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Emission reports: hot air?

Like a party balloon, corporate emissions reductions move around according to
where you squeeze them. As organisations try to cut pollution in Europe, their
suppliers in China chuck out more gas. As globalisation sees entire industries
shifted offshore and supply chains stretched across the globe, tracking carbon
emissions becomes more challenging. And if we do not track corporate emissions,
how do we know we are cutting them?

This spring, a small group of high-level campaigners, including Lord Whitty
(the former parliamentary under-secretary at Defra) and the Bishop of Liverpool,
tried to nail that problem. They inserted a House of Lords amendment to the
climate change bill, a legal framework underpinning UK emissions reduction
targets, due to go through another reading in the House of Commons early this
summer.

“Any company which is required to produce a business review under the
Companies Act 2006 must report on greenhouse gas emissions,” they stated.
Compliance with governmental guidance on reporting on the issue would constitute
compliance with the Act, they added.

An amendment to the Companies Act itself came into force in October 2007,
requiring companies to provide information about environmental matters in the
business review section of their annual report and accounts, or to explain why
they do not believe that environmental issues are relevant to their business.

The Lords amendment is more specific, since it refers to greenhouse gas
emissions. The purpose of both amendments is clear: to close the enormous
loopholes in emissions reporting that make it so difficult to realistically
assess how companies are performing.

Taking responsibility
Consistency is one problem. Whether and how to take responsibility for supplier
emissions is another. Reporting has become more commonplace, but the question is
how much is being revealed. According to a 2007 Environment Agency study, 42% of
FTSE companies surveyed supplied environmental statistics in their annual
reports and accounts, though many omitted energy use/climate change data.

Good performers included energy company Scottish & Southern and bank note
producer De La Rue. Companies that ignored environmental issues ­ a small
minority ­ included toy producer Hornby and road rescue company Accident
Exchange Group. HSBC and Cadbury Schweppes are two other companies leading on
this issue and they too are beginning to communicate that to investors. But the
problem is that it is difficult to know what their beancounters are counting.

As Angela Eagle, an energy strategist at AWG Group, parent company of
Anglian Water, puts it, “The whole reporting issue is full of ambiguities.”
Operating in the flatlands of eastern England and experiencing lower rainfall
than neighbouring areas, the company’s emissions figures may be higher than
those of other water companies because it needs to extract more water from
underground than, say, a company in the Lake District.

A reader looking at Tesco’s corporate social responsibility report might
assume the company is much more environmentally-friendly than one of its rivals,
Marks and Spencer. In a review of emissions reporting entitled Coming Clean,
charity Christian Aid points out that despite Tesco’s far greater number of
retail outlets, it declares 2.25 million tonnes of CO2 equivalent emissions for
its UK business, compared with six million tonnes disclosed by M&S. However,
rather than being a dirtier company, M&S in fact includes ‘indirect’ (supply
chain) emissions that Tesco does not report on.

Mind the gaps
Unexpected gaps frequently appear in corporate data. In 2006, BP appeared to
slash its emissions compared with the previous year. In fact, it had changed the
way it counted its emissions, excluding indirect emissions previously used. In
the same year, Cable & Wireless said in its annual report that environmenta
l issues were not significant operational issues. Yet the previous year it had
provided detailed information on energy and transport. Around this time, the
company had been successfully prosecuted for spilling eight tonnes of diesel
into three Wiltshire rivers.

Across the corporate sector, other discrepancies are evident. For instance,
AWG differs from many in the FTSE-350 in that it externally verifies its report
and includes business travel in emissions data. In the UK, many companies
convert the energy used into emissions using different methodologies than those
used by, for instance, North American companies. All companies know how much
energy they use and this usually appears in their profit and loss account as an
operating cost. What they have yet to do is express emissions in satisfactory
monetary terms.

“At the moment, this can’t be translated into money and put into the
financial accounts because there are differing prices for CO2 in different
places,” says Bob Binney, a director at minerals company Johnson Matthey,
alluding to the fragmented international carbon market. “Different reporting
protocols are being used by companies in order that their carbon dioxide
emissions aren’t compared,” is the wry comment of one accounting expert.

Lord Whitty and his supporters are clear about what they want from this
jumble of data: not only mandatory reporting on emissions, but the use of a
single international reporting standard akin to the IFRS that sets the
boundaries for corporate emissions responsibility, and the financial
quantification of emissions costs. Until that happens, companies will continue
to play pass the parcel around the globe.

Useful links
See the report Carbon Costs at
www.aldersgategroup.org.uk/reports

For the Environment Agency report see
http://publications.environment-agency.gov.uk
then search for Environmental Disclosures

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