review of the contribution of reporting to ghg emissions ...of reporting to ghg emissions reductions...
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Review of the Contributionof Reporting to GHGEmissions Reductions andAssociated Costs andBenefits
PricewaterhouseCoopers LLP and CarbonDisclosure ProjectA research report completed for the Department for Environment, Foodand Rural Affairs
Final Report
Published by the Department for Environment, Food and Rural Affairs
Department for Environment, Food and Rural AffairsNobel House17 Smith SquareLondon SW1P 3JRTel: 020 7238 6000Website: www.defra.gov.uk
© Queen's Printer and Controller of HMSO 2007
This publication is value added. If you wish to re-use this material, please apply for aClick-Use Licence for value added material at:http://www.opsi.gov.uk/click-use/value-added-licence-information/index.htm
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Information about this publication is available from:SCP&W Evidence BaseDefraZone 5D, 5th Floor, Ergon Housec/o Nobel House, 17 Smith SquareLondon SW1P 3JR
Email: [email protected]
Review of the Contribution of Reporting to GHG Emissions Reductionsand Associated Costs and Benefits (EV0437)
Report to the Department for Environment, Food and Rural Affairs
August 2010
This research was commissioned and funded by Defra. The views expressed reflect theresearch findings and the authors’ interpretation; they do not necessarily reflect Defra policyor opinions.
PricewaterhouseCoopers LLP (PwC)Carbon Disclosure Project (CDP)
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TABLE OF CONTENTS
List of Figures .......................................................................................................... ii
List of Tables ........................................................................................................... iii
Glossary................................................................................................................... iv
Executive Summary ................................................................................................. 1
1 Summary of Findings....................................................................................... 4
2 Context............................................................................................................ 13
3 Methods and approach.................................................................................. 17
4 Summary of the Literature Review ............................................................... 19
5 A view from the Carbon Disclosure Project................................................. 35
6 Business Survey ............................................................................................ 45
7 Focus groups ................................................................................................. 64
8 Telephone interviews: costs and benefits of GHG emissions reporting... 68
Annex A: Literature Review................................................................................... 75
Annex B: Bibliography........................................................................................... 87
Annex C: Findings from literature review ............................................................ 90
Annex D: Additional results from business survey ............................................ 93
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List of FiguresFigure 1: Impact of UK carbon reduction policies...........................................................................15Figure 2: If you use the CDP data, which areas do you use it for? ...............................................23Figure 3: Composition of respondents by size in last reporting year (thresholds as defined by
Company House classification).................................................................................................46Figure 4: Scale of GHG emissions in the last complete year of reporting at Group level - Scope
1 emissions (tonnes CO2e).........................................................................................................47Figure 5: Scale of GHG emissions in the last complete year of reporting at Group level - Scope
2 emissions (tonnes CO2e).........................................................................................................47Figure 6: Are your company’s operations / facilities subjected to the following compliance
schemes which require you to report your greenhouse gas (GHG) emissions?.................48Figure 7: Is your company / facilities part of any of the following voluntary GHG emissions
reporting initiatives?...................................................................................................................49Figure 8: Does your company have a climate change strategy?...................................................49Figure 9: When did your company first set a climate change strategy? ......................................50Figure 10: How important are the following drivers to the development of the climate change
strategy? ......................................................................................................................................50Figure 11: How important are the following drivers in reducing emissions in your company? 51Figure 12: What does the climate change strategy include? .........................................................51Figure 13: Breakdown of respondents who calculate and report emissions externally .............52Figure 14: Why did management decide not to report GHG emissions? .....................................53Figure 15: Do you plan to report GHG emissions externally within the next 2 years? ...............53Figure 16: How long have you been reporting GHG emissions?...................................................54Figure 17: What do you report on externally? .................................................................................54Figure 18: What methodologies do you use to report GHG emissions? ......................................55Figure 19: Have the scope, depth or methodology of your measurement and reporting of GHG
changed since the start of your reporting of GHG?................................................................55Figure 20: How important are the following potential drivers for your company to report
emissions externally?.................................................................................................................56Figure 21: Please provide best available information / estimates on the setup and ongoing
costs attributable to measuring GHG emissions: ...................................................................58Figure 22: Please provide best available information / estimates on the setup and ongoing
costs attributable to your external corporate reporting of GHG emissions: ........................59Figure 23: How important is reporting in contributing to the following outcomes in your
company? ....................................................................................................................................60Figure 24: Please estimate the monetary savings that are attributable to external reporting: ..61Figure 25: Net benefit of reporting GHG emissions – distribution across reporting companies
......................................................................................................................................................62Figure 26: Would you have measured and reported GHG emissions without regulatory
compliance requirements? ........................................................................................................66Figure 27: Drivers of GHG reduction activities ................................................................................90Figure 28: Methods of encouraging GHG emission reductions.....................................................91Figure 29: Information gap in measurement of GHG emissions....................................................91Figure 30: Is the information provided on best practice sufficient? .............................................92Figure 31: Survey flow chart ..............................................................................................................93Figure 32: Breakdown of sample by employee size........................................................................94Figure 33: Breakdown of sample by annual turnover .....................................................................94Figure 34: Costs of measurement and reporting of GHG emissions ............................................95Figure 35: Please provide best available information / estimates on the employee time spent on
the first year of external corporate reporting - setup costs ...................................................95Figure 36: Please provide best available information / estimates on the employee time spent on
the last reporting year: – ongoing costs ..................................................................................96Figure 37: Please provide best available information / estimates of the ongoing costs
attributable to your measurement of GHG emissions ............................................................96Figure 38: Total costs of measuring GHG emissions – Quoted companies.................................97Figure 39: Please provide best available information / estimates of the ongoing costs
attributable to your reporting of GHG emissions ....................................................................97
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Figure 40: Total costs of reporting GHG emissions – Quoted companies ...................................98Figure 41: Staff time on reporting of GHG emissions – ongoing costs ........................................99Figure 42: How has the cost attributable to reporting GHG emissions changed relative to
previous years?.........................................................................................................................100Figure 43: Non-reporters but planning to report: How important is reporting in contributing to
the following outcomes in your company?............................................................................100
List of Tables
Table 1: Breakdown of UK private sector companies by number of employees........................................... 15Table 2: Existing environmental disclosure requirements set out in company law...................................... 26Table 3: Existing schemes requiring GHG emissions disclosure.................................................................... 26Table 4: Advantages and disadvantages of mandatory reporting.................................................................. 30Table 5: Advantages and disadvantages of voluntary reporting .................................................................... 31Table 6: Costs of implementing reporting guidance........................................................................................ 34Table 7: CDP responses by FTSE 350 .............................................................................................................. 41Table 8: Costs of GHG reporting ...................................................................................................................... 68Table 9: Benefits of GHG reporting.................................................................................................................. 70Table 10: Net benefits / costs of GHG reporting from telephone interviews................................................. 72Table 11: Sector breakdown for sample relative to UK companies ............................................................... 94Table 12: Role of staff responsible for measurnment of GHG emissions ...................................................... 99Table 13; Role of staff responsible for reporting on GHG emissions: ........................................................... 99Table 14: Correlation analysis on measurement of GHG emissions and climate change strategy............ 100
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Glossary
ABI Association of British Insurers
ACCA Association of Chartered Certified Accountants
BIS Department for Business, Innovation and Skills
CBA Cost benefit analysis
CBI Confederation of British Industry
CCA Climate Change Agreements
CCL Climate Change Levy
CCPA Canadian Chemicals Producers' Association
CD Continuous Disclosure
CDLI Carbon Disclosure Leadership Index
CDP Carbon Disclosure Project
CDSB Climate Disclosure Standards Board
CEC Commission for Environmental Cooperation
CEPA Canadian Environmental Protection Act
CR Corporate Responsibility
CRC CRC Energy Efficiency Scheme
CSER Corporate Social and Environmental Reporting
CSR Corporate Social Responsibility
DECCDEFRA
Department for Energy and Climate ChangeDepartment for Environment, Food and Rural Affairs
DJSI Dow Jones Sustainability Index
EA Environment Agency
EABIS European Academy of Business in Society
EGUs Electricity Generating Units
EIRIS Ethical Investment Research and Information Service
EMS Environmental Management System
EPA Environmental Protection Agency
ESG Environmental, social and governance
ESRA European Sustainability Reporting Association
EU AMD EU Accounts Modernisation Directive
EU ETS EU Emissions Trading System
FTE Full time equivalents
FTSE Financial Times and the London Stock Exchange
G500 Global 500
GGE Greenhouse gas emissions
GHG Greenhouse Gas
GRI Global Reporting Initiative
ICAEW Institute of Chartered Accountants in England and Wales
ICCA International Council of Chemical Associations
IEA International Energy Agency
IFCI Industrial Finance Corporation of India
IIGCC Institutional Investors Group on Climate Change
INCR Investor Network on Climate Change
ISO International Organization for Standardization
MD&A Management discussion and analysis
MRV Measurement, reporting and verification
MtCO2e Million tonnes of carbon dioxide equivalents
NESHAP National Emissions Standards for Hazardous Air Pollutants
NGER The National Greenhouse and Energy Reporting Act (Australia)
NGGAS New South Wales Greenhouse Gas Abatement Scheme
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NGO Non-governmental Organisation
OECD Organisation for Economic Co-operation and Development
OMB Office of Management and Budget (US)
OSC Ontario Securities Commissions
PRTRs Pollutant release and transfer registers
RGGI Regional Greenhouse Gas Initiative (US)
ROI Return on Investment
S&P Standard & Poor's
SAM Sustainable Asset Management
SARA Superfund Amendments and Reauthorization Act of 1986
SEAR Social and Environmental Accounting and Reporting
SEC US Securities and Exchange Commission
SME Small and Medium Enterprises
SRI Socially Responsible Investment
UNEP United Nations Environment Programme
US TRI US Toxic Release Inventory
WBCSD World Business Council for Sustainable Development
WRI World Resources Institute
WWF World Wide Fund for Nature
Definitions:
Scope 1: DirectGHG emissions
Direct GHG emissions occur from sources that are owned or controlled bythe company, for example, emissions from combustion in owned orcontrolled boilers, furnaces, vehicles, etc.; emissions from chemicalproduction in owned or controlled process equipment.
Scope 2: Electricityindirect GHGemissions
Scope 2 accounts for GHG emissions from the generation of purchasedelectricity consumed by the company.Purchased electricity is defined as electricity that is purchased orotherwise brought into the organizational boundary of the company.
Scope 3: Otherindirect GHGemissions
Scope 3 emissions are a consequence of the activities of the company,but occur from sources not owned or controlled by the company. Someexamples of scope 3 activities are extraction and production of purchasedmaterials; transportation of purchased fuels; and use of sold products andservices.
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Executive Summary
The UK’s Climate Change Act 2008 sets the framework for how the UK will manage andrespond to the threat of climate change. The Climate Change Act requires Government tocarry out a review by December 2010 to evaluate the contribution that reporting on GHGemissions is making to the achievement of Government’s climate change objectives. Theoutput of this research is part of the evidence base that will help inform the Secretary ofState’s decision on whether to make regulations requiring reporting of GHG emissions.
Specifically, this study is set out to achieve three objectives:
1. To assess the impact of corporate GHG reporting in helping UK companies to achieveemission reductions;
2. To assess the impact of corporate GHG reporting on the development of broadercorporate climate change strategies; and
3. To seek information on the associated costs and benefits of corporate GHG reporting.
A number of different approaches have been used to collect evidence for this research –including a review of existing literature, a business survey covering responses from 155companies, three focus group sessions with business and sector representatives, directtelephone interviews with 32 companies, and an account of experience from the CarbonDisclosure Project (CDP), a voluntary investor-led GHG reporting initiative.
This research found that external reporting of GHG emissions does not in itself drivecompanies to reduce their GHG emissions as this is influenced by many factors includingsenior management commitment, targets, efficiency savings, a belief that it is an ethicalimperative and brand building. The act of reporting in isolation does not reduce emissions.It needs to be followed by behavioural and operational changes within the business.
Companies that participated in this study found that external reporting of GHG emissionshelped enable reductions of GHG emissions and development of climate change strategiesby driving the company to measure emissions. Many companies attributed the act ofmeasuring rather than the external reporting of GHG emissions to the identification ofemission reductions. It has not been possible to confirm if companies that report externallybenefit from greater reduction in emissions than those that do not. Therefore policies thatencourage companies to better measure emissions will enable GHG emission reductions.External reporting is one such measure, as are policies that place a material cost of GHGemissions such as trading schemes and carbon taxes.
Some CDP participants also described a process of internal change that was triggered bythe CDP information request, leading to a new focus on climate change and emissionreductions. This is supported by other studies where publications by the CBI, theEnvironment Agency and the ICAEW argue that the process of preparing an external GHGemissions report helps a company to address climate change related risks and develop aclimate change strategy.
Given the role of reporting in enabling emissions reduction, it is therefore important tounderstand the drivers that have encouraged many companies to report. One of the keydrivers identified by existing literature and companies surveyed was meeting the informationneeds of key stakeholders, particularly investors. Reporting on GHG emissions providesinvestors with quantifiable data to factor into investment decisions where they then assess
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climate change risks and performance. In turn this drives companies to report improvingperformance and demonstrable emission reductions.
The third objective for this study is collecting evidence on the costs and benefits of GHGemissions reporting. The majority of companies which participated in this study do notactively measure the costs and benefits associated with reporting GHG emissions, althoughcompanies surveyed were more able to quantify the costs of reporting than the benefits.Most of the benefits companies gained from reporting their GHG emissions are eitherintangible or complex to quantify, for example improved transparency to investors and otherstakeholders, target setting and brand building. Therefore there is limited evidence availableon the true financial implications for companies from reporting GHG emissions. The researchcarried out obtained more insight into the financial implications than previous research butthe evidence mostly reflects the experience of large companies, as these are the companiesmore likely to report their emissions and participate in research into this area at present.
The costs quoted for the external reporting GHG emissions by survey participants (who weremainly large companies) ranged from less than £25,000 up to £400,000. Costs quoted forthe measurement of GHG emissions were slightly higher. Within this range the majority ofcompanies surveyed experience costs of reporting of less than £75,000 and only a smallnumber of companies seeing costs in excess of £150,000. Survey respondents also statedthat these costs were holding level or increasing over time as the reporting of GHGemissions matured within the company.
