Following the release of the UK Government’s draft regulation mandating the corporate reporting of greenhouse gas (GHG) emissions yesterday, the not for profit organisation, the Carbon Disclosure Project (CDP) applauded this important first step but says it will make recommendations to ensure the regulation meets long term market needs, is not viewed as a reporting burden for companies and has a positive impact on the Earth’s climate.
The draft regulation issued by the UK Department for Environment, Food and Rural Affairs (Defra) under the Companies Act is primarily focused on eliciting information for investors. With its climate change work supported by 655 institutional investors representing US$78 trillion, CDP staunchly supports this move in the knowledge that investors are increasingly calling for greater disclosure of corporate environmental risk and opportunity.
However, it says that the draft legislation does not specify a standardised reporting approach to be used for compliance with the requirement to deliver GHG emissions information. In this way, CDP says, it fails to introduce reporting that will produce consistent and comparable information within a structure that could be adopted by other national jurisdictions. Furthermore, although issued by Defra alongside a consultation on a number of environmental key performance indicators that businesses can adopt for reporting, the draft regulation looks at corporate greenhouse gas emissions as an isolated issue and does not require companies make a full assessment of how climate change is expected to affect their business. These points it says, directly impact how much value investors will be able to derive from any mandatory reporting. Without this being addressed there is a risk that the regulation will not reach its full potential.
CDP’s executive chairman Paul Dickinson says: “There is a multitude of laws and schemes that affect the way companies report climate change-related information in different countries across the world and so in order to achieve consistency in reporting, the legislation must be explicit on the matter of frameworks for reporting compliance.”
CDP recommends that the legislation, or at the very least the accompanying guidance document, points companies to the Climate Change Reporting Framework. This framework has been developed with the support of Defra and the input and advice of the global accounting profession by the Climate Disclosure Standards Board, a special project of CDP’s. The framework, which is currently referenced in Defra’s GHG reporting consultation document, is consistent with existing recognised schemes in order to support current market practice and elicit information that can be used by investors.
Drawing on the knowledge gained from pioneering the largest natural capital disclosure system worldwide and ten years of collecting corporate greenhouse gas emissions and climate change information, CDP supports Defra’s decision to make the new regulation apply to the c.1,100 companies quoted on the London Stock Exchange (LSE) Main Markets.
“CDP recommends that the Government views this as a first step and continues to develop plans to expand the regulation to include all large private companies in the UK in 2015/16.”
CDP recommends that the Government views this as a first step and continues to develop plans to expand the regulation to include all large private companies in the UK in 2015/16.
Similarly, CDP supports the regulation’s requirement for reporting emissions under a number of metrics for both Scope 1 and Scope 2 emissions but would like to see these expanded to elicit disclosure on a wider range of climate change related information, such as climate risk, and to include Scope 3 emissions in the future. UK companies and others worldwide can continue to make a full and transparent assessment of their climate change risk using the CDP disclosure system and CDSB’s Climate Change Reporting Framework as a toolkit.
Nearly 30% of the UK companies that will be affected by the new regulation disclosed their greenhouse gas emissions and climate change information to their shareholders through CDP last year, which accounts for over 90% of the LSE Main Markets in terms of market capitalisation. Companies that want to learn more about how this legislation will impact their business can benefit from a free webinar, Getting answers to UK requirements on mandatory carbon reporting, on 13th August 2012.
Consultation on the regulation on reporting of greenhouse gas emissions (ends 17 October)
Image: melting icecaps CC credit Gerald Simmons