Event Summary: Crunch Time for Carbon Reporting

Event Summary: Crunch Time for Carbon Reporting
Tuesday 7th June 2011

Lord Chidgey opened the meeting on behalf of the All Party Parliamentary Climate Change Group and the Aldersgate Group (AG). He thanked the sponsors, Carbon Systems.

Mike Anderson, Director General of Defra, acknowledged the “keen interest from the Aldersgate Group and you [the audience], on how to introduce regulations – or not – for companies reporting their emissions.”
Mr Anderson explained that his department is “focusing on the benefits for companies and investors of carbon reporting”, while the Government simultaneously looks closely at the impact of regulations and burdens on companies. Carbon reporting is therefore an issue of burdens versus benefits; the Government is keen to ensure it regulates in the right fashion.

Defra’s consultation on this topic sets out four possible options for carbon reporting and Mr Anderson encouraged all attendees to respond with their views and evidence. “Once we’ve asked whether we should regulate, what companies should report is an equally critical issue”, along with the scope and “how far down the supply chain we should go”. Defra intends to keep the system simple and clear and Mr Anderson emphasised their intention “to work in line with international guidance.”

While Defra works on mandatory carbon reporting, the Department of Business, Innovation and Skills (BIS) is looking at narrative corporate reporting and Mr Anderson confirmed that the two would be closely aligned.

Andrew Raingold, Executive Director of the Aldersgate Group, described the event as marking “a critical junction in carbon reporting”.
The Aldersgate Group (AG) has been campaigning on this issue for four years and welcomes the consultation, although Mr Raingold highlighted key areas for discussion. The first is the description, given within the consultation, that “measuring and reporting of greenhouse gas emissions by organisations is seen as a useful tool in helping to reduce emissions and achieve energy and other resource efficiencies.” Mr Raingold disputed the term ‘useful’ – “it’s an essential tool”, because a company must measure emissions to understand and subsequently, to reduce them. James Murdoch, Chief Executive of News International, an AG member, believes that “saying we can tackle climate change without public company disclosure is akin to thinking obesity can be solved if people do not weigh themselves.” The AG supports the third option in the consultation, which would make reporting mandatory for all large companies.

Secondly, if companies were required to disclose their carbon emissions, existing carbon and energy legislation could be simplified: the CRC league tables could arguably become obsolete and the carbon levy and the CRC could be streamlined, whilst maintaining revenues to government and driving forward reductions in carbon emissions.

Thirdly, there are a number of inaccuracies and questionable assumptions in the Impact Assessment which accompanies the consultation, as it “significantly overestimates the costs and undervalues the benefits” of reporting. For example, “the upper band costs are estimated at £6billion, which is three times more expensive than similar legislation in the United States.” Under the Government’s ‘one in one out’ rule on new regulations, this would mean that to introduce mandatory carbon reporting, existing regulations worth the same figure would have to be removed. As another example, the cost data “are taken from the CRC and include things like taking part in auction and trading emissions, that are just not relevant to this policy. It also estimates that employees in charge of the reporting will be earning £130,000 pounds a year”, which seems excessive.

Emma Howard Boyd, a Director at Jupiter Asset Management noted that although many companies do report voluntarily, “I’ve had many a meeting with the companies where the finance director hasn’t been aware of the reporting that has been sent to the CDP.”
She voiced fears that many companies view carbon reporting “as a silo away from the essential management and financial tools that a company is using.” The solution will be “a regulatory push to really imbed carbon reporting into the financial process.”

Ms Howard Boyd suggested there could be further developments to increase transparency and accountability into businesses, for example by reporting emissions in relation to turnover. “Those kinds of innovations are really powerful for investors, consumers and the media to start making low carbon decisions.”

