Further to the announcement in June 2012 that all quoted companies will be required to report on their greenhouse gas (GHG) emissions in their annual report (see our e-bulletin here), the Department for Environment, Food and Rural Affairs (DEFRA) has issued a consultation on draft regulations.

Companies affected by the new regulations have until 17 October 2012 to respond to the consultation.

Definition of quoted company confirmed

DEFRA has confirmed that the regulation will apply to quoted companies within the meaning given in section 385(2) of the Companies Act 2006.This means that the regulations will affect all companies that are:

  1. UK incorporated; and
  2. whose equity share capital is:
  1. officially listed by the UKLA (ie, on the Main Market of the London Stock Exchange);
  2. officially listed in an EEA State; or
  3. admitted to dealing on the New York Stock Exchange or Nasdaq.

First reporting period: FY ending after 6 April 2013 or 1 October 2013

One of the questions DEFRA raises in its consultation is whether the first reporting year should be the company's first financial year ending after either 6 April 2013 or 1 October 2013.The latter would coincide with regulations that the Department for Business, Innovation and Skills (BIS) intends to implement in relation to the narrative reporting framework.

Emissions covered by new requirement

The draft regulations specifically require quoted companies to report on GHG emissions from the following activities undertaken by the company:

  1. the combustion of fuel in any premises, machinery or equipment operated, owned or controlled by the company;
  2. the use of any means of transport, machinery or equipment operated, owned or controlled by the company; and
  3. the operation or control of any manufacturing process undertaken by the company.

Organisational boundary

It appears that quoted companies will be required to report on GHG emissions within the same organisational boundaries as used for the financial report in the annual report and that companies will not be required or able to use any different approach (for example operational or financial control) to define their organisational boundary.

Companies may decide method of calculating and reporting GHG emissions

Companies will be able to choose the methodology which they use to calculate GHG emissions. The draft regulations do not require companies to use any particular methodology but do require companies to state which methodology is used. Companies already subject to carbon reporting requirements under Climate Change Agreements, the EU ETS and the CRC Energy Efficiency Scheme will be pleased to hear that they will be permitted to use data from these schemes to comply with the new regulations.Companies must declare in their report if data from these schemes has been used.

Although Government has produced guidance for measuring emissions, the consultation document suggests that companies may wish to follow (or may already be following) other standards, such as the World Resource Institute/World Business Council for Sustainable Development GHG Protocol, the International Organisation for Standardisation (ISO) 14064-1 or the Climate Standards Disclosure Board's Climate Change Reporting Framework.

Consultation of environmental Key Performance Indicators (KPIs)

DEFRA has also issued an informal consultation on revisions to its guidance on the use of environmental KPIs by companies to report on environmental performance. The current guidance is based on a list of 22 KPIs, whereas the consultation document focuses on five key environmental categories (air pollution and emissions; water; biodiversity and ecosystems; materials; waste).

Useful links

To see our previous e-bulletin on the Government's proposals, click here.

DEFRA's consultation on the draft Statutory Instrument can be viewed here.

To download the draft Statutory Instrument, click here.