THIS YEAR’S Rio+20 United Nations conference on sustainable development caused outcry that, although many countries were suffering the effects of climate change, the western world was slow to make changes on reducing the harmful effects of their industry and lifestyle.
Then, the UK government stepped in and dropped the bomb. It said that all large listed companies will report not only their carbon but also their greenhouse gas (GHG) emissions, such as nitrogen and other harmful gases, from the next financial year – a move that will affect about 1,800 companies.
The UK has spent millions on environmental investment – from setting up a green investment bank five years ago, increasing wind energy and announcing the world’s first carbon budget as part of the 2009 Budget, to introducing the Carbon Reduction Commitment (CRC) as part of its goal to reduce emissions in the UK by 20% by 2020.
The latest announcement, however, has already caused controversy. Leading business consortium the Confederation of British Industry (CBI) has suggested that the new reporting requirements will duplicate the workload of companies already required to report carbon emissions under the CRC.
The CRC requires organisations that spend more than £500,000 annually on energy bills to pay for and report on energy-related emissions. This rule currently affects about 6,000 organisations in the UK. However, it is hoped the reduction mentality will filter down to smaller companies that are part of the supply chain.
The CBI has suggested that the government should remove the CRC, which began life just over a year ago, to combat duplication. But there will be a huge shortfall, considering the fact that the CRC covers 6,000 organisations and the GHG reporting just 1,800.
“We have been calling for mandatory carbon reporting for some time. It is an important way to help businesses save money and emissions,” explains Rhian Kelly, CBI director for business environment policy. “To avoid unnecessary duplication, the government now needs
to scrap the Carbon Reduction Commitment.”
Jump the hurdle
PwC sustainability partner Alan McGill, who worked on the world’s first environmental profit and loss account for Puma, agrees there could be duplication but argues many companies already reporting will not be affected as detrimentally as some critics argue. However, he is more concerned with the quick turnaround companies must accomplish in order to get their GHGs in order.
“The timetable for financial reporting may be a challenge, and there are issues around coherence of reporting and materiality,” he explains. “The immediate questions are whether it avoids duplication with other requirements and whether businesses can jump the hurdle in terms of accuracy of reporting against the deadline set for the next financial year.
“Companies that aren’t already reporting may worry about the additional regulatory burden. But this isn’t just about reporting. It’s about setting targets and driving efficiency, which should save money, as well as carbon.”
Another concern to emerge following the announcement is the audit and assurance of the information. “With only nine months to go before reporting becomes mandatory, accountancy firms must also address how they respond to this new requirement,” says Gary Davis, operations director at environmental accounting developer Ecometrica.
“GHG expertise, both in terms of measurement and audit, is scarce throughout the advisory sector and firms will need to ensure they have the capabilities and expertise to meet the new obligations. Companies will need to look at the expertise and investment of environmental issues by audit firms.”
Although there are many that agree that the CRC should be dropped, they don’t want to see a reduction in the number of organisations reporting on their emissions. A supporting industry can only develop if the the market is large enough.
“Mandatory greenhouse gas reporting will deliver benefits for both the UK economy and the environment, and turn the environment into a mainstream business opportunity,” says Davis. “However, we will not see the full benefits of mandatory reporting until it is introduced for all large businesses (about 24,000). Currently, the majority of listed businesses already report on their GHG emissions, so until this legislation is broadened, it will not achieve its full potential for environment and business.”