Colin Baines, Campaigns Adviser at The Co-operative Group agreed, “I believe that CDP has plateaued over the last few years”.
He cited a report by Deloitte, which finds that although a large number of businesses are reporting, “only 9% were reporting in line with Defra guidelines.” He argued that while “mandating is an absolute must”, it will also be crucial to ensure that the resulting data receives independent assurance to give investors and stakeholders confidence and inform their decisions for sustainable, long-term investments. Accurate information on emissions is the market driver for a low carbon economy. Mr Baines acknowledged that most of the costs for business will sit with this assurance process, but “they are not unaffordable for large businesses.”

As a further development in reporting, Mr Baines noted that businesses occasionally report on risks that they perceive in the year ahead, and climate change risks may start to be incorporated into this practice. This would naturally fit within the Operating and Financial Review (OFR), which supports awareness of the future opportunities and risks for a business and should logically include assessment of the carbon intensity of business operations.

Paul Dickinson, Executive Chairman of the Carbon Disclosure Project (CDP) argued that reporting is not challenging for businesses and “will, in fact, drive innovation and green growth.”
He quoted the Chief Investment Officer of Schroders, which has $300bn under management, who believes “this is the first predictable industrial revolution”. Mandated carbon reporting will help ensure that British citizens and businesses benefit from that revolution and we’re not left out of this critical change in society. Mr Dickinson added that although “Government finds it tough to legislate, that is what citizens expect Government to do”. Moreover, of the world’s largest 500 companies, 82% already report through CDP, as do 94% of FTSE 100 companies, “so surely legislation is just a small step to formalise what everyone is doing and ensure that it is done with the due weight of law.”

Beyond carbon and GHG disclosure, Mr Dickinson was clear that the next stage will be to report on natural capital. “We’ve been running the country with a profit/loss account and no balance sheet for a long time” and companies should be thinking about areas like the water intensity of their activities, and future issues that might arise.

Richard Tarboton is Director of Energy and Carbon at BT, which has been reporting since 1996.
He noted that it has “really driven us to measure, monitor and install smart meters over our 6,000 sites across the UK and that’s been key to reducing energy consumption.” He added that companies have a responsibility to report and now the debate needs to consider the future steps:
1) companies should report their total megawatt hours year-on-year, making clear how consumption is changing
2) companies should report how much energy is generated from their own renewable sources;
3) Government should look at how businesses, as users of energy, can play a role in driving the market that provides them with energy. The reporting requirements placed upon businesses can shape their preference towards buying energy from renewable sources and thereby impact energy suppliers.

Mr Tarboton cited carbon labelling of products as another future step for this agenda, which has been successfully applied to cars and some white goods, raising consumer awareness of the energy efficienct properties of those products. He advocated this be prioritised in those areas where products and services have a large carbon impact.

One further step, Mr Tarboton suggested, is “the one area that I feel has been left out and is the highest carbon purchase that any consumer or business makes: energy.” Bought electricity should be labelled with its carbon content on a simple A-G scale. This would be relatively simple to implement because that carbon content measurement already exists under EU regulation, called the Fuel Mix Disclosure Agreement. Mr Tarboton argued that, “the UK Government could take the lead in this.”

Mr Anderson welcomed Mr Tarboton’s suggestion, “as from a natural resource perspective, any labelling across the piece that is easy to measure is beneficial to the consumer, and those that are trying to form policy around it.” However he voiced reservations about how this could be achieved and kept simple in practice, particularly as it would risk another layer of regulation being added to pre-existing layers. “Keeping it simple might be the motto, otherwise we just get lost in the myriad of complexities.”

Finally Mr Tarboton emphasised the importance of the Government taking a role on the international stage, to drive forward a framework that will be consistent across all countries. There are a number of different mechanisms across Europe “and it seems that the UK is out of sync with some of the discussions going on.” It is essential that the decisions being made are internationally consistent.

Mr Anderson agreed with this view, “because if we are seen, as a government, to be undermining competitiveness of British industry then this government is not going to last very long, is it.” However he emphasised that the discussion about how to fit with the international framework must be based on evidence.

This event was supported by CarbonSystems.