Reporting can be a net cost or net benefit to different companies and the aggregate impactof reporting for UK companies at present is still unclear. Analysis performed on a sample ofcompanies in the survey showed 60% of respondents experienced a net cost of reporting,based on quantifiable costs and benefits provided by these companies. As intangiblebenefits have proven hard to quantify, this research held discussions directly with 32companies, which found that 53% of those companies asked believed that reporting led to anet benefit to their business. These direct interviews with companies also suggested that thecosts associated with reporting GHG emissions is not considered to be financially material tothe business.
The focus of the net cost-benefit analysis in this study has been on the net impact on thereporting companies. However, there are also potentially wider benefits to otherstakeholders that are hard to quantify, for example in raising public awareness, to supportfundamental research or due diligence for investors, to enable the learning of best practicesin environmental management techniques and sharing this with other stakeholders /suppliers. The potential to generate wider benefits forms a key part of the debate on theneed for mandatory reporting.
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Key Conclusions
Companies that focus on climate change through measuring, managing and reportingGHG emissions experience benefits in terms of cost savings, brand building andstakeholder communications.
A wide range of factors can drive companies to set emission reduction strategies, targetsand deliver these reductions. Reporting is not viewed by companies who participated inthis study as one of the top drivers but an activity that enables emissions reduction /target setting.
Very few companies that participated in this research who measure GHG emissionschose not to report their performance externally. It has not been possible to confirm ifcompanies that report externally benefit from greater reduction in emissions than thosethat do not.
The costs of reporting GHG emissions vary widely from company to company. Thereporting companies interviewed in our research viewed the costs of reporting as notfinancially material to the business.
According to the companies surveyed the costs of reporting GHG emissions hold level orincrease over time as the reporting of GHG emissions matures within the company.
It has not been possible to obtain reliable estimates of the value of the net cost or benefitderived from GHG emissions reporting, but there seems to be a fair split of companieswho view the investment in reporting as a net benefit to the business and those whoperceive it as a net cost.
There are also potentially wider benefits to other stakeholders, for example in raisingpublic awareness, to support fundamental research or due diligence for investors, toenable the learning of best practices in environmental management techniques andsharing it across other stakeholders / suppliers.
Policies that encourage companies to better measure emissions will enable GHGemission reductions. External reporting is one such measure, as are policies that placea material cost of GHG emissions such as trading schemes and carbon taxes.
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1 Summary of Findings
1.1 Overview
1.1.1 A number of different approaches have been used to collect evidence for this research. This
section pulls together the findings from the different evidence bases – literature review,
business survey, focus groups and telephone interviews. However, as a topic that is evolving
for businesses, participation from business suffers from potential self-selection bias. In
particular, the findings of this research in general and the business survey (covering
responses from 155 companies) in particular are skewed towards larger companies, or
companies that are already engaged in the topic. While the different research approaches
aimed to balance this by seeking sector representation (e.g. participation of sector
associations in focus groups) or by doing in-depth interviews with selected participants that
have been under-represented, some of the findings can not be generalised across all
companies without further work.
1.2 Drivers for reporting GHG emissions
1.2.1 To understand the impacts of GHG emissions reporting it is first important to understand the
drivers for reporting as this provides an insight into the expected benefits.
1.2.2 The literature review identified the key drivers for reporting sustainability and GHG emissions
data as transparency and accountability to stakeholders, regulatory compliance and as a
basis to meet stakeholder demands for information. Investor interest, in particular, was
highlighted as a driver of increasing importance.
1.2.3 Reporting climate change related information to CDP as part of its annual questionnaire on
behalf of investors is now prevalent. CDP sees the competitive interests of companies and
their desire to meet and exceed peer performance behind the high response rates. Data
reported to CDP is increasingly used as a source for green investment products such as
funds and indices, and as an indicator for purchasing decisions, albeit this is still far from
being a mainstream practice. Other key drivers identified by CDP were the opportunity to
discover strategic information about the business and satisfying requests from customers.
1.2.4 The online business survey in this research asked companies to rank the relative importance
of these drivers.
- Nearly half of the respondents identified pressure from investors as very important indriving their reporting, compared with only a fifth of companies identifying consumerpressure as very important.
- Other key drivers that ranked highly in the survey responses were demonstratingmarket leadership, brand building, anticipation of future regulation and pressure fromother external stakeholders.
1.2.5 The business survey results on the relative importance of drivers for reporting were tested at
a series of focus groups. While the focus group participants agreed that the investment
community is increasingly interested in the environmental performance of companies, this
interest may not be shared by all investors. Also, some members within the focus groups
had expected consumers to be ranked as a more influential stakeholder group, though this
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view could be attributed to a high proportion of consumer facing companies attending certain
focus groups. More generally, the participants in the focus groups agreed that companies
face a multitude of drivers that influence the decision to report and that these differ from
sector to sector and between companies.
1.2.6 The literature argues that larger firms are more visible targets for the public, face potentially
higher political risks and costs of non-disclosure, have more active investors and other
financial stakeholders and are therefore more likely to report (or have better quality
reporting). This view is partly supported by the type of company that responded to the
business survey, which suffered from self-selection bias where significantly more large
companies than SMEs chose to respond. In particular, a higher proportion of SME
respondents to our business survey that calculate GHG emissions choose not to report
externally.
1.2.7 The audience for the reported data, and how they use this data, may also drive the level and
forms of reporting.
- For example, a 2009 CDP survey of 87 of its signatory investors from around theworld found that 77% of respondents factored climate change information into theirinvestment decisions and asset allocations, citing “carbon risk” and “potentialregulation” as motivation for using CDP data.
- Direct engagement with companies, for example to challenge poor or non-existentreporting, emerged as the leading area in which investors are currently using CDPdata.
- Several companies participating in the CDP Supply Chain programme incorporateSustainable Procurement Scorecards into their procurement process, rewardingsuppliers for reporting their emissions and information on climate change strategies.Existing and prospective suppliers will be under strong pressure to report theiremissions.
1.2.8 Several participants in the focus groups and telephone interviews also argued that they are
unlikely to report (or report robustly) on GHG emissions until it affects the procurement
decisions of their customers.
1.2.9 Another important stakeholder group is governments, which are increasingly seeking
emissions data in order to help meet policy goals. Governments can directly mandate
corporate GHG emissions reporting or require measurement, reporting and verification
(MRV) as a key part of carbon regulations (for example the EU Emissions Trading System
(EU-ETS) or the CRC Energy Efficiency scheme (CRC)). The regulatory authorities behind
mandatory GHG emissions reporting schemes around the world, such as those in the US
and Canada, have stated the ability to compare and assimilate data to inform future climate
change policy as a key driver for enforcing corporate reporting. The literature review
presents a summary of existing environmental disclosure requirements and schemes that
require GHG emissions disclosure around the world.
1.2.10 While there is a lack of agreement across the evidence base on the relative importance of
different stakeholder pressure, there is a general consensus on the reasons why companies
do not report:
- The business survey highlighted that some companies do not report because they donot view reporting a part of their strategy or business objectives, or that they lack theresources to do so.
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- Although the sample of non-reporters in the survey is too small to make statisticalconclusions, this finding is reinforced in the views from the focus groups and in-depthtelephone interviews.
- Resource constraints were thought to be an acute issue among SMEs, particularly bythe sector associations that represented primarily SME members.
1.2.11 Companies that have not invested in understanding the risks and opportunities posed by
climate change will not have incorporated a response into their strategy or business
objectives and do not see the business benefits that reporting can bring.
1.2.12 The literature found that though many stakeholders show a keen interest in GHG emissions
data, many do not use the information or do not trust the information currently reported. The
challenge of reporting robust GHG emissions data is highlighted in a 2009 survey by the
ICAEW, which found that only 42% of companies (and 31% of SMEs) believe they have
sufficient information on how to measure GHG emissions. Additionally, some participants
from the telephone interviews confirmed that the current quality of reported GHG
information, while fit for current purposes, is not as robust as those for financial reporting.
1.2.13 CDP acknowledged that many of its investor signatories are only using this data to a limited
extent in their investment decisions and many are still struggling to integrate climate data
into their mainstream investment models. As a result, for some companies the investor
demand is not enough to stimulate a voluntary response. Around one third of UK companies
do not respond to the CDP information requests, and in the majority of these cases CDP
staff are unable to engage their interest despite repeated attempts. Many companies do not
give a reason for their failure to respond. Of those that do, the reasons provided include: lack
of interest; insufficient resource; unavailability of data or data not felt to be of sufficient
quality; or the data is deemed to be commercially sensitive.
1.3 Are carbon reductions attributable to emissions reporting?
1.3.1 A key objective of the research is to explore the link between carbon reductions1 and GHG
emissions reporting. This is a complex area as the reporting of GHG emissions is unlikely to
drive emissions reduction in isolation. Research that has looked into the causal relationship
between reporting and performance improvement in the sustainability and climate change
area is limited. There is some anecdotal evidence suggesting how external reporting
enables carbon reduction, however there was no hard evidence supporting a causal
relationship between GHG emissions reporting and reductions.
1.3.2 The research aimed to look at this relationship through two sets of questions:
- What are the key outcomes from reporting? How important are these outcomes?
- What are the drivers for carbon reductions? Is reporting considered a driver, and ifso, how important is reporting relative to other drivers?
1.3.3 The first set of questions was explored in the business survey. The key findings were:
- The top climate change outcome resulting from GHG reporting was emissionsreduction, with the highest number of ‘very important’ responses. Emissions targetsetting also ranked highly.
1 Carbon reductions refers to absolute reductions in emission levels
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- The other top outcomes identified were around transparency – to stakeholders,investors and the board.
- Cost savings from energy, carbon and resource efficiency all ranked towards thebottom, indicating that though these are potentially very important outcomes forbusinesses, reporting is not seen as a key contributor to cost savings.
1.3.4 On the second set of questions, the evidence from our business survey suggests that key
contributors in driving carbon reduction are efficiency savings, brand building and board
pressure. A recent survey by the ICAEW identified senior management commitment, cost
savings and personal / staff interest as the top three drivers for emission reduction
programmes. Also, several participants from both the focus groups and telephone
interviews stated that energy and carbon prices are strong drivers for action on climate
change. In particular, some of the participants raised the need for more certainty on future
energy and carbon prices so that these can be factored into investment appraisal processes,
and that an appropriate price for carbon will enable actions to reduce emissions to be
implemented by business.
1.3.5 To understand the role of reporting better, the activity of measuring emissions needs to be
decoupled from the action of reporting emissions. The participants of the focus groups, for
example, agreed that effective management of its carbon performance needs firstly the
ability to measure its performance and that reporting in isolation does not reduce emissions,
although it drives the action of measuring. The telephone interviews with companies, which
also explored the relative contribution of measurement and external reporting to emission
reductions, reinforced this finding. From these it also became clearer that the act of
measuring emissions, especially for the first time, rather than the act of reporting, helped
companies identify opportunities for emission reductions and set meaningful and achievable
reduction targets. The focus group argued that reporting can be effective if it is used in
combination with other measures to improve environmental efficiencies such as target
setting, again consistent with the survey results that highlighted the importance of emissions
target setting as an outcome of reporting.
1.4 The importance of a climate change strategy and the role of reporting
1.4.1 A second research question for this study is exploring the role of reporting in driving the
broader development of climate change strategies. Climate change strategies are deemed to
be an important element for driving emission reductions in companies. The business survey
conducted for this research highlighted the importance to companies of having a corporate
climate change strategy.
- 72% of company respondents have a climate change strategy.
- The drivers for the development of a climate change strategy that stood out were theidentification of risks and opportunities from climate change; anticipation of futureregulation; and to demonstrate market leadership.
- A significant number of other drivers for climate change strategies were highlighted,including moral/ethical reasons, cost savings and value creation.
- Again, reporting is not considered an important driver for the development of aclimate change strategy and elicited the second highest number of ‘not at all’ or ‘notvery important’ responses.
- However, reporting enables activities e.g. measurement and emissions target settingthat form parts of a climate change strategy. For example, correlation analysis shows
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that there is also a strong link between those who measure emissions and those witha climate change strategy.
- For the survey respondents, 94% of their corporate climate change strategiesincluded action plans to reduce emissions.
1.4.2 As a result of the self-selecting nature of participants to the survey, some of the above
findings may not be representative of the UK business population. With this caveat, the
findings from the survey suggest there is no strong link between reporting and the
development of a climate change strategy. However, an indirect link may be present as with
the case of emissions reduction as GHG emissions reporting was found to be an integral
part of climate change strategies and most companies recognise the importance of reporting
emissions to achieve change. Recent publications by the CBI, the Environment Agency and
the ICAEW argue that the process of preparing an external report helps a company to
address climate change related risks and develop a climate change strategy. Company
case studies from CDP also show that the process of collating information for reporting to
CDP has provided companies with the tools to develop reduction targets, which are part of a
climate change strategy. Participants from our focus groups also agreed that GHG
emissions reporting can be a useful tool to raise awareness among employees, educate the
business and to present environmental performance to senior management or the board.
1.5 The costs and benefits of GHG emissions reporting
1.5.1 Little research has been conducted into the quantification of the costs and benefits of
reporting GHG emissions. Quantification of the benefits is seen as particularly challenging
as many are qualitative or long-term in nature. The representation in the business survey
and telephone interviews, for reasons mentioned above, is skewed towards larger
companies. It is also clear, particularly from the interviews, that most companies do not
actively measure the costs and benefits associated with reporting their GHG emissions. The
majority of the benefits discussed in the interviews were intangible or would require
significant assumptions that undermine the value and effort of quantifying the benefits.
Quantifiable costs
1.5.2 The direct costs of reporting identified by the literature fall into three main areas: employee
time, development and running of systems, and consultancy costs (including assurance of
the data). The Defra/DECC ‘Guidance on how to measure and report your greenhouse gas
emissions’, the CRC, and the US Mandatory Reporting of GHG Rule have also recently
published analysis of the expected implementation costs of the schemes.
1.5.3 To provide greater insight to this important area the business survey asked detailed
questions about the costs of measuring and the costs of reporting and looked at the
difference between set-up costs and on-going costs.
1.5.4 As GHG emissions measurement and reporting is an evolving area and companies are often
increasing the scope of reporting each year, the survey results showed no significant
difference between the set-up and on-going costs for either measurement or reporting. Key
findings from the survey – which represents large companies more than SMEs – are:
- Over 50% of companies surveyed have annual measurement costs of less than£50,000 and a further quarter have costs between £50,000 and £100,000. Thehighest total cost of measurement stated was £450,000.
