The naked truth: Building greater environmental transparency for shareholders
It has become increasingly important to shareholders that companies are accountable and transparent on environmental issues which pose financial risks. Because of this, the quality of environmental reporting is radically changing. Leigh Stringer reports
Scandals such as the Leveson Inquiry into press standards, the investigations into LIBOR-fixing and the recent horsemeat outrage have highlighted the increased scrutiny of corporate actions by regulators, shareholders and other stakeholders.
Companies are increasingly being challenged to demonstrate how they are responding to the financial risks posed by climate change, with many stepping up to the challenge.
The CDP's recently published FTSE 350 report, which ranks companies on their measuring and reporting of greenhouse gas (GHG) emissions, shows that growing pressure from stakeholders is having an impact on where GHG reporting sits on a business's priority list.
Companies are becoming very aware that being able to tell a positive story is important to manage stakeholders' expectations and to win new business opportunities, says the CDP. One example, global beverage company Diageo, who ranked top of the CDP report, highlights that 2011 was a record year for the total number of shareholder resolutions related to environmental issues, including climate change.
Diageo's head of environment Michael Alexander told edie that the CDP reflects what stakeholders are looking for, particularly investors.
"There is an expectation that leading companies will be proactive in their disclosure of their carbon emissions. Therefore we take note of that and adhere to it and if our disclosure is to reflect our performance then we need to continue to deliver on that," says Alexander.
The financial crisis has left finances constrained and the private sector is seeing lower levels of liquidity. Therefore, competition for investment is fierce and companies are heeding the calls of potential stakeholders for complete transparency.
Companies in the financial sector have been a good example of this. With blame falling on the banks for the 2008 financial crash and the uproar caused by last year's LIBOR-fixing scandal, banks have attempted to win back public trust through transparency.
Showing the sector's increasing transparency throughout their operations, banks Barclays and HSBC, along with investment trust British Land, were amongst the top 10 of the CDPs FTSE 350 report.
Explaining why GHG reporting has become such a high priority, HSBC's deputy head of global corporate sustainability Francis Sullivan told edie that the bank wants to demonstrate its understanding of the issues and the progress it is making.
Sullivan said disclosure was essential if a company wants to be in business for the long-term, and "properly managing risks and opportunities arising from climate change is a part of that".
"We recognise that we must run our business as efficiently as possible to reduce our costs, and cutting our carbon footprint supports this objective. We are aiming to reduce our carbon footprint from 3.5 to 2.5 tonnes per employee by 2020," he added.
Making business operations attractive to investors is a clear driver of environmental transparency, but is Government pressure also encouraging compliance? The UK Government recently announced reporting regulation that all UK-registered quoted companies will have to report their greenhouse gases emissions in their financial report.
Results of a consultation in 2011 found that two thirds of companies were in favour of mandatory reporting - Diageo was one of those companies. Michael Alexander says that the global beverage company supported the Government's legislation because it saw the financial benefits available by participating.
"Only by measuring and disclosing carbon will companies do anything about it. However, we've been reporting carbon in our annual report for the last three years and because we're a global company who perhaps sees itself as an industry leader on this, the new legislation that came into force in the UK on October 1 wasn't a particular driver for us," added Alexander.
It does, however, demonstrate that legislation and Government regulation will come in different guises and markets over the next decade, says Alexander.
"It happened in South Africa with environmental reporting, while in India the federal Government recently announced a 2% requirement of profits to go into sustainability. So different parts of the world will be introducing different legislation and that requires companies to disclose and to invest," he added.
Because Diageo operates in 180 markets, it needs to be at the cutting edge of disclosure and performance to stay ahead of increasing Government involvement, says Alexander. This transparency, whether from Government pressure or stakeholder scrutiny, is increasing the quality and quantity of data on GHG emissions.
Policy and practice lead at IEMA Nick Blyth: "I think it's fair to say that the transparency angle is important for many sectors and many companies will have corporate reputational issues and concerns.
"The idea of using reporting in a very public way to actually communicate how a company is addressing this area is really important. I think that's also one of the things about reporting that makes it different to some of the other drivers - it's not like a legal or financial instrument, which is very direct upon the business. It's more of an enabling driver - it's quite unique," he adds.
From here, the CDP says future developments in climate change reporting will focus on retaining global consistency, improving the quality of data and demonstrating an integration of climate change into a wider business strategy. Although still in its infancy, the burden of reporting is lifting and the opportunities are becoming clear to companies willing to embrace these expectations.
Leigh Stringer is edie energy and sustainability editor