Without much fanfare a potentially transformative piece of legislation has come into force this month. New regulations are being introduced that will make the directors of some of the world’s largest companies legally responsible to report on more than just financial performance and business strategy. They will now have to go into greater detail about how the way they do business impacts the wider world.
From October 2013 all UK-based companies listed on the Main Market of the London Stock Exchange will have to annually report on the impact of their business on the environment, the gender of their employees at different levels of seniority, and social and human rights issues. Perhaps most significantly, following sustained campaigning from the CBI and the business world, these new regulations will require companies to report on their greenhouse gas emissions globally.
The UK is the first country in the world to introduce mandatory carbon reporting. Although the current regulations will only apply to over 1,100 listed companies there are plans in place to consider extending it in 2016 to all large companies. That could significantly increase the impact of the regulations, involving as many as 24,000 businesses.
This will mean that from later this year boardrooms and shareholders will have to start paying a lot more attention to carbon footprints. Carbon footprints will also provide a new metric available across all companies on the market, allowing for investors to assess company performance, efficiency and competitiveness.
Of course a number of companies are already reporting emissions on a voluntary basis, whether this is through their current annual reports or with organisations such as the Carbon Disclosure Project. There is no prescribed methodology in the regulations but a number of robust and accepted methods are now well established, of which the most widely adopted around the world is the Greenhouse Gas Protocol Corporate Standard.
Some companies are going even further and looking at emissions outside their direct control, produced by their supply chains and customers, as in many cases they are able to reduce these through their influence. For example we are working with Tesco to help engage their suppliers in reducing energy costs, helping them to be more efficient, cutting their indirect carbon footprint, keeping down costs and insulating themselves from energy price shocks. We have also just completed a project with BT on developing a methodology helping them to achieve their Net Good goal of reducing customers’ carbon emissions by three times the end-to-end carbon impact of their own business.
Climate change and resource scarcity are threats that mean we have to change to the way that we do business and the way that we live. A new economic world order is asserting itself, where only the sustainable will survive. In major global economic centres it is becoming increasingly important to accurately measure emissions.
China has just set up its first pilot emissions trading scheme in Shenzen, one of seven schemes planned over the next two years. This is just another step in a trend that started with the European Union and has since spread to places including Australia, New Zealand, Mexico, South Korea, the state of California and the city of Tokyo. In fact in 2015 the Australian and EU schemes will begin to link, which could be the start of creating a global carbon market.
But this new requirement to report represents a huge opportunity for those businesses that can see beyond the burden of compliance. Energy is the lifeblood of a business, but it is also a considerable cost. Measuring is the critical first step setting meaningful targets for managing and reducing those costs. At the Carbon Trust we have worked with three-quarters of the FTSE100 to help them identify efficiencies, save money, improve reputation and drive innovation. The key to unlocking all these benefits starts with understanding a footprint.
Bringing sustainability inside organisations, products and services will be a critical part of the great transformation that businesses will need to undergo to survive through to the middle of the century. All current indications show that resource and energy demand will continue to increase, and those companies that will thrive are the ones that understand their own impact and how to keep it to a minimum.
It’s not just green groups taking notice any more. Customers have started caring, we know from our own research that in the UK over half of the 18-25 age group would be more loyal to a brand if they can see that they are taking action to reduce their carbon footprint, and in growing economies like Brazil, China and South Korea these figures increase to around three-quarters of young consumers. Businesses that look at their indirect impact have started taking far more care in selecting suppliers that act in an environmentally responsible manner. Even investors are now using carbon as a way to evaluate company performance and exposure to risk.
Mandatory carbon reporting regulations are going to help a lot of UK-based companies lagging behind to get up to speed with taking action on their emissions and compete globally in a sustainable future. It will help those already taking action to go further and become leaders within their own industries. Ultimately reporting emissions should not be seen as compliance issue, it is an absolutely fundamental part of having a sustainable, innovative and successful business in the twenty-first century.
Support with mandatory carbon reporting
Get in touch to discuss how we can help your company benefit from carbon reporting - call us on +44 (0)20 7170 7000, or fill in our online contact form.
Some of the services we offer that can help you comply with the regulations include:
- carbon disclosure audit;
- measurement of direct and indirect carbon emissions;
- footprinting software;
- independent footprint verification services;
- staff training.