Carbon footprint reporting to become mandatory for UK listed companies from 2013
Is your company ready?
On 20 June 2012 the government announced that they would be mandating carbon reporting by quoted companies from 2013; they will then review the effectiveness of such reporting in 2015 before deciding in 2016 whether to extend the requirements to all large companies.
Based on the Ministerial Statement of 20 June 2012, we expect that this will apply to UK quoted companies as defined by the UK Companies Act 2006 (s.385) (those with shares listed on the main market of the London Stock Exchange (premium or standard), admitted to trading on another EEA regulated market, or the NYSE or NASDAQ) for financial years commencing on or after 6 April 2013.* Although it has not yet been confirmed, we anticipate that this reporting will be required within the Directors’ report, under a comply or explain approach.
Information on greenhouse gas emissions is increasingly being published by companies on voluntary basis, often with other sustainability information. This may be within the annual report, or a separate corporate responsibility or sustainability report. Defra issued voluntary guidance for the reporting of greenhouse gas statements (often described as ‘carbon footprint reports’) in September 2009 and have also published a “Small business user guide: Guidance on how to measure and report your greenhouse gas emissions”.
On hearing the announcement, Guy Battle, UK head of Sustainability, commented: “Increased regulation will create a step change in carbon measurement and reporting, but what’s key is how this can add value for businesses. This isn’t purely about compliance. It’s about ‘good’ business sense and taking this regulatory push as an opportunity to identify new carbon strategies and potential cost savings. By way of contrast, the CRC is an example of legislation that has pushed through an agenda, but some may argue it wasn’t the best way to progress towards a long-term, valuable solution for companies.
Businesses need to think strategically so their operations can be managed effectively and sustainably over the long-term. In addition to finance and carbon reporting, considering matters surrounding supply chain, ethical trading or health and safety can strengthen performance and promote growth. Affected organisations will need to be nimble in their approach - some groups are more prepared than others to measure their global carbon footprint. Companies will need to consider promptly and carefully how this information will be disclosed, and what governance and related processes will be required to meet these requirements.”
Is carbon always the most important thing for companies to measure? Forward-thinking organisations are already moving beyond that. Only the night before the government’s announcement, the inaugural Finance for the Future awards, sponsored by Natwest, Accounting4Sustainability and the ICAEW recognised the value in bringing finance and sustainability professionals, their different mindsets and attitudes together to innovate integrated solutions within business. This is not just about reporting – it’s about assessing the material issues that you need to have information about in order to manage your business well. That means thinking strategically, in a sustainable fashion. Covering not just finance and carbon, but whatever is relevant for your business – it could be supply chain, ethical trading, health and safety, social impacts....there is a risk that regulation might push us away from this principles-based approach.
Deloitte’s survey of carbon reporting ‘Seeing the wood for the trees’, published in November 2010, showed that 57% of listed companies reported carbon to some degree. This was based on a sample of 100 organisations across the FTSE. By 2011 it had increased to 66%. However, only 10% of these sought assurance over the information. And only 8% in 2010 stated that they had followed the Defra guidance in providing their reports.
Boards and their audit committees should consider the implications of this prospective regulation and familiarise themselves with the measurement and disclosure requirements quickly. The timetable for reporting credible non-financial information in the annual report could be a challenge, as often processes for collecting such data are not automated, and controls may lag those for financial reporting systems. Carbon reporting methodologies exist but these provide options, so transparency around the basis of reporting is essential. In providing this disclosure, Boards should take care to integrate their carbon footprint reporting to their discussion of strategy, principal risks and performance.
*We will need to wait for the draft regulation for confirmation of scope (UK companies listed on LSE or all UK quoted companies as defined above) and timing (application with immediate effect from April 2013 or for financial years commencing on or after 6 April 2013).