Safe-guarding operations with mandatory reporting

Through the experience gained from the Carbon Reduction Commitment (CRC), there has been an air of self-assurance amongst businesses affected by the mandatory carbon reporting regulation that has come into effect this month. Although businesses are confident that their reporting mechanisms will meet these requirements, they could be missing an opportunity to safe-guard operations against the risks posed by climate change. Leigh Stringer investigates

The introduction of mandatory carbon reporting this month appears to have caused little concern among those companies affected – all those listed on the Main London Stock Exchange. In fact, the move has been broadly welcomed by business as a sensible step towards a low carbon economy.

Plus, in a survey carried out by the Carbon Disclosure Project (CDP) and PricewaterhouseCoopers (PwC) in October last year, more than 90% of FTSE 350 respondents said they already reported on Scope 1 and 2 emissions to the CDP in any case.

Far more fuss has been made of the recent CRC Performance League Table – a league which the Government had already scrapped before its second year and a mechanism which one can’t help but feel will be superseded by mandatory reporting, albeit for fewer companies initially.

Indeed, participation in the CRC scheme, and the learning that has driven, may go a long way to explain the pervading sense of calm about the imminent legal responsibility to report GHG emissions as part of annual reports and accounts.

Those participating in the CRC will have a better understanding in regards to the difficulties of putting in place an efficient and effective monitoring and measuring scheme.

Speaking to SB, Institute of Environmental Management and Assessment’s (IEMA) executive director of policy, Martin Baxter, agrees: “Through the CRC, companies will have managed data and information and would have obtained an understanding of how to identify where there are data gaps. They can then apply that learning through their organisation which is covered by the mandatory reporting requirement.

“The synergy between mandatory reporting and the CRC is the top level commitment and visibility of the organisation and also something that has a public face which helps to catalyse internal interest to drive improvement,” he says.

However, that public face of the CRC scheme was almost entirely wiped out by the announcement in last Year’s Autumn Statement that 2013 was the second, and last, year that the CRC Performance League Table was to be published.

Flawed as it undoubtedly is, the table is the primary reputational output of the CRC and removing it removes a key driver for business. Without it, the appetite for transparent, measured and public reporting of carbon emissions, or CO2 equivalent, is clear, and falls firmly at the door of the new mandatory obligations.

If the CRC has one legacy, it’s that it has created a familiarity when it comes to managing carbon emissions. This means most affected companies did not start from scratch when mandatory reporting was announced and, it is hoped, will potentially look to expand the scope of their reporting mechanisms.

“I think what we’ve seen, from some companies, is that the rigour of how they applied the management of data, information and monitoring and verification of their emissions under the CRC internally has enabled them to realise gaps in other parts of their organisation which encouraged them to start gathering quality data and information,” says Baxter.

Moving forward, it’s important that businesses use mandatory reporting as an opportunity for further operational improvement rather than merely a compliance benchmark.

And, far from merely doing what needs to be done to meet current requirements, businesses need to ensure that reporting mechanisms are robust enough to stand the test of time and the resulting data used to ensure business continuity.

The environment is changing the business dynamic, says Baxter. Companies must realise that access to resources will constrain the ability to operate effectively and efficiently in the future and this awareness presents an opportunity for businesses to future-proof operations.

“A business can use this knowledge to help build a more resilient organisation against some of the more frequent climatic-related events,” he says. From flood-affected global supply chains, to drought-exposed raw material prices, environmental risks are starting to have much more tangible impacts on a company’s long-term potential success. Ultimately, boards of directors need to start thinking about this now and take the longer term perspective.

In terms of a business’ success, understanding what the corporate world might look like in years to come is a vital, albeit challenging, step to ensuring carbon reduction mechanisms, such as a reporting system, work over the long-term. This approach will differentiate those operating successfully from those struggling to keep afloat and it will essentially come down to companies that can withstand the changing dynamics of business through increased volatility from climate change.

“Organisations should be thinking about what sort of environment they may be operating in in 2025 and how well they are positioned to operate in that environment. This needs to set the context of today’s decision-making to inform the direction of the business and therefore the metrics for measuring success,” says Baxter.

Long-term vision is therefore crucial, says Baxter, when setting up systems to record, manage and report greenhouse gas emissions, and will be essential for businesses to attract investment and protect their own investments.

“Companies need to think beyond the immediate requirements of the new GHG reporting regulations when they are looking to implement data management and reporting internally. They need to consider the obligations under the current schemes and regulations, but importantly how they might develop in the future so that when you’re making the investment now you are actually able to satisfy potential future requirements,” he says.

“It will be about how businesses shape reporting systems to match their overall objectives including where they want to be in 10, 20, 30 years – bearing in mind that we might be doing business, ideally, in a low carbon economy,” adds Baxter.

And it’s clear that the regulation is being positioned as game-changer to help create that low-carbon economy, with Government estimating it will save four million tonnes of CO2 emissions by 2021. And this figure could be considerably higher if the requirements are extended beyond the LSE-listed companies.

In any case, it should continue to drive behavioural change amongst the big corporate players which, it is hoped, will begin to filter down to smaller companies, currently excluded from the reporting requirements, even if mandatory reporting is not extended to them.

But, says Baxter, future success relies very much on business attitudes and how they approach their reporting responsibilities to ensure this is “not reporting for reporting sake but reporting to stimulate action to make improvements”.

Leigh Stringer is the energy and sustainability editor for edie

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