Articles & Updates

Businesses are set to play a pivotal role in helping the government achieve its ambitious carbon reduction targets. 

Keith Davidson, Head of our Environment team, looks at the issue of corporate carbon reporting and concludes that we are still in something of a transitional phase.

With the introduction of the Carbon Reduction Commitment Energy Efficiency Scheme, which comes into force in April 2010, many businesses will be looking to measure and report carbon emissions for the first time.

One of the key requirements for companies looking to implement carbon reduction strategies is the need for consistent and comparable greenhouse gas (GHG) reporting standards.

Corporate reporting on the rise

Quoted companies currently have a mandatory obligation to report on their environmental performance under the Companies Act 2006 and are guided by Defra's Key Performance Indicators.  Other large companies are required to report GHG emissions under the EU Emissions Trading Scheme.

For all other companies, carbon reporting is voluntary.  This has, in the past, led to a certain amount of confusion and lack of transparency.  The wide range of reporting initiatives (2001 GHG Protocol, Carbon Trust Standard ISO 14064, Carbon Disclosure Project and the Global Reporting Initiative) together with the lack of external verification has made it difficult for stakeholders to compare one standard with another.

Benefits of carbon reporting

There are several economic reasons why businesses are increasingly looking to monitor and report GHG emissions:

• As energy bills continue to rise, a GHG reduction strategy is a fundamental business requirement to save money
• Investors and insurers continue to exert pressure on businesses to report their GHG emissions
• Procurement criteria often ask about carbon reduction strategies as evidence of a responsible business committed to environmental improvements

Carbon reduction commitment

Corporate carbon reporting has been given new life by the Carbon Reduction Commitment Energy Efficiency Scheme, which comes into force in April 2010.  Although the actual cap and trade obligations in the scheme will only apply to approximately 5,000 large public and private organisations (with an annual electricity bill of over £500,000), 15,000 organisations will need to report carbon emissions and numerous other businesses will be asked for carbon data through landlord and tenant relationships, joint ventures and franchise arrangements.

In the next few years, it seems clear that carbon reporting will become the norm.

As more companies start to implement carbon reduction strategies, the CBI has advised businesses which do not currently report to use a base year of 2010.

Government guidance

In September 2009, Defra and the Department of Energy and Climate Change jointly published  guidance under the Climate Change Act 2008 the aim of which was to help businesses and organisations measure and report their GHG emissions.*

The guidance is based on the 2001 international GHG Protocol and provides a step-by-step guide to assist businesses in understanding and reducing their GHG emissions.  A standard form GHG report is included within the guidance along with recommendations on the information to collect and report on.  The guidance applies to organisations of all sizes and covers all six Kyoto Protocol GHGs.

Whilst the guidance is entirely voluntary, in accordance with section 84 of the Act, the government must by December 2010 review the contribution that reporting is making to the achievement of their GHG reduction target.  Furthermore, by April 2012 the government must either regulate for mandatory reporting or explain to Parliament why no such regulations have been made.  It seems to me fairly clear from this framework that, in the medium term, mandatory reporting of GHG emissions is likely to be the way forward.

Obstacles to mandatory reporting

The CBI has played a leading role in the development of the current government guidance, but at present is against widespread mandatory reporting.  There are a number of problematic areas that the CBI have identified in their May 2009 report "a common business approach for GHG emissions":

• Defining the environmental limits of a "company" or "CRC organisation" is difficult as GHG reporting is not necessarily restricted to the emissions for which a company has legal liability or direct control. The scope of responsibility of a company would therefore need to be clarified and this may be a complex task
• There is disagreement as to whether organisations should measure embedded emissions - i.e. the embedded carbon in goods and services. Many public sector organisations for example, are starting to measure the organisations' "total carbon footprint" and there will need to be a consensus about which approach to take
• Moreover, there is a lack of agreement over whether GHG reports should be audited. If GHG reporting is to become just as requisite a part of business as financial reporting there will need to be an independent check and verification of the reports, akin to a financial audit

One thing is for sure, like global warming itself, the corporate carbon reporting debate is heating up.

* http://www.defra.gov.uk/environment/business/reporting/index.htm



Keith Davidson - Head of our Environment team

Keith is a Partner and Head of our Environment team.  If you would like to discuss any matter arising from this article or indeed any other legal matter please contact Keith on 0161 909 4653 or by email keith.davidson@pannone.co.uk  or your usual contact at Pannone.