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- Specific costs associated with external GHG emissions reporting were generallyslightly lower than measurement costs. Around 40% of companies quoted costs ofless than £25,000 for reporting, with a further 25% stating costs between £25,000and £50,000. Just fewer than 20% stated costs from £50,000 to £100,000 and themaximum cost stated was £400,000.
Due to the distribution of responses the spread of costs rather than an average cost hasbeen provided.
1.5.5 Through the telephone interviews, we found that the (top) range of costs identified by the
business survey is broadly consistent with those of the interview participants. For example,
the companies interviewed highlighted the most significant costs as the development and
running of systems (£50,000 - £400,000), external consultants (£10,000 - £100,000) and
report publication (£50,000 - £70,000). While combining these values to produce a combined
cost will not provide a true reflection of the total costs for a company (as few companies
provided data and no company provided estimates for all categories) the top end of the costs
quoted are broadly aligned with those from the survey. Interestingly, most companies
interviewed who were reporting viewed the costs of reporting as not financially material to
the business. Those who were not reporting, however, cited resource constraints as a
reason not to report.
1.5.6 57% of survey respondents stated that costs have increased over time, and a further 43%
claimed that they have remained broadly similar. The business survey highlighted costs of
reporting as greater than the estimates of both the Defra and DECC estimates as well as
those by the US EPA. Caution should be taken in making these comparisons as the scope
of activities included in the schemes is likely to vary.
1.5.7 The survey results also suggest considerable variation of costs across companies. The
literature and the telephone interviews offered a number of reasons for this:
- time spent on measurement and data collection (which could depend on number offacilities / operations; with greater experience the time spent could fall);
- employee type engaged in the measurement and reporting of GHG emissions (e.g.engineering professionals, corporate managers, operation managers);
- Scope and boundaries of reporting (all GHG or CO2 only, scope of reporting);
- company size (larger, higher profile companies may have different pay scalescompared to smaller, less established companies);
- complexity of corporate structure (number of sites / group structure);
- the level of verification and assurance (there is currently no formal requirement forgaining external assurance although some voluntary schemes such as CDP valueverification and assurance);
- the level of engagement by senior management; and
- the level of integration into day-to-day operations.
1.5.8 In particular, the interviews with companies also suggested that the approach to
measurement and reporting could range from simple data collation to the use of real-time
integrated software systems.
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Quantifiable benefits
1.5.9 The business survey also asked companies to provide an indication of the benefits like
monetary savings attributable to external reporting of GHG emissions in areas such as
energy, carbon and resource use.
- Less than half the respondents completed the question, indicating that this is analysismany companies do not carry out on a regular basis or are not willing to share.
- The majority of companies who did respond stated benefits of less than £1,000 forcarbon and resource efficiency savings. Also, 40% stated energy savings of lessthan £1,000, with 25% stating energy savings in excess of £200,000.
1.5.10 The inability to quantify benefits was also observed in the telephone interviews. Interviewees
agree that the benefits gained were primarily driven by the act of measurement of energy
use and/or GHG emissions, which helped identify opportunities for emission reductions and
the setting of KPIs and targets.
1.5.11 A few companies did volunteer value for cost savings, ranging from £200,000 to £60 million
over five years, however the role of reporting in achieving these savings was not clear.
1.5.12 Though the quantification of benefits proved challenging, when business survey respondents
were asked to rank the impact of reporting on certain factors emission reductions came
second (with the highest number of ‘very important’).
Net cost-benefit analysis
1.5.13 55 companies in the survey provided both quantitative costs and benefits data enabling an
analysis of net cost benefit. While the responses were insufficient to provide statistically
significant results to draw strong conclusions, the results indicate that slightly more
companies who responded recognised reporting to generate a net cost. 62% of these
companies viewed GHG emissions reporting as a net cost with four companies showing a
net cost of greater than £250,000 per annum. A further 25% showed a net benefit of no
greater than £150,000 per annum and three companies showed a net benefit of greater than
£500,000. As the cost-benefit analysis is derived from data provided by survey respondents
on quantifiable costs and benefits, the results would not have captured intangible or
unquantifiable costs and benefits. This is particularly relevant for the quantification of
benefits as they are likely to be intangible – e.g. improvement or protection of reputation and
accountability.
Therefore, this study also asked companies explicitly in the telephone interviews whether the
reporting of GHG emissions generates a net cost or benefit to the company. The lack of
conscious analysis of the cost-benefit of reporting by companies meant that the responses
were based more on the interviewees’ views rather than detailed analytics and analysis.
While the results are still inconclusive, they suggest that the results of the net cost-benefit
analysis from the survey may not have captured some of the potential intangible benefits. It
is worth emphasising that the results from both the survey and telephone interviews do not
provide a clear indication of whether reporting is likely to generate a net benefit or net cost
for a company. Again, this is likely to be because of the potential variation in costs across
companies discussed earlier and the different drivers which led to a company to report its
emissions.
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Table 10: Net benefits / costs of GHG reporting
Evidence Net benefit Net cost Neither Don’t know /insufficientdata
Telephone survey 53% 22% 3% 22%
Business survey 26% 37% n/a 36%
1.5.14 The focus of the net cost-benefit analysis is on the net impact of reporting on the companies.
However, there are also potentially wider benefits to other stakeholders, for example in
raising public awareness, to support fundamental research or due diligence for investors, to
enable the learning of best practices in environmental management techniques and sharing
it across other stakeholders / suppliers. The potential to generate wider benefits form a key
part of the debate of the need for mandatory reporting.
1.6 Mandatory versus voluntary reporting
1.6.1 Much corporate GHG emissions reporting to date has been driven by voluntary initiatives for
which there has been much debate on their benefits and drawbacks. This report considers
these arguments and weighs up mandatory and voluntary reporting, primarily found through
the literature review. As there is yet to be research that could present robust evidence for or
against mandatory reporting, much of the evidence is anecdotal and the viewpoints and
experience of selected groups of companies or individuals.
1.6.2 The literature finds that voluntary reporting has the advantages of allowing companies to
develop an approach to reporting that meets the demands of its stakeholders and to harness
innovation in reporting. However, voluntary reporting of GHG emissions to date has resulted
in inconsistent and incomparable information and is often accused of being restricted to
positive performance or information that helps a company’s self interest.
1.6.3 Proponents for mandatory reporting therefore argue that mandatory reporting helps deliver
more credible, comparable, consistent and transparent information, with all reporting
organisations using the same methodology and a fixed disclosure format that avoids
selective reporting of good performance. However, the literature argues that mandatory
reporting rules have to be appropriate for all organisations, which may revert to the lowest
common denominator regarding scope and innovation and result in a ‘tick box’ mentality.
1.6.4 A key message from our findings is the importance of form, structure and coverage of a
reporting scheme, whether voluntary or mandatory. Participants from our focus groups noted
a lack of consistency among the different voluntary and mandatory reporting standards,
guidelines and methodologies that companies are encouraged (or obligated) to follow. This
was a cause for concern for companies covered by one or more mandatory schemes as well
as participating in voluntary reporting programmes. In some cases, the lack of consistency
makes it either very difficult or impossible to compare data and adds complexity for the
reporter. There was unanimous agreement about the need for clearer guidance and
standards for GHG reporting, with appreciation for differences in sectors and not one rigid
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standard across all industries. Feedback to CDP from stakeholder using CDP reports
highlights the need for more usable, reliable and comparable data.
1.6.5 Coverage of companies is also an important consideration in a mandatory scheme. An
analysis of emissions and company size of our survey respondents suggests that while small
companies tend to be low emitters, the relationship between company size and scale of
emissions for larger companies may be less clear. Within our sample around 5% of
companies are categorised as large companies with low levels of emissions (<5,000 tonnes
CO2e for each of scopes 1 and 2 in the last reporting year). Thus, for example, a rule that
mandates all large companies to report GHG emissions will lead to a fraction of large
companies reporting on an issue that may not be material to them and is more likely to be a
net cost than net benefit to the business.
1.6.6 For companies subject to regulatory reporting schemes, such as the EU-ETS and the CRC,
90% of survey participants stated they would have reported even without a regulatory driver.
This could be, as suggested in the focus groups, because companies start to realise the
benefits of measuring and reporting GHG emissions only when they have started doing it.
1.6.7 The distinction between voluntary and mandatory reporting is blurring, as some schemes
have evolved to become quasi-mandatory schemes. For example, it has been argued in the
literature that CDP sits between voluntary and mandatory reporting, as responding to CDP is
already becoming institutionalised through investors’ pressure on companies. However,
though response rates to schemes such as CDP have been high, data gathered by CDP is
subject to the same challenges as have been mentioned above for voluntary reporting and
has not resulted to date in a complete or fully comparable dataset of information from the
companies that are asked to respond.
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2 Context
2.1 Meeting the UK Climate Change Objectives
2.1.1 The UK is one of the first economies to set a legally binding carbon reduction target, and one
of the primary objectives of the UK Climate Change Act 2008 is a commitment to an 80%
reduction in greenhouse gas (GHG) emissions below the 1990 levels by 2050. As part of this
transition, the UK will have consecutive five-year carbon budgets beginning with the period
2008-2012, which will set out the target levels of GHG emissions. Underpinning these
carbon budgets are a series of strategies published by the previous administration to
manage and reduce GHG emissions, including in particular the Low Carbon Transition Plan
and the Low Carbon Industrial Strategy launched in 2009. Separately, the European Union
(EU) has also committed to a medium term target in 2020 to reduce its GHG emissions by
20% below 1990 levels.
2.1.2 Two of the major pillars of policy for the UK over the short to medium term are the EU
Emissions Trading System (EU-ETS) and the CRC Energy Efficiency Scheme (CRC).
Supporting these and other carbon reduction policies and regulations are provisions in the
UK Climate Change Act to improve monitoring, reporting and verification of GHG emissions.
2.1.3 If the existing policy measures are successfully implemented the UK will meet its 2020 GHG
emissions reduction target of 34% on 1990 levels. At the time of publication of this report
discussions were ongoing in relation to a possible increase in the UK 2020 emissions
reduction target to 43% as part of an EU wide target of 30% reductions by 2020.
2.2 Rationale for the research project
2.2.1 The UK’s Climate Change Act 2008 set the framework for how the UK will manage and
respond to the threat of climate change. The Climate Change Act requires Government to:
1. Publish guidance on the measurement or calculation of GHG emissions to assist with thereporting of emissions by the 1st October 2009;
2. Carry out a review by December 2010 to evaluate the contribution that reporting on GHGemissions is making to the achievement of Government’s climate change objectives; and
3. Introduce regulations requiring the mandatory reporting of GHG emissions informationunder the Companies Act 2006 by the 6th of April 2012 or lay a report to Parliamentexplaining why this has not happened.
2.2.2 The first requirement has been completed and the ‘Guidance on how to measure and report
your greenhouse gas emissions’ was published in September 2009.2
2.2.3 This research project aims to satisfy the second requirement, i.e. to evaluate the contribution
that reporting on GHG emissions is making to the achievement of the UK Government’s
climate change objectives. The outcome of this research will provide part of evidence to help
inform the Secretary of State’s decision on the third requirement on whether to introduce
GHG emissions reporting under the Companies Act 2006.
2http://www.defra.gov.uk/environment/business/reporting/pdf/ghg-guidance.pdf
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2.3 Project aims
2.3.1 The aims of this project are three-fold:
1. To assess the impact of corporate GHG reporting in helping UK companies to achieveGHG emission reductions - mainly focused on the UK but also overseas;
2. To assess the impact of corporate GHG reporting on the development of broadercorporate climate change strategies; and
3. To seek information on the associated costs and benefits of corporate GHG reporting fora range of UK companies of different sizes and within different sectors.
2.3.2 The research seeks to address the above aims through a review of existing literature, a
survey of business views, a series of telephone interviews, a review of the findings and
experience from CDP research and reporting programmes.
2.4 UK climate change regulation and the UK climate change objectives
2.4.1 The UK Low Carbon Transition Plan outlines the measures that will help drive the shift to a
low carbon economy. In the UK, the key mechanism to limit emissions is through cap and
trade, via the EU-ETS scheme and the CRC scheme. The EU-ETS, now in Phase 2, is part
of an EU-wide effort to create a price for carbon and covers major carbon emitting
installations across the EU. The CRC, launched in 2010, will also encourage large energy
users in the UK to implement energy efficiency improvements and cut emissions.
2.4.2 Figure 1 shows the key policies that help reduce carbon emissions and their relative
contribution towards the UK’s target of 34% reduction below 1990 by 2020 (PwC 2009, BIS
2009). The EU-ETS is expected to deliver the majority of emissions reduction between
current levels and 2020, with other policies including the Renewable Heat Incentive, energy
supplier obligations, fuel efficiency targets for vehicles and the CRC each delivering a
proportion of the emissions reduction required.
2.4.3 To enable the proper functioning and enforcement of these key mechanisms, installations
and entities subject to these legislations are required to report certain greenhouse gas
emissions to the Government. In the UK, up to 1400 installations, or sites, are included in the
EU-ETS market and collectively they emit about 46% of the countries carbon dioxide
emissions3. Organisations qualify for CRC if they have at least one half-hourly electricity
meter (HHM) settled on the half-hourly market, and those that consumed more than 6,000
megawatt-hours (MWh) per year of half hourly metered electricity during 2008 will qualify for
full participation. Organisations that do not meet the 6000MWh threshold will have to make
an information disclosure of their half hourly electricity consumption during 2008, which they
submit once per phase. It is estimated that initially around 5,000 organisations will qualify for
full participation, including supermarkets, water companies, banks, local authorities and all
central Government Departments. A further 15,000 are expected to have to make an
information disclosure4.
3 Source: http://www.berr.gov.uk/sectors/ccpo/EUemissionstrading/page20668.html
4 Source: http://www.decc.gov.uk/en/content/cms/what_we_do/lc_uk/crc/crc.aspx
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Figure 1: Impact of UK carbon reduction policies
MtCO2eMtCO2e
2.5 Other requirements on disclosure of GHG emissions
2.5.1 The Companies Act 2006 includes provisions for all UK companies other than small
companies to include a business review in their annual report; these provisions implement
the requirements of the EU Accounts Modernisation Directive as well as introducing
enhanced requirements for quoted companies.
2.5.2 The distribution of UK private companies by number of employees (one of the three criteria
for determining company size as either small, medium or large under the Companies Act
(2006), along with balance sheet net assets and turnover) is set out below. This therefore
presents a proxy for company size but actual small, medium or large classification may differ
slightly. Classification of company size is defined by meeting two out of these three criteria.
The data excludes sole proprietorships and partnerships comprising only the self employed
owner-manager(s), and companies comprising only an employee director.
