The Department for Environment, Food and Rural Affairs (Defra) is to introduce mandatory green house gas (GHG) reporting for quoted companies from April 2013.
It will be part of directors' reports, which in turn form part of companies' annual reports.
The announcement came as Defra published a summary of responses to its consultation on the mandatory reporting of companies' GHG emissions.
Along with the summary of responses, Defra also issued its own response and proposed next steps, which included:
- companies will report on the GHG emissions within their organisational boundaries, which will be the same as for the financial report in the annual report, and include overseas activities
- where companies are not able to collect all the necessary data, they must state the extent to which they are able to report (known as 'comply or explain')
- it is proposed that the reporting will cover the six GHGs listed in the Kyoto Protocol (carbon dioxide, methane, nitrous oxide, HFCs, PFCs and SF6)
- companies will be required to report on scope 1 (direct) and scope 2 (indirect energy) emissions in line with the 2009 government guidance on voluntary carbon reporting, but not on scope 3 (other indirect) emissions
- an intensity ratio will need to be included comparing GHG emissions data with an appropriate business metric or financial indicator (e.g. sales revenue)
- reporting will be required from a base year of each company's choice and companies should indicate in their report if the base year has changed
- companies must report on the methodology they have used (for example the government guidance or another recognised standard or framework)
- specific assurance and verification requirements on the carbon reporting element of the director's report are not being proposed in addition to the existing auditing requirements set out in the Companies Act, but can be carried out on a voluntary basis
Although voluntary reporting has been adopted by many companies for some time, the Impact Assessment accompanying the proposal stated that 'government intervention can provide for a level of transparency and consistency, as is already the case for company financial information, which is not being achieved by individual private initiatives'.
It was also considered that a company's exposure to climate change related risks 'is essential information for investors who wish to assess medium to long-term risks'.
Defra proposes further consultation on draft regulations in due course. In addition, consideration will be given in 2016 to mandatory GHG reporting being extended to all large companies.
It will be interesting to see whether this proposal affects the Government's decisions relating to the CRC Energy Efficiency Scheme.
The summary of consultation responses refers to a 'one in one out' approach and to Defra having identified an 'out' which corresponds to the burden on business created by the new requirements.
The CBI has welcomed the announcements on GHG reporting and also suggested that it would be a good time to scrap the CRC.