'scope 3' GHG emissions, for example those in the supply chain - adding an additional reporting perspective.
While GHG emissions reporting has been a something of a 'cause célèbre', there are other potential regulatory changes and expectations for those who report.
Government has already consulted on changes to corporate reporting which would require disclosure not just of past performance, but also the extent to which environmental risks might impact on future value creation. And broader sustainability reporting, widely advocated by business groups and others, that formed part of the Rio+20 declaration, brings this more sharply into focus - for example, incorporating social issues such as human rights in supply chains, in addition to environmental issues.
So what next for GHG reporting? In its 2011 consultation, one of the options considered by Government was for GHG reporting to be required for all large companies. Government has announced a review in 2015, for potential implementation in 2016 - a move which would encompass approximately 24,000 companies. IEMA members are clear - given the business and environmental benefits that GHG reporting can catalyse, and the transparency it provides to investors - all large companies should prepare now and gain the benefits of early action on both GHG reporting and broader sustainability reporting. The benefits are clear, reporting drives environmental improvements and cost savings for business.
|What will be required to be reported?
The likely scope of any reporting requirement was set out in Defra's consultation paper, which would require UK quoted companies to disclose their:
• scope 1 (direct) emissions: i.e. from activities owned or controlled by an organisation that releases emissions straight into the atmosphere. Examples include emissions from combustion in owned or controlled boilers, furnaces, vehicles and emissions from chemical production in owned or controlled process equipment
• scope 2 (Indirect) emissions from energy: i.e. emissions being released into the atmosphere associated with an organisation's consumption of purchased electricity, heat, steam and cooling. These are indirect emissions that are a consequence of the organisation's activity but which occur at sources which the organisation does not own or control
• emissions should be reported as tonnes of carbon dioxide equivalent (CO2e), distinguishing between scope 1 and scope 2 emissions
• companies might be expected to report an intensity ratio which could for example relate GHG emissions to turnover or other relevant metric, and a base year against which emissions performance can be 'normalised'.
Government's guidance on these areas will be important, not just for conversion factors which help companies to convert different GHG emissions into CO2e, but also how to account for green tariff electricity and other mechanisms that might offset gross GHG emissions.
Martin Baxter, executive director, policy - Institute of Environmental Management and Assessment