Table 1: Breakdown of UK private sector companies by number of employees
Number of employees Number ofenterprises
% ofenterprises
1 – 49 1,204,830 97.4%50 – 249 26,710 2.2%250 or more 6,025 0.4%
Source: BIS Enterprise Directorate Analytical Unit, 2008
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Business Review legislation (for financial years beginning on or after 1 October 2007)
2.5.3 For financial years beginning on, or after, 1st October 2007 all companies except small
companies5 are required to prepare a Business Review as part of the Directors’ Report in
accordance with section 417 of the Companies Act 2006. The purpose of the business
review is to inform members of the company and help them to assess how the directors
have performed their statutory duty to promote the success of the company. Key
requirements are as follows:
1. The Business Review must contain:
a fair review of the business of the company, and a description of the principal risks and uncertainties facing the company. The review required is a balanced and comprehensive analysis of –
- the development and performance of the business of the companyduring the financial year, and
- the position of the company at the end of that year, consistent with thesize and complexity of the business.
2. The review must, to the extent necessary for an understanding of the development,performance or position of the business of the company, include:
analysis using financial key performance indicators, and where appropriate, analysis using other key performance indicators, including
information relating to environmental matters and employee matters.Where a company qualifies as medium sized, the directors report need not complywith the requirements of 2 so far as they relate to non financial information.
2.5.4 In addition, in the case of a quoted company the Business Review must, to the extent
necessary for an understanding of the development, performance or position of the
company's business, include:
1. the main trends and factors likely to affect the future development, performance andposition of the company's position;
2. information about: environmental matters (including the impact of the company's business on the
environment), the company's employees, and social and community issues, including information about any policy of the
company in relation to those matters and the effectiveness of those policies;and
3. subject to sub-section (11), information about persons with whom the company hascontractual or other arrangements which are essential to the business of thecompany.
5 as defined by section 382 of the Companies Act
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3 Methods and approach
3.1 Introduction
3.1.1 The development of this research report has been lead by PricewaterhouseCoopers with
support from the Carbon Disclosure Project (CDP). A project steering committee provided
input and advice during the different stages of the project, with representations from Defra,
BIS, DECC, and the EA.
Definition of reportingReporting in this report refers to the activities that result in the generation of externaldisclosure. In particular this report makes a distinction between measurement of emissionsand reporting of emissions.
3.2 Overview of approach
3.2.1 Evidence was gathered from businesses in the following ways:
Literature review
3.2.2 Companies have been reporting sustainability related information for more than 20 years.
Over this period there has been much debate about what should be reported and the
benefits and costs of this reporting. This literature review aims to capture the key findings
from relevant past research.
3.2.3 Consultation responses on the costs and benefits of implementing the Defra/DECC
‘Guidance on how to measure and report your greenhouse gas emissions’ have also been
included in informing the assessment of the costs and benefits of GHG reporting.
3.2.4 In addition to forming a key part of the evidence base for the final report, the findings of the
literature review were also used to help inform the development of the company survey.
Experience of the Carbon Disclosure Project
3.2.5 The CDP has been collecting evidence on corporate climate change practices and GHG
emissions reporting since 2000. It acts on behalf of 534 institutional investors, holding $64
trillion in assets under management and some 60 purchasing organizations such as
Cadbury, PepsiCo and Walmart.
3.2.6 Through its Investor program CDP has evidence on corporate GHG emissions reporting
behaviour at both the international and UK levels for the larger global companies. Through
its Supply Chain and Public Procurement programs CDP also has insights into the
behaviours of small and medium sized companies.
3.2.7 CDP presents key findings from its experience relevant to the aims of this research,
including additional evidence from companies and views from CDP employees who have
long experience of engagement with reporting companies.
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Company survey and focus groups
3.2.8 A key hypothesis for this project is that increased GHG reporting will lead to increased GHG
emission reductions. The survey aims to gather the experience of companies in the UK to
determine the impact of corporate GHG emissions reporting on the development of broader
corporate climate change strategies and emissions reductions.
3.2.9 The survey design incorporated the views of 11 large companies and other organisations
interested in corporate GHG emissions reporting.
3.2.10 The survey collects the views of UK companies on the GHG emissions reporting, and covers
the following areas:
- Climate change strategy, including emissions reduction targets;- The key drivers for corporate emission reductions;- Public reporting of corporate GHG emissions, and future reporting plans;- The drivers for public reporting of corporate GHG emissions and the influence
this has on GHG emission reduction targets; and- Assessment of the costs and benefits associated with corporate climate change
strategy and GHG emissions management processes.
3.2.11 The survey was open to all companies in the UK via a weblink. The weblink was sent directly
to companies and indirectly via sector associations in the UK. The survey was also
advertised on a number of websites, including Defra, the Environment Agency and PwC.
The survey was aimed at company representatives responsible for the management of
climate change. The total outreach is estimated at more than 6,000 UK companies; covering
companies of all sizes and across all sectors. However, the response rate to the survey was
limited to 155 companies and heavily skewed towards larger companies or companies that
report on GHG emissions. The issues of limited sample and self-selection and the
implications for this study are discussed in section 6.
3.2.12 The key findings of the survey have been confirmed through three focus groups involving a
number of companies and sector associations. The aims for the focus groups were to
confirm the findings of the survey, and comment on other areas that are relevant to the aims
of this research. Participants from the focus group comprise of a mix of companies which
responded to the survey, companies which had been contacted directly to complete the
survey and sector associations. In particular sector associations were deemed important
representatives for small and medium sized companies which were less likely to respond to
a business survey. In total the focus groups comprised 16 companies that had completed
the survey, 10 companies that had not and 5 sector associations.
Company interviews
3.2.13 In addition to the survey, the views of some 30 companies were sought through telephone
interviews to gain a deeper understanding of the views of business on the costs and benefits
of reporting. The principal objectives for the interviews were to understand:
- the cost and benefits of GHG emissions reporting for reporters; and- the reasons for not reporting GHG emissions for non-reporters.
3.2.14 Companies invited to take part in the telephone interviews were identified through existing
relationships with CDP and PwC. Again this spans across companies of different sizes and
sectors. In total 32 companies participated, of which 13 had completed the survey.
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4 Summary of the Literature Review
4.1 Aims of the literature review
4.1.1 This literature review aims to capture the key findings from relevant past research, in
particular:
- The drivers for corporate reporting of climate change information;- Challenges to reporting of GHG emissions;- The value of reporting to external stakeholders;- The link between reporting of GHG emissions and associated emissions reductions
and corporate climate change strategy development;- Mandatory and voluntary GHG emissions reporting around the world – the drivers for
different schemes, and learning from their introduction; and- The quantification of costs and benefits of reporting climate change and other
sustainability information.
4.1.2 Within this maturing topic there is a limited amount of information and literature that are
directly relevant to this research topic. We have looked at potential sources of information
from academic, corporate and non-governmental organisations (NGOs), as well as studies
from key countries where GHG and sustainability reporting may be prevalent. While much
has been done on the impacts of climate change policies in general, the evidence base is
relatively limited on the topic of corporate GHG reporting at the time this study is conducted.
On the other hand there is more research on the area of corporate sustainability reporting,
some of which has strong relevance to GHG reporting covered in this section.
4.1.3 Furthermore, a number of pieces of research were being undertaken independently and in
parallel with our study, findings of which were not available at the time of this study, which
would add to the body of literature review covered in this section. Organisations that were
conducting studies that were known to PwC/CDP relevant to this topic include the OECD
Roundtable on Corporate Responsibility and Institute of Environmental Management &
Assessment (IEMA).
4.2 The drivers for corporate reporting of climate change information
ObjectiveTo identify the major drivers for company reporting of GHG emissions and whether thesevary by type/size of company.
Key drivers
4.2.1 A driver that is commonly identified by several researchers is transparency and
accountability (Esty 2009, Slater 2009, Cormier 2005). Stakeholder theory argues that
companies respond for ethical reasons to the interest groups’ demands by disclosing
information as a response to stakeholders’ demand (Donaldson and Preston, 1995; Maltby
1997). In reporting of financial statements, companies commonly exceed the minimum
disclosure required by law where there is a perceived benefit in doing so. Thus for example,
information about environmental issues (such as GHG emissions) may be provided to
address particular concerns by stakeholders that could affect reputation or shareholder value
(EA/ICAEW 2009). In particular, Esty (2007) and Hoffman (2006) identified key stakeholders
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– customers, employees, investors/capital markets, governments and NGOs – as key
motivators.
4.2.2 Regulation is also a key driver of reporting directly and indirectly. Regulation directly
mandates reporting through the emergence of mandatory GHG emissions reporting around
the world (see section 3.6 for details). In the UK, there is an expanding body of UK
legislation and regulation dealing with the reporting of environmental issues, some of which
originates from EU directives (EA / ICAEW 2009). Indirectly, the measurement, reporting and
verification (MRV) of carbon or GHG emissions also form a key part of regulations on carbon
emissions such as the EU-ETS and the CRC, as MRV helps ensure compliance of
installations and companies.
4.2.3 Those companies that fail to act on climate change (including publishing reports on GHG
emissions and how they are addressing the issue) risk damaging their reputations and
exposure to real cost and risk implications. Reporting on climate change is a signal to
stakeholders that the issue is being taken seriously and provides accountability to
stakeholders to track progress (Esty 2007, Slater 2007).
4.2.4 More positively, reporting could help build a positive image of companies and “increase their
legitimacy in the wider world” (Hopwood 2009). A competitive advantage could be gained by
giving stakeholders information on the measurement and reporting process of a company,
the extent of compliance with environmental laws and voluntary codes, performance against
annual targets, such as reduction of emissions and waste, and the results or benefits of
these (EA / ICAEW 2009). Interestingly, Hopwood also argued that although reporting tends
to increase the visibility of a company to the public, clever reporting might help shield the
inner workings of the organization from external scrutiny (ibid).
4.2.5 Investor pressure has been a key driver in recent years. Companies are increasingly asked
by investors to disclose emissions data as part of their investment risk assessment
processes, with many companies in Europe and North America now devote considerable
resources to responding to those concerns (Aldersgate Group 2007). Organisations such as
the CDP and the Institutional Investors Group on Climate Change (IIGCC), Climate Risk
Group and Henderson Global Investors, the National Association of Pension Funds and
Association of British Insurers (ABI) have been active in the last decade to encourage
companies to report on GHG emissions and progress on climate change (Aldersgate Group
2007, EA / ICAEW 2009).
4.2.6 The quality and scope of reporting varies significantly. In particular, Cormier et al. (2005)
identified that the quality of corporate environmental disclosure is related to the
accountability towards shareholders and debt-holders, which provides an obligation to
disclose value-relevant information that could affect a firm’s cost of capital. However, the
potential (negative) impact that disclosure may have on a firm’s profitability could influence a
firm’s decision on the quality and/or scope of information being reported publicly (Cormier et
al.2005).
Variations by size or sector
4.2.7 Company size potentially affects the level and quality of environmental disclosure as larger
firms tend to be more visible targets for the public, face potentially higher political risks and
costs of non-disclosure, and have more investors and other financial stakeholders that could
enquire for information (Gray et al. 1995).
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4.2.8 Sector specific issues may also increase the motivation to report. For example, in the
financial services sector, while financial institutions face stakeholders’ requests for
environmental stewardship, more importantly they are starting to realize that to manage risk
better, climate change needs to be considered in their business decisions (WRI Aug 2009).
Goldman Sachs (GS), for example, through its GS Sustain strategy, is identifying investment
opportunities by considering environmental (among other) criteria across a broad range of
industries. Meanwhile, numerous pension funds in Europe and the United States are starting
to assess investment risk through the lens of climate change. Particularly under an
environment-focused policy era in the United States and globally, climate risk assessments
may soon become part of a financial institution’s fiduciary duty to their clients and
shareholders (ibid.).
Drivers for implementing activities to reduce GHG emissions
4.2.9 A recent survey by the ICAEW (2009) asked 866 UK companies (including 427 SMEs) the
key drivers for implementing programmes and initiatives for reducing GHG emissions.
Senior management commitment is seen as the key driver behind companies undertaking
initiatives to reduce their carbon footprint, regardless of company size, followed by cost
savings and staff interest. Other factors include brand and marketing benefits, regulatory
compliance and improved productivity or new opportunities (see Figure 27 in Annex).
4.2.10 The survey went on to ask the important question as to what would encourage them to
increase or start activities to reduce GHG emissions. Further regulation/compliance
requirements came a close third behind cost savings and grants or tax incentives (see
Figure 28 in Annex).
4.2.11 In addition, a climate change survey published in December 2009 by the EEF (the
manufacturing sector association) found that market pressures are driving company
behaviour on carbon reduction. Behind legislation, customer requirements (34%) and
adhering to an environmental management system (51%) were important factors in driving
environmental performance.
4.3 Challenges to reporting GHG emissions
ObjectiveTo understand the potential challenges faced by companies in reporting GHG emissions andsimilar information.
Understanding and interpreting the data within the business
4.3.1 Businesses are at different stages of maturity in terms of the corporate responsibility
agenda. Even within the same company, some parts of the business may be more mature or
some topics may be better understood and only some companies, therefore, will have
significant information on improvements in environmental, social and governance (ESG)
performance to be able to report (EABIS Research Project, 2009). Even more mature
companies, when it comes to embedding corporate responsibility and sustainability, have
only recently made the explicit link between this commitment and their overall strategy.
Many have struggled with how to explain this linkage adequately, indicating that senior
management may not appreciate the significance of ESG performance data presented to
them in terms of potential or actual impact on business performance; or they may
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understand the significance of the data but not yet trust its robustness and quality (EABIS
Research Project, 2009).
Availability of information
4.3.2 An ICAEW survey has revealed that there is still a gap in terms of the levels of knowledge on
how an organisation might measure its greenhouse gas emissions, even amongst those that
currently claim to do so (ICAEW 2009). Overall, 42% of companies feel they do not have
enough information on measuring greenhouse gas emissions6. The issue is particularly
relevant for SMEs, with around 2.5 times as many SMEs as large firms without sufficient
information. Similarly, although a majority of companies believe they have access to best
practices, nearly twice as many SMEs do not feel that they have sufficient level of
understanding on best practices.
4.4 The value of reporting GHG emissions to external stakeholders
ObjectiveTo understand the reasons why the use of externally reported GHG emissions by externalstakeholders may encourage or discourage companies from reporting.
