Coming clean

The UK is beefing up efforts to monitor carbon emissions, but companies will have to work hard to comply

In brief

The UK’s proposed regulations on greenhouse gas emissions will come into force next year, forcing all quoted companies to collect data on how much carbon dioxide and other gases they are producing. Lawyers agree the proposals are a positive step, but identify some problems which still need to be ironed out.

environment

In 2008 the UK became one of the first countries to pass legislation designed to cut carbon emissions and manage climate change. Since then, the volume of carbon dioxide emissions has dropped – but the Government wants to decrease emissions produced by the UK even further.

One of the elements of the Climate Change Act 2008 was an obligation for the Government to decide whether companies would have to report on their greenhouse gas emissions, either by passing regulations enforcing this reporting or by explaining why regulations had not been made.

Finally, in June this year the Government announced that UK quoted companies would have to report their greenhouse gas emissions. The decision followed a consultation overwhelmingly supporting the move.

The Department for Environment, Food and Rural Affairs (Defra) is now running a consultation on the draft regulations which, if passed, will mean companies must start reporting in 2014.

In their directors’ reports companies will have to focus on the annual quantity of emissions, recorded in tonnes of carbon dioxide and other greenhouse gases, from both direct and indirect emissions. These could be from manufacturing activities, transport or fuel combustion in the company’s premises or from its equipment. They must also include any emissions from the use of electricity or heating, for example, plus business travel and waste disposal.

All the information will have to be in subsequent reports so progress can be monitored.

The consultation covers a number of areas. It asks whether the regulations should come into force at the same time as the Department for Business, Innovation & Skills (BIS) new regulations on narrative reporting, in October 2013, rather than in April 2013.

It also asks for views on how the guidance on measuring and reporting emissions could be developed. Although the regulations do not require companies to use the guidance, directors will need to be transparent over what methodology they use.

There are various emission measuring schemes in place, including the Department of Energy and Climate Change (DECC)’s Climate Change Agreements and CRC Energy Efficiency Scheme and the EU’s Emissions Trading Scheme. A number of companies already report on their emissions using these programmes, and the regulations will allow them to use data produced by whichever scheme they are part of.

Companies already reporting on their emissions include supermarket giant Tesco, which is trying to cut emissions from stores built before and after 2006 as well as its distribution network. Tesco has been particularly successful in reducing emissions from its older stores by focusing on elements such as gas leakage from refrigerators.

“Requiring corporations to disclose the greenhouse gas impacts of their activities is long overdue,” says ClientEarth law and policy adviser David Holyoake. “However, the draft regulation the Government has released contains many problems and represents several missed opportunities.”

In particular, Holyoake says the proposal to allow reporting from a range of schemes will make it hard to compare different companies.

“One of the benefits of corporate greenhouse reporting obligations is to allow meaningful, visible and transparent comparisons of the emissions profiles of different companies, providing consumers and investors with the ability to assess and compare and help hold companies to account, while tapping into the competitive instinct of corporations to further reduce the climate impacts of their activities. Yet the Government’s proposed model utterly fails to promote this as it doesn’t prescribe any consistent approach to the reporting or any greenhouse gas reporting methodologies,” he argues.

Herbert Smith’s head of environment Louise Moore says the regulations are a positive step, but agrees that initially comparing companies will be difficult.

“There’s clearly already quite significant carbon reporting requirements but they’re not standardised,” she says. “I think the attraction of this is that it’s a starting point to enable meaningful comparisons.”

BLP environment partner Aidan Thomson points out that there is a discrepancy between the length of the actual regulations and the amount of effort companies will need to put in to comply.

“I think what’s envisaged is really quite detailed reporting,” says Thomson. “This isn’t the sort of thing that companies are going to be able to turn their hand to quickly.”

He notes that if the regulations do come into force next April then directors should start thinking about complying with them now.

“Getting the data together in a meaningful way to make sure that you capture everything isn’t something that you can do easily,” he explains.

But Thomson says the Government has tried “quite hard” to reduce the compliance burden on companies.

Holyoake adds that a wider scope would also have been beneficial, rather than restricting reporting requirements to quoted companies.

“Further wiggle room is given to companies by the failure of the proposal to define the territorial scope of the reporting obligations. With many quoted companies having transnational operations and overseas subsidiaries, this creates a risk that the real climate impacts of their activities at company level may remain hidden,” he says.

Thomson agrees the lack of geographical limits imposed in the reporting could be confusing. While it theoretically allows for companies to report across their organisation, in line with financial reporting, it could be hard to produce consistent data from around the world.

Lawyers expect the initial limited scope of the regulations could well be widened in future with Moore saying that “down the line” more companies will be included.

In a few years’ time, the regulations will hopefully provide a much clearer picture of carbon emissions in the UK – and enable the country and its companies to cut down on the greenhouse gas they are producing.