Mandatory carbon reporting requirements are firmed up

Paul Hatchwellby Paul Hatchwell, Senior Writer, The ENDS Report: The journal for environmental policy and business in the UK.

UK-listed companies now face a duty to incorporate carbon emissions reporting in their annual company reports from 1 October but can do so in a flexible way, after draft legislation was laid before parliament on 12 June.

The duty was introduced via a change to the 2006 Companies Act. It will apply to all company reports covering financial years that end on or after 30 September 2013, and is a requirement under the Climate Change Act 2008.

The key change under the legislation, other than the introduction of a strategic report section, is contained in part 7 covering disclosures of greenhouse gases in directors’ reports.

This section requires that the report states “the annual quantity of emissions in tonnes of carbon dioxide equivalent from activities for which that company is responsible”, including combustion of fuel and the operation of any facility (scope 1 emissions). In addition, companies must disclose annual indirect emissions as a result of importing electricity, heat, steam or cooling for its own use (scope 2).

Methodology used must be clearly stated, and equivalent emissions data for the preceding financial year should also be included. Emissions from all six Kyoto Protocol gases must be included, but reported as CO2equivalent.

But firms are only required to do so “to the extent that it is practical for the company to obtain the information”. Where they cannot, the report must state which information is missing and why. If information relates to a different period to that of the director’s report, this must also be specified.

The directors’ report must also include “at least one ratio which expresses the quoted company’s annual emissions in relation to a quantifiable factor associated with the company’s activities”, otherwise known as carbon intensity.


Long-awaited guidelines on emissions reporting and emissions factors used for calculating carbon intensity of electricity use were also published in parallel by DEFRA.2DEFRA’s guidelines also cover wider environmental performance reporting on water, waste, resource efficiency and non-CO2emissions.

The guidelines are designed to fulfil several needs and include mandatory and voluntary sections. A major new market now covers carbon in annual sustainability reporting compliance from the corporate sectors, government and non-ministerial departments, agencies and non-departmental public bodies. Councils in England have also been requested by government to measure and report emissions from their own estate and operations.

The mandatory guidelines only cover minimum requirements and obligated companies may wish to use the voluntary guidelines to go beyond these.

The mandatory reporting guidelines state that annual reporting of emissions should ideally be aligned with the company financial year. Use of a different period should be clearly explained, “and the majority of your emission reporting year should still fall within the period in directors’ report”, they say.

They state that a company must report on materially important emissions for which it is responsible, normally covering Scope 1 and 2 emissions in activities over which it has control.

There is no prescribed methodology for reporting, but in addition to DEFRA’s latest guidelines widely used standards such as ISO14064 on greenhouse gases, the WRI/WBCSD Greenhouse Gas Protocol, the Climate Disclosure Standards Board Climate Change Reporting are recommended.

Emissions data from compliance schemes such as the EU emissions trading scheme, the CRC Energy Efficiency Scheme and climate change agreements or reporting and disclosure schemes in other countries is allowed. But these may not in themselves cover all relevant emissions, the guidelines warn.

There is an emphasis on filtering out unnecessary and confusing clutter and focusing on materially important emissions that explain key trends and events. Scope 3 emissions from use of products by customers and from supply chains are not required, but could be reported on separately where they give a clearer picture of overall carbon footprint.

But they also stress the need to report emissions that are covered by the often different scope of the consolidated financial statement, including overseas operations, or explain why these have not been covered. Based on the principle of control over the activity, a company may decide to include emissions over which it has operational but not financial control. In other cases, an outsourced activity drawn in because of consolidated financial reporting can be excluded, but the omission must be explained.

Emissions figures must repeat the previous year’s emissions alongside those of the current year, except in the first reporting year. This amounts to “a rolling one year comparator”. But the document suggests companies with a history of voluntary reporting may wish to include this. There is no requirement to recalculate previous year emissions where there has been significant company restructuring, but if this is done it must be clearly stated.

Carbon intensity

The requirement for carbon intensity ratios is intended to allow “comparison of performance over time and with other similar types of organisations”. One or more ratios must be provided covering the entire company, but companies can also provide further metrics covering all or part of the organisation.

There is no need for independent verification or assurance of emissions data, but DEFRA recommends this as giving increased confidence internally and for external stakeholders. Financial auditors will assess data for consistency with financial data, and will have to discuss with directors errors or non-compliance they encounter in the course of their statutory financial audit. This may include qualifying their own report.

But the DEFRA guidance is equally applicable to all organisations that report voluntarily on carbon emissions and those using key performance indicators (KPIs). Outside firms covered by the new regulations, investors, shareholders and other stakeholders are increasingly expecting more complete voluntary environmental disclosures in annual reports and accounts. There is also growing pressure on suppliers to report as a result of this trend.

DEFRA’s voluntary guidelines also provide additional information on principles for compliance. They emphasise seven reporting principles: relevance, quantitative, measurable KPIs, accuracy, completeness, consistency, comparability and transparency. There is also further guidance on organisation boundaries, scoping, intensity ratios, and identification of risks and opportunities.

Commenting on the draft regulations, Paul Holland, director of sustainability advisory services at consultants KPMG, said companies “need to wake up to emissions reporting requirements”. He warned that businesses with December year ends are already half way through the first reporting period. And he predicted a rush of calls to consultants following the new regulations and increasing pressure from audit committees.

Holland said even larger quoted companies already reporting need to ensure their current practice reflects the new guidelines.

Dr Richard Tipper, chief executive of Ecometrica, said: “The statutory significance of environmental reporting has now been elevated to the same level as financial information… Directors will not only want assurance that such numbers are correct but also a thorough understanding of how these break down across the business, by type of greenhouse gas and geography.”

Christine St John Cox, carbon management knowledge leader for Ricardo-AEA pointed out verification may be necessary to reduce business risk by preventing errors and avoiding a restatement of annual reports.

She stressed that carbon emissions “can be included within the scope of an audit or verification process where a business’s environmental impact is likely to influence its financial standing”. Verification can also highlight business priorities and opportunities. 


Reading Time: 8 Minutes

Date Published: June 24, 2013



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