Relationship with data users
4.4.1 Research by the Danish EPA into companies subject to the Danish Green Account Act7
found that while the primary target group for green accounts is the general public, this group
distrusted the quality of information and used the accounts on a very small scale (Danish
EPA). While professional users such as investors and governmental purchasers were
marginally more trusting of the information, external stakeholders showed relatively little
interest in acquiring and using the green accounts. This research found that stakeholders
usually go directly to the company or to the local authorities, even when they are aware of
the existence of green accounts. However, companies were better equipped to respond
when enquiries were made.
4.4.2 This example highlights a lack of trust or use by key stakeholders of publicly reported
information. This may act to discourage companies from voluntarily reporting GHG
emissions.
Relationship with investors
4.4.3 An Investor Research Project conducted by the CDP at the end of 2008 (CDP 2009),
surveyed signatory investors to assess how the CDP data (i.e. GHG emissions reporting) is
being used. CDP received 87 individual responses from 80 signatory investors. Section 5
further covers the perspective of the CDP.
4.4.4 The results of this research indicate that the respondents place a high value on the initiative
and the information which it delivers. 69% of respondents stated that they currently use
CDP data, despite the absence of carbon regulation in most countries.
6 Note : Defra GHG reporting guidelines were published in Sep 2009:http://www.defra.gov.uk/environment/business/reporting/pdf/ghg-guidance.pdf
7 The Danish Green Account Act requires certain listed Danish companies to publish environmental reportsaccounting for the physical flows of pollutants and resource efficiency
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4.4.5 More than half of those who responded indicated that they discuss CDP responses and /or
other GHG-related risks and opportunities directly with companies during regular meetings
with company management to support fundamental research or due diligence.
4.4.6 Figure 2 below shows that the corporate engagement is the key area in which investors are
using the CDP data, this closely followed verification of information from other sources.
Figure 2: If you use the CDP data, which areas do you use it for?
Source: CDP
4.4.7 In addition, some of the investors have reported that:
- CDP enables collaboration with other investors to obtain climate change informationand to emphasise to companies the importance of climate change data to investors
- In some cases the CDP disclosure is more comprehensive than the informationpublished in annual reports
- CDP data is integrated into financial model for analyzing corporations in investmentor lending decisions
- CDP data supports their commitment to the UN Principles for ResponsibleInvestment
4.4.8 In 2008 the Association of Chartered Certified Accountants (ACCA), published findings on
the sell-side analysts’ perceptions towards the social and environmental reporting within
annual reports across the banking sector. This research is dated compared to other
research noted above, having been carried out between 2004 and 2006 prior to when the
reporting requirements on environmental factors came into place in 2006, and is not specific
to GHG emissions reporting. This research does however provide a useful view from main
stream analysts on whether existing reporting meets their needs. The research involved a
series of interviews with 19 City analysts and therefore does not necessarily represent the
organisations
4.4.9 The ACCA’s research found that on aggregate both the social and environmental matters
are of limited interest to the professional analyst or a forecaster. The social and
environmental section within the annual report was considered to be the least read and least
relevant part of the entire annual report.
4.4.10 The research suggested that the major weakness of the environmental disclosure is lack of
quantified data to which a monetary value can be attached and therefore modelled into
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share price valuations. Mandating GHG emissions reporting could provide analysts with
such quantifiable data.
Relationship with suppliers and buyers
4.4.11 Companies also benefit from the reporting of their suppliers. For example, PepsiCo already
reported GHG emissions and other climate change information from across its operations to
CDP. To further increase knowledge of its supply chain, the company became a member of
the CDP Supply Chain Program. In 2009 PepsiCo approached a number of agricultural
suppliers from both the UK and continental Europe and asked that they report to them,
through the CDP process, on their greenhouse gas emissions and climate change
strategies. The majority reacted positively to the experience. When analysing the
responses PepsiCo learned that some, such as agricultural business Lantmannen, had a
well developed sustainability program. PepsiCo is now able to apply many of the lessons
learnt from Lantmannen to some of their other less sophisticated suppliers. Learning best
practice in environmental management techniques and sharing it across suppliers have
been useful in advancing Pepsico’s climate change objectives.
4.5 The link between reporting of GHG emissions and associated emissionsreductions and corporate climate change strategy development
ObjectiveTo understand the findings from existing research on the following:- GHG emissions reporting and GHG emissions reductions- GHG reporting and the development of climate change strategies
4.5.1 There is limited evidence of quantifiable emission reductions as a result of reporting, whether
internal or external reporting. The literature suggests that reporting provides the focus for
reduction activities and the quantification once achieved. Hoffman (2006) and CDP noted
several case studies where voluntary reporting of GHG emissions has helped companies
deliver GHG emission reductions:
- Alcoa: measurement and reporting are a fundamental part of attaining any target.- Cisco: The experience gained from reporting Cisco's carbon inventory for six years
through the CDP enabled the company to establish a robust baseline while improvingits data collection. Cisco was then in a position to develop a reduction goal toleverage its technology to improve energy efficiency and reduce power consumptionin buildings, data centres, and labs, as well as to reduce employee business travel.
- EMC: Over time the reporting process has enabled EMC to track strategydevelopment through results year on year and allows trend analysis which can drivefurther efficiencies and reductions. The process is also valuable in identifyingopportunities for improvement within the business and enables EMC executives touse the data for scenario planning, in order to decide where best to invest resourcesand funding. It gives a real focus and has led to initiatives focusing, for example, ondriving energy efficiencies in remote offices as well as the major campuses, andenergy use evaluations distinguishing between the energy intensities of office spacevs. labs, data centres and manufacturing spaces etc.
- Walmart: The requirement to report its emissions through the CDP has yielded“valuable insight” to Walmart, for example finding out that the refrigerants used ingrocery stores accounted for a larger percentage of Walmart’s greenhouse gasfootprint than its truck fleet, which led to the focus on the potential for reduction of its“refrigerant footprint”.
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4.5.2 In February 2010, the Climate Registry conducted a survey involving over 100 members
looking at reporting and reducing carbon emissions (Climate Registry, 2010). Just over 60%
of respondents were subject to mandatory reporting regimes based in the US or Canada.
Just under half of respondents (46%) had completed a sustainability report, with a similar
proportion (49%) having already reduced their total GHG emissions. While the survey report
did not consider the correlation between reporting and emission reductions, the vast majority
of respondents (86%) associate reporting and third-party verification of GHG emissions with
environmental leadership. Over 60% of respondents believed that Scope 3 accounting could
have moderate to significant impacts upon business operations; and just over 30% believed
that potential financial disclosure requirements could have moderate to significant impacts.
4.5.3 Slater (2007) argued for a more strategic case for reporting: i.e. using the reporting process
to help a company address climate related risks and to develop strategy on climate change.
Through interactions with stakeholders, examination of core businesses, competitor
analysis, and analysis of data, conducted in the process of preparing to report (in particular
when doing it for the first time), a company is effectively working on the building blocks of
strategy development on climate change (Slater 2007, CBI 2009). The development of an
effective internal reporting system could potentially help identify systemic and non-systemic
issues (EA/ICAEW 2009).
4.6 Mandatory and voluntary GHG emissions reporting around the world – thedrivers for and learning from their introduction
ObjectiveTo understand:- The current significant existing mandatory GHG reporting schemes globally- The outcomes of any relevant analysis of the impacts of the schemes- The relative benefits/drawbacks of voluntary reporting as compared to mandatory
reporting
Reporting schemes
4.6.1 Some companies have been voluntarily reporting on GHG emissions for two decades –
although the form and structure of reporting have evolved significantly during this time. Only
a few countries currently enforce mandatory reporting of GHG emissions. Regulation
requiring improved environmental disclosures is growing, driven by directives such as the
EU Modernisation Directive.
4.6.2 Environmental and GHG mandatory reporting requirements fall into three categories:
- Company law public disclosure requirements (cover more than just GHG emissionsreporting);
- Requirements to report GHG emissions data to national/regional governments; and- Policy mechanism monitoring, reporting and verification (MRV) requirements.
4.6.3 The table below highlights existing environmental disclosure requirements set out in
company law.
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Table 2: Existing environmental disclosure requirements set out in company law
Law Country / Region Commencement
SEC Climate Change Disclosure US 2010Law Project No 3613/2008 Brazil 2008Environmental Information Disclosure Act China 2007
Law 3487 Greece 2006
Companies Act 2006 (Enhanced BusinessReview)
UK 2007
Legislative decree no. 32/2007 Italy 2007Austrian Commercial Code Austria 2005National Instrument 51-102F1, Part 2 –Continuous Disclosure Obligations
Canada 2005
The Bilanzrechtsreformgesetz (BilReG) Germany 2005Law Concerning the Promotion of BusinessActivities with Environmental Consideration
Japan 2005
Annual Accounts Act 1999 (update 2005) Sweden 2005EU Accounts Modernisation Directive* European
Community2004
Accounting Act, Act C of 2000 Hungary 2004Dutch Civil Code, 1838 The Netherlands 2004The Social Balance Sheet Belgium 2003Law n°2001-420 France 2001
Corporations Act Australia 2001
Environmental Issues in Financial Accounts Law1999
Sweden 1999
The Norwegian Accounting Act Norway 1998The Finnish Accounting Act Finland 1997The Green Accounts Act Denmark 1995The Companies Act India 1956Source: PwC desk research, UNEP /KPMG (2010)
4.6.4 In addition to company law, specific GHG schemes exist that are aimed at the regulation of
GHG but also require companies to report certain GHG emissions data as part of those
regulations. The most significant of these are set out in the table below.
Table 3: Existing schemes requiring GHG emissions disclosure
Schemes Country / Region Commencement
CRC Energy Efficiency Scheme UK 2010
Mandatory Reporting of Greenhouse Gases Rule USA 2010The National Greenhouse and Energy ReportingAct (NGER)
Australia 2009
Regional Greenhouse Gas Initiative (RGGI) Regional, USA 2009
New Zealand Emissions Trading Scheme New Zealand 2008Regulation for the Mandatory Reporting ofGreenhouse Gas Emissions (new subchapter 10under the California Code of Regulations)
California, USA 2008
New Mexico Greenhouse Gas MandatoryEmissions Reporting Emissions QuantificationProcedures
New Mexico, USA 2008
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Schemes Country / Region Commencement
Taiwan Greenhouse Gas Reduction Act Taiwan 2006Canadian Environmental Protection Act 1999(CEPA 1999) - section 46 "GHG EmissionsReporting Scheme"
Canada 2005
EU Emissions Trading System EuropeanCommunity
2005
New South Wales Greenhouse Gas AbatementScheme (NGGAS)
New South Wales,Australia
2003
Climate Change Agreements UK 2001
The Federal Act on the Reduction of CO2Emissions 1999 (CO2 Act) and the Federal Act onthe Protection of the Environment 1985 (revised1995 & 2003)
Switzerland 1999
IPPC Directive EU 1996
Source: PwC desk research, UNEP /KPMG (2010)
4.6.5 Requirements to report GHG emissions under each of these categories have been
introduced at various times since 1995. For some of the schemes independent parties have
conducted research on the impact of the schemes. A summary of key research is set out
below.
The UK context – current environmental reporting requirements in the Companies Act2006
4.6.6 A 2007 review by the Environment Agency of the environmental disclosures made by
companies listed in the FTSE All-share index indicated that only 42% of companies had
chosen to report any quantified environmental data in their annual report and accounts
(EA/Trucost 2007). Whilst under no mandatory requirement to include environmental
information, the review sought to monitor responses to provisions made in the Companies
Act in 2005 that reflect the EU Accounts Modernisation Directive requirement that the
business review should "to the extent necessary, for an understanding of the development,
performance or position of the company's business" include information "relating to
environmental matters."
4.6.7 A more recent amendment to the Companies Act requires quoted companies to include in
their business reviews information on environmental matters to the extent necessary for an
understanding of the business, including environmental KPIs (where appropriate) and the
business's impact on the environment. If the business review does not include this
information then the company needs to state clearly which kinds of information it does not
contain. This came into force in October 2007, and a 2010 update to the review will report
on this.
The Green Accounts Act, Denmark
4.6.8 The Green Accounting Law in Denmark requires around 1,000 Danish listed companies to
draw up green accounts including quantitative information on emissions to air, water and
soil. The Danish Government has carried out a review in 2003 of the experiences and
internal affects of the requirement, highlighting that:
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4.6.9 41% of companies believed they had achieved environmental improvements. 56%
considered they had not achieved improved environmental performance, whilst 3% were
uncertain. Among the companies which had achieved environmental improvements through
green accounting, 70% emphasized energy and 20% reduced emissions into the air.
4.6.10 Other benefits noted included greater competitive advantages had been achieved in markets
where environmental demands were becoming more dominant, a better overview of their
own environmental situation in particular material and energy consumption as well as
emissions, better equipped to respond to customer enquiries and enhanced dialogue with
employees.
National Instrument 51-102 Continuous Disclosure Requirements, Canada
4.6.11 In 2007, the Ontario Securities Commissions (OSC) conducted a review of reporting issuers
to determine whether companies were accurately disclosing environmental information as
required by National Instrument 51-102 Continuous Disclosure (CD) requirements. This
instrument requires environmental disclosures in Canadian company legal returns including
the annual financial statements, annual management discussion and analysis (MD&A) and
annual information form.
4.6.12 The OSC determined that many listed issuers had only included boilerplate discussion of
environmental estimates in the MD&As with minimal or no analysis. Some issuers did not
discuss environmental estimates at all. Four of the 22 issuers did not address environmental
risks as a risk factor, despite being in industries where environmental risks appeared to be
relevant (Canadian Financial Executives Research Foundation, 2009).
Cap and trade scheme monitoring, reporting and verification (MRV) requirements
4.6.13 The impact of cap and trade GHG emission schemes can be directly measured through the
reduction in emissions over time of the installations within the scheme. The reductions
achieved by such schemes are not covered in this review as the cap on emissions drives the
GHG emissions reductions rather than the reporting requirements.
4.6.14 However, the role of MRV is worth consideration. The collection of data at the national level
could also help wider climate change objectives. The OECD and IEA have jointly published a
series of papers looking at how MRV form essential building blocks for GHG mitigation
actions especially for developing countries (OECD / IEA 2009). In particular, MRV helps:
- Increase the transparency of the mitigation of GHG emissions internationally;- Identify sectors or countries where action is required; and- Provide the information to match action with support.
