Trucost Blog

Around 1,100 quoted companies in the UK could soon be required to report on carbon emissions. The UK Government is consulting on whether or not to make it mandatory for some UK companies to report on greenhouse gas (GHG) emissions in their director's reports.

Why make carbon reporting mandatory?

To give organisations the information and tools to reduce emissions. Businesses can save money by reducing their emissions through energy and resource efficiency, so mandatory reporting for listed companies - one of four options proposed - could cost £926 million over 10 years, or result in net benefits of up to £696 million, says the Department for the Environment, Food and Rural Affairs (Defra). Benefits are monetised for reducing emissions from electricity, gas, transport and wider energy and fuel savings. The rules would also aim to give investors relevant, comparable information to assess whether a company adequately takes account of climate change risks and challenges.

Which emissions would companies have to report?

If it goes ahead, mandatory reporting would cover the six GHGs under the UN Kyoto Protocol. Companies would need to report on direct emissions from owned or controlled activities (Scope 1 under the Greenhouse Gas Protocol) and indirect emissions from purchased electricity (Scope 2). However, Defra is also asking for views on which scopes should be covered, since it recognises that emissions from activities that are outsourced, such as business travel and the extraction and production of purchased materials and fuels (Scope 3) can be more complex to calculate and might involve engaging with suppliers. Defra notes that for some organisations, "understanding the level of Scope 3 emissions is essential to properly understanding the environmental impact of the business. Measuring scope 3 emissions gives organisations and investors a more complete understanding including their potential exposure to climate change risks." Rules could therefore require companies to report Scope 3 emissions where provided.

Should emissions data be verified?

Defra is also seeking views on whether emissions reports should be verified or assured to standards such as the International Auditing and Assurance Standards Board's ISAE3000 and AccountAbility's AA1000AS.

What else is on the table?

The other three options put forward are:

• Encouraging voluntary carbon reporting.
• Mandatory carbon reporting for large companies under the Companies Act.
• Mandatory carbon reporting for companies whose UK electricity consumption exceeds a threshold, likely to be 6,000 MWh.

The consultation closes on 5 July 2011 and the Government expects to decide in the autumn whether or not to make carbon reporting mandatory.

How prepared are companies?

The latest Environment Agency Environmental disclosures report, written by Trucost and published this week, shows that 62% of FTSE All-Share companies now provide data on GHG emissions in their annual reports. Many energy-intensive companies already have to report carbon dioxide emissions to regulators under the EU Emissions Trading System and UK CRC Energy Efficiency Scheme.

Defra consultation