Summary and implications
On 11 May 2011, DEFRA published the consultation “Measuring and reporting of greenhouse gas (GHG) emissions by UK companies: a consultation on options”. The consultation is in response to the Climate Change Act 2008 requirement that the Government undertake an investigation into whether mandatory reporting of GHG emissions should be introduced for certain companies as part of their annual report and accounts.
The options considered in the consultation are:
- Enhanced voluntary reporting;
- Mandatory reporting for all quoted companies;
- Mandatory reporting for large public and private companies; and
- Mandatory reporting for all companies whose UK energy consumption exceeds a certain threshold (using similar criteria to the CRC Energy Efficiency Scheme).
The Government’s obligation under the Climate Change Act
By 6 April 2012, the Government is required to either make regulations under the Companies Act 2006, requiring directors’ reports to contain certain specified information about GHG emissions from activities for which the company is responsible or lay a report before Parliament explaining why no such regulations have been made.
The options for corporate reporting
The consultation sets out four options to promote more widespread and consistent corporate reporting of GHG emissions. Three options involve mandatory reporting for certain companies, whilst one involves only voluntary reporting.
Option 1: enhanced voluntary reporting
Various options are put forward to enhance the current voluntary measures undertaken by approximately 63 per cent of all FTSE All-share companies:
- Increasing awareness of the benefits of reporting;
- Increasing support for the Carbon Disclosure Project, as well as other NGOs to increase demand for and use of company reports by investors and other interested parties;
- Increasing development of sector specific voluntary agreements;
- Developing bilateral voluntary agreements between Government and companies. Although this approach could minimise placing additional burdens on companies, it is likely to require additional guidance from Government and is unlikely to entrench GHG reporting as the norm in company reports.
Option 2: mandatory reporting for all quoted companies
This would require reporting of GHG emissions in the directors’ report from all quoted companies (as defined in the Companies Act 2006). Stock Exchange statistics indicate that this would represent around 1,100 companies.
As quoted companies are already required to include information about environmental matters in their business review, this option would not place much of an additional burden on such companies. It would not cover large private companies.
Option 3: mandatory reporting for all large companies
This option would cover both large public and private companies (as defined in the Companies Act), therefore ensuring that the UK companies likely to be the most significant GHG emitters are included. It is estimated that between 17,000 and 31,000 companies would be targeted by this option.
Option 4: mandatory reporting for all companies whose energy consumption exceeds a certain threshold
This option would require all companies whose UK consumption of half-hourly metered electricity exceeded a minimum threshold to report on their GHG emissions in their director’s report.
It is proposed that this option would be linked to the qualification criteria under the CRC Energy Efficiency Scheme, i.e. annual consumption of over 6,000MWh of electricity. This equates to around 4,000 companies. If the energy threshold was lowered (as currently consulted upon), this figure could rise to around 15,000 companies.
The advantages of this option flow from the companies targeted under this option having the required data “to hand”, given the CRC requirements to report annually on emissions. However, it does depart from the Companies Act definitions of companies by type (i.e. private or public or size), so introducing separate criteria for companies to be covered by these reporting requirements within company law.
Responses to the proposals
The Institute of Environmental Management and Assessment (IEMA), which has been calling for mandatory GHG reporting for over a year, welcomed the consultation.
IEMA’s executive director of policy, Martin Baxter, stated that “UK plc is at a turning point with environmental reporting, with the right support from Government we can move greenhouse gas reporting into the mainstream and turn this into a business opportunity”.
This is in contrast to the view put forwards by Sainsbury’s chief executive, Justin King . Business Green reported that King warned the Government that making carbon reporting mandatory would create an arbitrary regulatory system, which could fail to drive some companies to reduce their carbon emissions. “We generally don't support [mandatory reporting], not just on emissions but more widely, for the simple reason that everyone then starts looking at the score rather than trying to hit the ball,” he said.
To put forward your point of view and respond to the consultation, click here
The consultation closes on 5 July 2011.