4.6.15 Further, MRV of allowances is crucial to maintaining the integrity of a GHG mitigation
scheme such as the EU-ETS. The European Commission recognises that “complete,
consistent, transparent and accurate monitoring and reporting of greenhouse gas emissions
in accordance with the guidelines laid down in this Decision are fundamental for the
operation of the greenhouse gas emission allowance trading scheme” (EC 2007). Weak or
flawed MRV can harm the environmental effectiveness of the EU-ETS by reducing the
credibility of the system and affecting the extent to which the EU-ETS could link with other
emissions trading schemes (Climate Action Network Europe, 2007).
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4.7 Mandatory versus Voluntary Reporting
4.7.1 Reporting on GHG emissions data and other sustainability information started on a voluntary
basis long before mandatory reporting was first introduced. There has been much discussion
on the relative merits of mandatory and voluntary reporting, but most literature seems to
focus on the case for mandatory reporting following reviews of the success of existing
voluntary schemes.
Arguments for mandatory reporting
4.7.2 The CBI argued that while the UK is leading the world on reporting, with 90% of the
FTSE100 and 58% of the FTSE250 responding to the CDP survey, there is a lack of
comparability and consistency between companies’ GHG emissions data (2009).
Additionally, the EA/ICAEW report on environmental issues is annual financial reporting
identified the need for consistency, comparability, relevance and reliability of information
within annual reports. This could be due to: the lack of an agreed common method for
emissions measurement and public disclosure, inconsistencies in how companies set the
scope of their reporting (e.g. on vehicle emissions), and a lack of clarity on what is actually
included or excluded from the scope of businesses’ reporting.
4.7.3 Comparable, credible information enables stakeholders to hold businesses to account on
performance. Doane (2002) argues that ‘voluntary codes can be manipulated for any
desired outcome by the company concerned, while at the same time obscuring all means to
see it as a legitimate accountability tool for stakeholders.’ Further, the Department of
Ecology, State of Washington (2009), discussing GHG reporting, state that comprehensive
reporting rules will create “greater public confidence on the emissions estimates and quality.”
4.7.4 Others have argued that mandatory reporting will not only deliver comparable and credible
information, but will also force businesses to become more economically efficient and
provide products with environmental attributes valued in consumer markets (Porter and van
der Linde, 1995). Unerman and O’Dwyer (2007) add to this by suggesting that regulations
can serve to reduce actual and perceived risks inherent in many business activities: for
example, reporting helps a company communicate the preferred corporate vision of the
future risks, but actions that could be at variance with the image portrayed may not be
reported, and an independent, effective, mandatory reporting regulatory regime which is
“sufficiently rigorous in its design” could help ensure that the reports more accurately reflect
the whole aspects of a company’s risk profile and attitude.
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Table 4: Advantages and disadvantages of mandatory reporting
Advantages of mandatory reporting Disadvantages of mandatory reporting
- Compliance is monitored- Credibility from the use of recognised
guidelines- Changing the corporate culture – raising
the area up the corporate agenda- Comparable information reported- Avoids non-disclosure of negative
performance and reduces risks- Legal certainty- Cost savings as deal with fewer
questions from investors- Equal treatment of investors as they all
have access to the same information
Source: UNEP/KPMG (2006), Doane (2002),Department of Ecology, State of Washington(2009)
- Bureaucracy associated with compliance- Regulation is heavy handed when
investors are not demanding thisinformation
- Knowledge gap between regulators andindustry could lead to failure inaddressing company specific issues.
- The introduction of mandatory legislationis premature in a relatively new field ofsustainability reporting.
- Lack of incentive for innovation andforcing a reactive, tick-box approach
Source: UNEP / KPMG (2006)
4.7.5 In the UK, the CBI has also advocated that mandatory reporting should be conditional on a
number of key issues being resolved (CBI 2007, 2009):
- Voluntary Defra guidance must be properly tested by large and small companiesprior to the government review in December 2010.
- Resolving potential conflicts between multiple reporting methodologies – particularlybetween the EU-ETS, CRC and the Defra guidance.
- Set realistic and proportionate size thresholds for mandatory reporting in line withexisting compulsory schemes.
- Ensure mandatory reporting requirements align with existing compulsory schemes.- Lead international discussions over a global common approach to emissions
measurement and reporting.- Help businesses to develop their reporting capacity and skills with targeted support.
4.7.6 A joint report in September 2009 by the Environment Agency and the ICAEW also
highlighted in its review of legislation and regulation dealing with the reporting of
environmental issues that the effectiveness of such reporting would be enhanced if a global
standard for reporting emissions could be agreed.
Arguments for voluntary reporting
4.7.7 However, not all literature favours mandatory reporting. Kolke, Levy and Pinkse (2008)
argue that carbon disclosure is already being institutionalised without regulation and that the
CDP represents a form of ‘civil regulation’. However they note that, though response rates
to CDP have been high, “a closer look at the information that is disclosed by those firms that
answered the questionnaire sheds a different light on the apparent success of CDP as
companies disclosure lacks comparability”. It goes on to suggest that this is in part caused
by a lack of reliability checks on the information and it is therefore difficult to get insight into
reported emissions, let alone firms’ actual achievements.
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Table 5: Advantages and disadvantages of voluntary reporting
Advantages of voluntary reporting Disadvantages of voluntary reporting
- Lower costs to report voluntarily than tocomply with regulation
- Buy-in from business to requirements asthey are often involved in thedevelopment of voluntary standards
- Self regulation harnesses the collectiveinterests of industry
Source: UNEP/KPMG (2006)
- Self regulation may be insufficient or sub-optimal
- Disclosure of information may berestricted to positive performance orthose that help their own self-interest
Source: UNEP/KPMG (2006), Nyquist (2003)
4.8 Quantification of the costs and benefits of reporting climate change and othersustainability information
ObjectiveTo understand:- The typical types of costs and benefits associated with reporting- The quantum of costs and benefits from existing mandatory and voluntary reporting
schemes
Benefits of GHG emissions reporting to reporting companies
4.8.1 There has been relatively little literature on identifying and quantifying the savings or
economic benefits of corporate reporting of greenhouse gases emissions. One source that
has quantified benefits is a Danish Government review of the impacts of its ‘Green
Accounting’ Law. About half the companies in the Danish EPA study claimed gaining
economic benefits from reporting. Most companies taking part in the evaluation could not
give actual figures for their savings and revenues. For the 25% of respondents who
quantified economic benefits, average savings of 75,000 DKK (approx. Euro 10,000) were
reported, with 6% claiming savings in excess of 250,000 DKK (approx. Euro 35,000) a year.
4.8.2 The impact assessment of Defra/DECC’s guidance on measurement and reporting on GHG
emissions considered both the costs and benefits of reporting in accordance with the
guidance. Benefits were not monetised because of a lack of quantitative evidence, but
Defra/DECC stated that the benefits are expected to outweigh any costs. The impact
assessment included the following benefits to companies:
- Cost savings, as companies identify opportunities to increase resource efficiency;- Demonstrate leadership by setting ambitious targets, measuring, managing, reporting
and reducing GHG emissions;- More consistency throughout the supply chain - suppliers of organisations can follow
the same approach as the company they supply when measuring GHG emissionswhich will mean that it will be easier to collect and consolidate data giving anorganisation a far greater understanding of their total GHG footprint;
- Strengthen an organisation’s green credentials in an increasingly environmentallyconscious marketplace.
4.8.3 Defra/DECC believe that the guidance will also generate long-term benefits from behaviour
change as organisations develop GHG management and emission reduction programmes to
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help in reducing their exposure to climate change risk. These benefits will help UK
businesses contribute to meeting UK national carbon budgets.
4.8.4 In addition, The Mandatory Reporting of GHG Rule from the U.S. Environmental Protection
Agency requires, from January 2010, large emitters of heat-trapping emissions to begin
collecting GHG data under a new reporting system. This new program will cover
approximately 85% of the nation's GHG emissions (amounting to approximately 3.9 billion
MtCO2e) and will apply to approximately 10,000 facilities. The main aim of the scheme is to
generate data of sufficient quality to underpin future regulation.
4.8.5 A number of anticipated benefits have been stated by the EPA, including trust in GHG
emissions regulations, improved understanding of performance, reduced costs of monitoring
emissions, and an ability to benchmark performance. In addition it is hoped that companies
will identify cost savings once performance is better understood.
Benefits to society – learning from other environmental reporting schemes
4.8.6 There is further quantifiable evidence of the benefits of environmental reporting schemes
from which lessons can be learnt. The first is the Toxics Release Inventory (TRI), enforced
by the U.S. EPA, which provided anecdotal evidence of the linkage between reporting and
the reduction of pollution. About 23,000 facilities annually report the amount of certain toxic
chemicals they release to the environment under the TRI, which was designed to maximize
public availability and is one of the best-known federal environmental information program.
The program has recorded a 45% fall in manufacturers’ release of the 340 chemicals from
1988 to 1999. While some of this reduction was due to the regulation of the chemicals under
the Clean Air Act, voluntary action is believed to have motivated a large proportion of these
reductions, in particular a desire to reduce the economic waste from the loss of the
chemicals and to demonstrate environmental leadership to the public (Pew 2002).
4.8.7 Also, the Intergovernmental Forum on Chemical Safety (“the Forum”) considered the value
of reporting the types and quantities of emissions industry releases to the environment or
transfers off-site (CEC 2000). The Forum noted that pollutant release and transfer registers
(PRTRs), or emission inventories, are important tools to raise public awareness about
potential chemical risks, and that reporting this information helps stimulate actions to reduce
the risks associated with various chemicals as well as the quantities of harmful emissions. In
September 2000, the International Council of Chemical Associations (ICCA) produced a
paper on which concluded that "ICCA supports emissions reporting and believes that these
programs can provide valuable information that can help document and stimulate reduction
in emissions and communicate information to key audiences." The Canadian Chemicals
Producers' Association (CCPA, now Chemistry Industry Association of Canada) also
suggested that the best way to present results was to combine public reporting of emissions
and projections, and to break down data into issues of specific interest, one of which is
climate change.
Costs of GHG emissions reporting to companies
4.8.8 Hoffman (2006) argued that the main source of costs to reporting companies would be
employee effort and time, i.e. salary costs. These costs can be substantial, for example,
energy reporting and verification of third party invoices (for Scope 3 emissions) and may
require further work to be integrated with other information systems (Hoffman 2006). Capital
costs, on the other hand, are expected to be minimal.
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4.8.9 Studies conducted in the United States contributed to identifying the key areas of costs
reporting (Ecology 2009, EPA 2009). In addition, in November 2009 the Canadian Ministry
held public consultation sessions to review the Greenhouse Gas Emissions Reporting
Regulation and Guideline, introduced to support the implementation of a cap and trade
programme. Thirty-three comments representing diverse views were received from industry,
associations, municipalities, consulting groups, and institutes (Ontario Environmental
Registry, 2009). Key areas of costs to business identified in these studies include:
- Costs of data management and verification – for example to collect and measureenergy usage and/or carbon emissions;
- Costs of management and oversight – for example the role of CSR director orFinance Director in supervising the reporting process, including potentially role fromExternal Communications team;
- Costs of administration and technical support;- Costs of verification – for example if a reporting requirement also requires third party
verification of emissions data. In the Canadian consultation, most facilities wereconcerned over the lack of capacity for the type of verification required by theregulation (Ontario Environmental Registry, 2009); and
- Risks of confidentiality breach: a number of companies in the Canadian consultationwere also concerned by the need to submit confidential business information andconcerns over the protection of such information.
4.8.10 In particular, there are also costs to non-reporters, especially under complex mandatory
schemes where companies may not be aware of whether they are covered in a scheme
(ibid.). For example, reporting requirements by size of emissions would require a large
proportion of companies to determine their emissions prior to the legislation, even though
they may eventually not be captured under the regime. However, the level of costs to
business also depends on a number of factors including:
- Applicability: compliance can be at a facility/operations or company level, and thenumber of facilities could affect the time spent on measurement and data collection;
- Employee type: different types of employees may be engaged in the measurementand reporting of GHG emissions (e.g. engineering professionals, corporatemanagers, operation managers) which imply different staff costs.
- Coverage of entities: whether determined by sectors, emissions level or sizes; and- Coverage of emissions: whether coverage of emissions include all GHG vs. CO2,
direct/indirect etc. (Ecology 2009, EPA 2009)
4.8.11 The CRC impact assessment identified administrative costs associated with dealing with
emissions trading schemes, which included many activities associated with measurement
and reporting of GHG emissions. These include:
- Understanding scheme rules;- Collection and analysis of data;- Developing a compliance (reporting) strategy;- Submitting data; and- Verifying data.
4.8.12 These activities and others specific to an emissions trading scheme are estimated to range
from £7,000 to £11,000 for organisations with 5 or fewer sites (14-22 person days); £13,500
to £20,000 for organisations with 6 - 50 sites (27-40 person days), and £28,500 for
organisations with 50 or more sites (57 person days). These are based on a daily cost of
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£500 / person-day input. The key source of variation by company size is the number of
person days attributable to collection and analysis of data and verification. (DECC 2010)
4.8.13 The impact assessment of Defra/DECC’s guidance on measurement and reporting on GHG
emissions considered both the costs and benefits of reporting in accordance with the
guidance. The table below sums up the cost of implementation of the guidance on a
company basis.
Table 6: Costs of implementing reporting guidance
Average costs Annual costs (£)
2009/10 2010/11
Adjusting companies - large 1,050 4,740
Adjusting companies - small 357 946
Newly reporting companies -large
6,300 6,300
Newly reporting companies -small
1,250 1,250
Source: Derived from Defra, 2009
Note: Adjusting companies in 2009/10 do not incur any costs in year 2010/11 as they are assumed tohave made full adjustment in the first year.The assumptions used in the cost calculation are based on responses received to the consultation.Annual costs – these costs relate to the administrative costs to an organisation of using the guidelines.
4.8.14 Mandatory reporting also creates additional layers of costs and complexity to government or
the country in general (UNEP/KPMG 2006), in particular:
- Costs to government of program implementation, the development and maintenanceof any data collection system;
- Undermining the ability to tailor responses to stakeholder demands, by seeking toforce industries of very different types, sizes, capacities and local contexts into onebox;
- Inflexibility as a mandatory regime may be slow in keeping up with changingcircumstances and technologies;
- Lack of incentive to innovate as companies will tend to adopt a reactive, tick-boxapproach rather than devising own methodologies to tailor to their own needs; and
- Constraints on efficiency and competitiveness especially for multinational companiesas different national level requirements and indicators could place substantialcompliance burden on these companies.
