Mandatory carbon emissions reporting to drive investment

It's hoped that the move will help drive investment in energy efficiency, encouraging firms to manage their environmental impact by cutting emissions. However, some experts feel the new legislation could go further and include all large businesses, so that its full potential benefits can be realised sooner.

New policy

Under the new emissions policy, the UK’s biggest companies will have to publish their emissions of carbon dioxide and other greenhouse gases in their annual reports, from April 2013. The policy will be reviewed in 2015 before ministers decide whether to extend the policy to all large companies from 2016.

Shortly before arriving at the Rio+20 summit, Deputy Prime Minister Nick Clegg announced the policy by writing in the Guardian. ‘Using resources responsibly is in business's own interests too…. But while nine out of 10 chief executives say sustainability is fundamental to their success, only two out of 10 record the resources they consume. So the UK will press for governments to come together, working with those companies already blazing a trail, to give "sustainability reporting" a global push. By agreeing common standards and practices we can get many more firms on board.’ 

The UK is the first country to make emissions data compulsory. The policy follows a DEFRA-led consultation process which took place from May to July of last year and will enable investors to see which companies are effectively managing the hidden long-term costs of their emissions. 

The government had come under fire in March of this year when it missed an early April deadline, required by the Climate Change Act, to submit the new rules. The delays were blamed on the government needing more time to assess the administrative impact of the new policy on businesses.

Reactions

Among those welcoming the policy were the Carbon Disclosure Project (CDP), a global investor-backed organisation that acts on behalf of 475 institutional investors to drive greenhouse gas emissions reduction and sustainable water use by business and cities. The CDP has helped provide a framework for measuring, disclosing, managing and sharing environmental information for 10 years.

'This latest move from the Government is a much-needed response to market needs and an important step towards improved valuation of environmental risk,' CDP's executive chairman Paul Dickinson said in a statement. 'Regulation is essential in moving us towards a low carbon economy.'

However, the Institute of Environmental Management and Assessment (IEMA), the professional membership body for the environment sector, was more reserved in its praise. While it welcomed the announcement, it also pointed out that many of the companies subject to the new policy already report on their greenhouse gas emissions. 'Currently the majority of listed businesses already report on their GHG emissions, so until this legislation is broadened out it will not achieve its full potential for environment and business,' said IEMA's Executive Director of Policy, Martin Baxter. He pointed out that the DEFRA consultation showed that the vast majority of respondents favoured 'Option 3' in the document, which covered all large businesses, not just those on the London Stock Exchange Main Market. 'We strongly urge Government to speed up the process of introducing mandatory reporting on GHG emissions to all large companies as soon as possible. Over 90% of IEMA members we surveyed supported the introduction of GHG reporting for all large companies,' he said.

It’s clear that the policy is a step forward and will be welcomed by investors who recognise the long-term importance of sustainability. “Regulations on emissions reporting will indirectly increase everyone’s attention on the issue. The reputational risks and impacts of people sharing information quickly, and globally cannot be underestimated,” said Alan McGill, a partner in PwC's sustainability and climate change practice, in response to the announcement. “We’ve moved into a different era…. There is overwhelming interest from investors for information about carbon and climate change risks, because it’s a link to the company's long term prospects, risks and liabilities of the business, and the efficiency of its operations."

He also warned that the timetable for financial reporting might be a challenge, as well as coherence and materiality.