4.8.15 The U.S. Environmental Protection Agency has estimated the public sector administration
costs burden of the Mandatory Reporting of GHG Rule will be $17 million per year; $3.5
million per year would be allocated for verification cost and $13.5 million per year for
program implementation, developing and maintaining data collection software. The
anticipated total annualised costs incurred by businesses under the rule by these entities
would be $132 million for the first year (average $13,200 each) and $89 million (average
$8,900 each) for subsequent years.
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5 A view from the Carbon Disclosure Project
5.1 Evidence base from the CDP
5.1.1 The CDP is a UK registered charity which was launched in 2000. CDP runs a global
process for voluntary climate change disclosure by companies, through which 2,500
organizations in some 60 countries around the world now measure and disclose their GHG
emissions and climate change strategies.
5.1.2 CDP runs a full-cycle reporting process which includes a data request, provision of capacity-
building for companies, data collection and publication of disclosures.
5.1.3 A number of UK companies report through CDP alongside other voluntary reporting, or make
other types of report instead of reporting through CDP. Alternative voluntary reporting
options include:
- Provision of climate change data in annual financial, corporate social responsibility orenvironmental reports – this reporting may follow the UK government’s voluntarygreenhouse gas reporting guidelines, or a reporting template such as the guidelinesproduced by the Global Reporting Initiative;
- Reporting to financial sector initiatives, e.g. FTSE4Good;- Reporting to other initiatives, e.g. UN Global Compact.
5.1.4 Data reported to CDP by companies is made available on the CDP website and is used by a
variety of stakeholders including institutional investors, purchasers, NGOs, academic
researchers and policymakers. The data is increasingly used as a source for green
investment products such as funds and indices, and as an indicator for purchasing
decisions.
5.1.5 CDP sent its first information request to UK companies in 2003, and has been collecting data
from companies annually since then. The reporting process includes engagement with
companies by CDP staff, both to encourage companies to respond to the disclosure request,
and to answer specific technical queries through written guidance, workshops and one-on-
one support. As a result, CDP staff have knowledge and experience about the impact that
requests to report climate change information have on UK companies.
5.1.6 This account of evidence from the CDP uses testimony from companies, where the
companies have given permission for this. It also draws on the knowledge of several CDP
staff members who have worked closely with UK firms. The CDP employees interviewed for
this account included:
- Paul Simpson, CDP Chief Operating Officer;- Daniel Turner, Head of Disclosure (including Investor CDP in the UK);- Tom Carnac, Head of CDP Public Procurement;- Dexter Galvin, CDP Supply Chain Account Manager;- Lisa Lee, CDP Communications Manager; and- Andrea Smith, CDP Technical Manager.
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5.2 CDP activity in the UK
5.2.1 In 2009 CDP asked UK companies to disclose climate change information through three
programs:
- Investor CDP: In 2009 CDP made a climate change information request to the FTSE350 on behalf of 475 investors with assets under management of US $55 trillion. 236companies (67%) responded, including 95% of the FTSE 100.
- CDP Supply Chain: In 2009 CDP made a climate change information request to 1400suppliers on behalf of 44 multinational companies. 710 suppliers responded (51%),including 149 which were based in the UK.
- CDP Public Procurement: In 2009 CDP made a climate change information requestto 250 suppliers on behalf of 14 UK government departments and executiveagencies. 164 companies responded (64%), including 136 which were based in theUK.
5.2.2 After accounting for overlaps between these programs, approximately 440 UK companies
disclosed climate change information to CDP in response to the requests in 2009.
5.3 Drivers and barriers for companies reporting climate change information
Drivers to report
5.3.1 CDP experience is that the ‘authority’ behind the information requests – the fact that they are
being made on behalf of either major shareholders or major customers - is a powerful lever
in getting companies to report. The involvement of the ‘authorities’ in the requests means
that they are considered at Board level, or by corporate departments which manage
relationships with shareholders or purchasers and see a commercial value in responding to
the request from these important stakeholders.
5.3.2 When companies do choose to respond to the information request, their reasons include:
- Satisfying the request made by their major shareholder(s) or customer(s);- Reporting externally in the same way as (or better than) their corporate peers and
competitors, and achieving similar or higher scores in CDP’s scoring systems;- Reporting climate change information to stakeholders as part of wider corporate
social responsibility; and- Learning through the process, and discovering strategic information about their
business.
5.3.3 Once companies have decided to respond to a CDP information request they face the task
of assembling the information that is required to answer the questions. CDP staff believe that
this process is often a catalyst for changes to the way that emissions are managed within the
company.
- Where internal data-gathering systems do not exist within firms they would need tobe created, resulting in new internal structures and processes that change day-to-dayawareness of energy and emissions at operational level;
- When information is to be reported externally to shareholders or customers it mustoften be approved first at Board level, and this process gives climate change issues ahigher priority among management; and
- The process of data-gathering frequently results in internal learning which can lead toprocess efficiencies, cost savings and emissions reductions.
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“The questions take you through and say ‘do you have environmental performance targets?’.We didn’t but now we do.” Mary Armstrong, Vice President for Environment, Health andSafety, Boeing
"The annual CDP survey provided the impetus to begin measuring and reporting ourgreenhouse gas emissions. We next began leveraging our CDP reporting in our annual CSRreport. As we improved our CDP reporting, we gained the confidence to commit to a GHGreduction goal through EPA Climate Leaders. This goal is now driving the initiatives toactually reduce our emissions", Rob Rolfsen, Director, Sustainable Development, Cisco
“Over time the reporting process has enabled EMC to track strategy development throughresponses year on year and allows trend analysis which can drive further efficiencies andreductions.” CDP EMC case study
5.3.4 For several years CDP has awarded scores to the disclosures of the largest companies in
mature markets such as the UK based on quality of disclosure, creating the Carbon
Disclosure Leadership Index (CDLI). CDLI scores have provided a useful way for institutional
investors to compare different companies. As noted in previous sections the scores also act
as an extremely powerful motivator to companies to improve the quality of their disclosure to
CDP compared to competitors. CDP staff have often been told that company employees are
asked to achieve a certain CDLI score as part of their personal objectives agreed with their
employer, and may have their personal remuneration linked to achievement of this goal.
5.3.5 Crucially, CDP has ranked CDLI scores within industry sectors. This is useful for institutional
investors as it enables appropriate comparison between similar companies. It is also useful
for responding companies, since it is typical for companies to focus primarily on their
performance in relation to up to 10 direct sector peers.
“Companies which are Members of CDP Supply Chain have monthly calls to share bestpractice. This can create a ‘race to the top’ as companies see what their peers andcompetitors are doing, for example setting climate change KPIs for their suppliers, and movequickly to catch up.” Dexter Galvin, CDP
5.3.6 In 2009 CDP piloted a new scoring system which rewarded climate change performance and
emissions reduction actions, as well as quality of disclosure. The pilot found a very high
correlation between high scores for CDLI and high scores for Performance. In 2010 CDP will
continue to use two scoring systems, one for data quality alone and one that considers and
scores reported climate change action.
“One question I am frequently asked when discussing sustainability and emissions’ reportingis ‘how does ADAS compare’? We have recently received feedback from the CDPconcerning our performance and this feedback scores our response relative to otherorganisations operating in the same sector. The spider gram shows that we are performingabove the sector average in all but one area. This is a fantastic achievement for thebusiness and for everyone involved in collating data and establishing systems to support thecompany response.” ADAS internal corporate newsletter, 2010
Barriers to report
5.3.7 For some companies the involvement of requesting ‘authorities’ is not enough to stimulate a
voluntary response. Around one third of UK companies do not respond to the CDP
information requests, and in the majority of these cases CDP staff are unable to engage their
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interest despite repeated attempts. Many companies do not give a reason for their failure to
respond. Of those that do, the reasons provided include:
- The contact approached by CDP is not interested in engaging with the process;
- The contact approached by CDP does not have access to the resources required toengage with the process (and may already be using resources to submit reports toother schemes such as the Global Reporting Initiative, or FTSE4Good);
- The contact is concerned that internal data is not available, or is of insufficient qualityto publish externally. In these cases the companies are encouraged by CDP to makea non-public response which can only be viewed by the requesting ‘authority’. About20% of responding companies choose this option; and
- The contact is concerned that some of the information being requested iscommercially confidential or of a forward looking nature. Again, in this casecompanies are encouraged by CDP to make a non-public response.
5.3.8 Common challenges for companies that set out to complete the CDP information request
include:
Additional resources
5.3.9 Responding for the first time may require the implementation of new data-gathering systems
and processes. This requires a significant start-up resource, and ongoing resource for
process maintenance. The resources involved are manpower and time, as well as third party
financial costs such as use of consultants (see next section for more on this).
“After several years of familiarization with the reporting process, Cisco developed softwareto permit the collection of energy-use data to become a standard business process. Ciscowas then in a position to develop a reduction goal”, Text from CDP Cisco case study
Data quality
5.3.10 Companies that are responding for the first time may not be able to produce high-quality
data immediately, and they may be hesitant to publish lower-quality data externally. It is not
unusual for a first-time responder to CDP to make a non-public response in the first year of
responding (perhaps after a year of making no response while systems are put in place),
and then to make a public response in subsequent years. For example Scope 3 emissions,
which can be complex to calculate, are usually only reported after several years of
disclosure.
Commercial confidentiality
5.3.11 Some companies feel that one or more of the questions in the CDP information are asking
for data that they consider commercially confidential. Examples of this have included:
- Scope 2 emissions (mainly from use of electricity) for IT companies which operatelarge data servers;
- Breakdown of emissions by country; and
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- Forecasts of future emissions by country.
5.3.12 Under CDP’s reporting system companies can choose not to answer a question, or can
choose to make a non-public response. Questions which are not answered will receive a
score of zero, while companies that make a non-public response cannot be listed as
‘leaders’ even if they receive high scores. Either of these outcomes may give them a
perceived competitive disadvantage compared to their peers.
Technical capability
5.3.13 Where companies do not already have staff dedicated to greenhouse gas reporting, there is
a process of learning where staff become familiar with the use of greenhouse gas reporting
methodologies. The staff responsible for reporting to CDP may for example have a
background in Investor Relations or Procurement, whereas greenhouse gas reporting
involves scientific and accounting concepts. Technical enquiries to CDP often relate to fairly
simple questions of numeracy and technical understanding, e.g. how to choose correct
emissions factors which align to the units used to measure energy.
5.4 Insights into the financial costs and benefits of disclosure for companies
5.4.1 The resource required to report varies greatly by company, depending on the energy
management and reporting systems that already exist, resources in place, and the
geographical or organisational complexity of the company’s operations. As a result it is very
difficult to assign a “typical” cost, especially given the multiple reporting requirements facing
larger companies.
5.4.2 As an example, Johnson & Johnson currently respond to CDP as well as reporting
elsewhere, and calculate their Scope 1 and Scope 2 (but not Scope 3) emissions. They
estimate that reporting activity takes up 30% of one person’s time in the corporate centre.
Activities involved include: “…maintaining inventory data, training, crunching numbers, and
completing reports: CDP, EPA Climate Leaders, US Climate Registry, several CSR reports
(SAM, KLD, Trucost, Climate Counts, EIRIS) and internal reports.”
5.4.3 CDP staff acting as the Secretariat to the Climate Disclosure Standards Board (CDSB)
received some relevant information as part of CDSB’s 2009 public consultation on its draft
climate change accounting framework. This framework covers disclosure of strategic
information on climate change, including emissions reporting. For example, Amcor told
CDSB: ““There will be extra cost of adding in an additional 20 or so pages [to the annual
report] estimated to be around at least Aus $40,000”.
5.4.4 The fact that the cost of climate change reporting can be a barrier is obvious from the fact
that some companies cite this as a reason why they will not report to CDP and view
reporting as a net cost to their business, as discussed above. This could be a matter of
prioritisation rather than true affordability, and that these companies have not yet understood
the value of the benefits to their business of reporting climate change information. CDP staff
believe that most companies can be persuaded to report if the right motivation factors are
identified.
5.4.5 CDP employees have often received anecdotal evidence from companies that the process of
measuring and managing emissions results in efficiencies and cost savings.
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“We have used CDP as the main tool to drive carbon reporting right across our organization.It has been really fantastic for us. We’ve discovered cost savings and we have probablysaved ten million pounds in various ways.” Andy Green, CEO, Logica
5.4.6 A good example is Walmart, which identified significant energy and cost savings as a result
of disclosure to CDP, for example when it was realised that the company’s principal source
of greenhouse gas emissions was leakage of non-CO2 gases from refrigeration units.
Walmart subsequently approached CDP to ask for help in identifying further potential
savings in its supply chain. The resulting pilot project has led both to further collaboration
with Walmart and to the development of the CDP Supply Chain program.
5.5 The link between reporting to CDP and emissions reductions made bycompanies
5.5.1 Data from responses to CDP show that response rates, emissions reporting and the setting
of internal reduction targets have all risen over time. In the UK CDP’s Investor program
requests data from FTSE companies, and has shown increased levels of emissions
reporting and target-setting in each year of reporting.
5.5.2 The number of companies reporting Scope 1 emissions is typically higher than the number
reporting Scope 2 emissions; this in turn is higher than the number reporting Scope 3. This
reflects the typical evolution of emissions reporting within companies, as it is usually easier
initially to calculate direct emissions based on fuel use and then to move to more complex
calculations over time.
5.5.3 The number of companies responding to CDP is always higher than the number reporting
emissions. This is because in any given year there are some companies that do not feel able
to report emissions externally, although they may be able to make statements about risks,
opportunities and strategic issues relating to climate change. Sometimes the reason for this
relates to commercial confidentiality or a commercial issue (e.g. a recent merger or
acquisition which requires recalibration of emissions reporting), and sometimes the company
is still putting systems in place which can provide data of suitably high quality. Very often a
company will begin to report emissions after one or two years of reporting other data to CDP,
once measurement systems are in place and have the confidence of management.
5.5.4 Companies are increasingly reporting that they have set emissions reduction targets. The
number of UK companies reporting an emissions reduction target exceeded the number of
companies reporting emissions for the first time in 2009. This helps to demonstrate that
external reporting of emissions is not always necessary for the creation of a target, however
it is important to remember that companies which are not reporting their emissions externally
may still be measuring them.
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Table 7: CDP responses by FTSE 350
Year Percentage ofFTSE 350responding to CDPinvestor requestwith climatechange information
Percentage of responding companies who reported8
Scope 1 GHGemissions toCDP
Scope 2 GHGemissions toCDP
Scope 3 GHGemissions toCDP
Internalemissionsreductiontarget
2008 67% 49% 44% 29% 39%
2009 68% 54% 53% 39% 59%
5.5.5 There are many drivers for business to take action to reduce greenhouse gas emissions and
it is not always possible to link reporting directly to emissions reductions. However some
companies have shared examples of such a linkage with CDP. CDP employees have
spoken with many companies who have described a process of internal change that was
triggered by the CDP information request, leading to a new focus on climate change and
emissions reductions over several years. The typical triggers for this change are:
- Raised awareness of climate change at management level, caused by theinvolvement of ‘authorities’ (major shareholders and customers) in the CDPinformation requests;
- Raised awareness and capability resulting from implementation of new data-gathering systems, e.g. when operational staff are asked to gather emissions data forthe first time;
- Learning that results from the gathered data, e.g. when it is clear that there areopportunities for efficiency and cost-saving; and
- Competition with peer and competitor companies who are also reporting to CDP.
“When internal climate change actions are reported externally, mitigation actions thatoperational managers were struggling to get support for suddenly become strategic and getdone much more quickly”, Tom Carnac, CDP, 2010
5.5.6 Some of the most familiar patterns of change over time identified by CDP staff were that:
- An initial response to a CDP information request is typically the responsibility of asingle staff member within a company. This staff member, who will usually bemanaging the response on a part-time basis alongside other responsibilities,becomes an internal champion for climate change reporting;
- At the same time, climate change reporting becomes a Board-level issue within thecompany because of the involvement of shareholders or major customers, orbecause of the perceived need to disclose externally as well as (or better than) directcompetitors;
- Over time the strategic importance of climate change increases within the company.The original staff member is given a wider mandate and additional resources. (Thisprocess also applies to companies which act as ‘authorities’ in requesting data fromsuppliers. For example, several companies have established SustainableProcurement teams since requesting information from suppliers through the CDPSupply Chain process.)
8 Percentage of reporting companies, i.e. in 2009, 54% of those responded to CDP (68% of the FTSE350)reported scope 1 GHG emissions to CDP.
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- As climate change increases in strategic importance the company will typicallyundertake a wide range of mitigation activities. While it is not possible to attribute allof these to the original reporting request, we know that in many cases it has been akey catalyst.
"For Atea the CDP report is definitely a step up the ladder of understanding that bothenvironmental concern as well as the economic consequences and possibilities are serioustopics that demand high level attention.”, Hanne Elisabeth Lind, Business & ProductManager, Green IT, Atea, 2009
5.6 Use of corporate greenhouse gas emissions data by external stakeholders
5.6.1 Users of CDP include institutional investors, purchasers, NGOs, academic researchers and
policymakers. CDP employees tend to know most about data use by the institutional
investors and purchasers who act as authorities for the CDP data requests.
5.6.2 All of the different users of CDP data agree that they would like it to be more usable, reliable
and comparable. CDP works constantly towards these goals in a variety of ways, for
example through recommending use of the WRI/WBCSD Greenhouse Gas Protocol, through
the creation of standardised scoring methodologies so that users can easily compare
corporate responses with those of peers from the same sector, and through leading the
Climate Disclosure Standards Board (through CDP membership of its Board and provision of
its Secretariat), in its work to create an overarching climate change reporting framework
which will result in transparent, comparable data.
Institutional investors
5.6.3 Use of data by investors varies greatly. In 2008 CDP commissioned research by Mercer
which surveyed 87 of CDP’s institutional investor signatories around the world. This found
that:
- 77% of respondents indicated that they factor climate change information into theirinvestment decisions and asset allocations;
- CDP data is the source of climate change information most used by respondents,closely followed by other information supplied by companies (including CSR reports);and
- Use of this data is not routine. A significant number of respondents revealed that theyare still working on how to integrate CDP and other climate data into their existingsystems, models and processes.
“As an investor, we firmly believe in this project that encourages companies to disclose dataon their greenhouse gas emissions. This important information allows portfolio managers tobetter assess the risks and better measure the potential benefits of their investments from asustainable development standpoint.”, Michael Sabia, President and Chief Executive OfficerCaisse de Dépôt et Placement du Québec, 2009
“Analysis of objective measures of performance on a comparable basis is vital toassessment of company’s management of ESG issues. CDP provides a valuable tool foranalysis of climate change related aspects of environmental performance.” Andrew Howard,Goldman Sachs Global Investment Research
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5.6.4 Use of climate change data by investors includes the following types of action:
- Incorporation of data in investment analysis;- Direct engagement with companies, e.g. encouraging them to report climate change
information and/or criticising them for failing to report or for making a weak report;and
- Shareholder motions relating to climate change reporting or other climate changeissues (most commonly seen in the US).
“If a company had not even bothered to respond to the CDP, then we tell them that unlessthis changes, we may vote against the report and accounts at the company’s next AGM.This is proving quite a successful sanction. Since 2007, we have made this threat on 32occasions, and 82% of those companies have now responded to the CDP”, Lord Sharman,Chairman, Aviva, 2009
5.6.5 CDP data is increasingly used to create specific investment products. These currently
include the Markit CDLI Index, the S&P/IFCI Carbon Efficient Index, the Schroder Climate
Change Fund and the KLD – Fixed Income Securities LP. CDP data is also made available
to financial sector specialists via Bloomberg terminals and Google Finance.
5.6.6 All of this positive evidence needs to be weighed against the fact that the use of climate
change data by institutional investors varies greatly. Many of CDP’s investor signatories are
only using this data to a limited extent in their investment decisions, for example they may be
incorporating it only into decisions made for Socially Responsible Investment (SRI) funds.
Many investors are still struggling to integrate climate data into their mainstream investment
models. CDP was originally founded in 2000 with the hope that large shareholders would
instruct companies to reduce their greenhouse gas emissions, but in 2010 such direct and
specific investor engagement is still extremely unusual, and is generally confined to the
ethical investment sector.
Corporate purchasers
5.6.7 Several companies that are Members of the CDP Supply Chain program have developed
Sustainable Procurement Scorecards which reward suppliers for reporting their Scope 1 and
Scope 2 emissions together with their climate change strategies. Dell and Vodafone are
already doing this, and CDP is aware of two more member companies that are in the
process of implementing such a system.
“In order to meet Dell’s expectations in quarterly business reviews, Tier-1 suppliers mustshow that they 1) Publicly disclose annual GHG emissions by participating in the CarbonDisclosure Project; 2) Establish a public goal for reducing operational GHG impacts; 3) Setexpectations for Tier-2 suppliers to manage and publicly disclose emissions per GHGProtocol… Failure to meet these requirements can impact your ranking and potentiallydiminish your ability to compete for Dell’s business.” Dell guidance for suppliers
5.6.8 Similarly, several CDP Supply Chain Member companies have incorporated climate change
information into their procurement process. Any prospective supplier responding to a
Request for Proposal from Juniper Networks or National Grid must report their Scope 1 and
Scope 2 emissions, together with their climate change strategy. CDP is aware of at least one
additional member company in the process of implementing this requirement.
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5.6.9 Walmart includes responding to CDP as one of the measures in its Global Responsible
Sourcing Initiative which started with Chinese suppliers in 2009 and will extend to all global
suppliers by 2011.
“We needed to further our knowledge of how suppliers were addressing climate change.Involvement with the CDP Supply Chain Program means we are able to build a betterunderstanding of our corporate carbon footprint and the level of climate change risk withinour supply chain.” Mark Pettigrew, Agricultural Sustainability Manager, PepsiCo, 2010
Government Purchasers
5.6.10 Government departments and agencies participating in the CDP Public Procurement
program incorporate climate change information into their ongoing supplier engagement
processes. However, current interpretation of EU public procurement law means that this
information is not yet used to discriminate between suppliers in purchasing decisions.
5.7 The role of verification in climate change reporting
5.7.1 Users of CDP data users express a clear preference for third party data verification. CDP
does not require companies to verify reported emissions data, but does ask whether
verification has taken place. Verification is increasingly taking place, particularly in regulated
markets. In 2009 73% of responding FTSE 100 companies verified their emissions data, and
41% of responding FTSE 250 companies. Credibility in external reporting, combined with the
increasing need to verify a subset of corporate emissions under regulated schemes, seems
to be a key driver for this verification activity.
5.7.2 On the other hand, companies value the flexibility that CDP offers in not requiring
verification. This is particularly true for new responders, and companies in emerging or
unregulated markets. CDP will be moving to try to balance the needs of reporters and data
users in the future while moving towards a higher level of verification. For example, in 2010
companies will receive a higher score from CDP if their emissions data is verified. CDP is
also currently working with leading verifiers to establish the best way to ensure that
verification of corporate emissions is of the highest quality.
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6 Business Survey
6.1 Introduction
6.1.1 Collecting evidence from companies is a core element of this project, in order to provide a
robust base of information to support policy making. The survey collected the views of UK
companies on the GHG emissions reporting, and covers the following areas:
- Climate change strategy, including emissions reduction targets;- The key drivers for emission reductions in the business;- Public reporting of GHG emissions;- The drivers for public reporting of GHG emissions and the influence on GHG
emission reduction targets; and- Assessment of the costs and benefits associated with the reporting of GHG
emissions.
6.1.2 The online survey was open to all companies via a web link. The web link was sent directly
to companies and indirectly via sector associations in the UK. The survey was also
advertised on a number of websites, including Defra, the Environment Agency and PwC.
The total outreach to companies is estimated to be more than 6,000 companies. The aim of
these approaches was to highlight the survey to as wide an audience as possible and to
provide UK companies with the opportunity to participate in this research.
6.1.3 A survey at a point in time (or a “cross-sectional” survey), as we have undertaken, will not be
able to identify changes over time. Thus, we will not be able to identify robustly the
“causality” between reporting and emissions reduction or other benefits over time. In order to
do so, typically a series of information over time (known as “time series”) would be required.
In our analysis the focus is on cross sectional analysis across companies and exploring the
correlation between reporting companies and action on climate change.
6.1.4 The survey was designed to include key considerations in the above areas (see Annex for a
schematic of the survey questions). The questions were also informed from initial
consultations with several pilot companies and the literature review.
6.2 Responses
6.2.1 In total 155 companies completed the survey. Though the survey was aimed at all
companies, the majority of respondents were from large companies that already report GHG
emissions data as presented in Figure 3 (see also Figure 32 and Figure 33 in Annex for
breakdown by employee size and turnover). The survey therefore suffers from risks
associated with self-selection. These companies are likely to already understand the value of
reporting GHG emissions externally. The low response rate of companies outside of this
group suggests that the business value from reporting may not yet be clearly understood
and therefore time spent on responding to a survey is equally not viewed as a good use of
time.
6.2.2 Larger companies have the resources to invest in developing a carbon footprint and
investigating the business value of reporting and often have brands that attract stakeholder
interest in GHG emissions reporting. Just over half (52%) of our survey respondents are
quoted companies, all of which are large companies. The low response rate from small and
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medium sized enterprises (SMEs) is likely to be a result of these companies often not having
either of these attributes. As a result of the SME response rate the survey under-represents
SMEs and statistically meaningful interpretations are not possible for this group of
companies.
Figure 3: Composition of respondents by size in last reporting year (thresholds as defined by CompanyHouse classification)
14%10%
76%
0%
20%
40%
60%
80%
Small Medium Large
%
6.2.3 The sector composition of the respondents also indicated a skew towards high emission
intensity industries relative to the composition of the UK economy (see Table 11). In
particular, the manufacturing and utilities sectors, which are typically more carbon intensive,
have higher representation in our survey compared to the composition of UK businesses as
a whole. In contrast, the services sector with lower emissions intensity was under-
represented, with the exception of the financial and insurance services which tend to be
proactive and engaged reporters of GHG emissions. Again, this indicates potential self-
selection issues in the survey.
6.2.4 Given the achieved sample size of 155, the results of the survey have a confidence interval
(margin of error) of +/- 8% with a 95% confidence level i.e. we are 95% sure the total
population is between 42% and 58% where 50% of our population sample have picked that
response.
6.3 Understanding the respondents
6.3.1 If GHG emissions reporting were enforced through the Companies Act 2006, as provided for
in the Climate Change Act 2008, it allows for the rules to be applied to different companies
based on size or whether they are quoted. Figure 4 and Figure 5 show the distribution of
GHG emissions by size of company for Scope 1 and Scope 2 emissions.
6.3.2 The survey also asked for Scope 3 emissions but only 72 companies responded and the
comparability of the responses is not clear. Analysing emissions of respondents by company
size suggests that while small companies tend to be low emitters, the relationship between
size of companies and size of emissions for larger companies may be less clear. For
example, within our sample around 15% of companies are categorised as large companies
but low emitters (for scopes 1 and 2). On the other hand, there are a very small number of
medium sized companies that are high emitters. Thus, for example, a rule that mandates
large companies (and not small or medium companies) to report GHG emissions will lead to
a fraction of large companies reporting on an issue that may not be material to them and is
more likely to be a net cost than net benefit to the business.
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Figure 4: Scale of GHG emissions in the last complete year of reporting at Group level - Scope 1emissions (tonnes CO2e)
0
5
10
15
20
25
30
< 5,000 5,000-9,999 10,000-49,999 50,000-99,999 100,000-
499,999
500,000-
999,999
1,000,000+
Scope 1 emissions (tonnes CO2e)
Perc
enta
ge
ofr
espondents
(%)
Small Medium LargeSmall Medium LargeBase 106
Figure 5: Scale of GHG emissions in the last complete year of reporting at Group level - Scope 2emissions (tonnes CO2e)
0
5
10
15
20
25
< 5,000 5,000-9,999 10,000-49,999 50,000-99,999 100,000-
499,999
500,000-
999,999
1,000,000+
Scope 2 emissions (tonnes CO2e)
Perc
enta
ge
ofr
espondents
(%)
Small Medium LargeSmall Medium LargeBase 106
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6.4 Mandatory external reporting
6.4.1 Among our survey respondents, around three quarters of companies are subject to some
form of mandatory scheme and a similar proportion of companies are also part of one or
more voluntary reporting schemes. This suggests that the majority of respondents are
currently engaged in GHG emissions reporting, whether under a mandatory scheme or a
voluntary initiative. Again, this suggests that the survey responses reflect the views of
companies that already report.
6.4.2 Of the companies subject to mandatory GHG schemes, a small proportion of companies do
not extend their reporting beyond regulatory submissions. Of those that report externally,
when asked whether the company would have reported even without a regulatory driver 90%
said they would. This was explored further in the focus groups in the next section.
6.4.3 The survey asked companies about the mandatory reporting regulations they are subject to
and the voluntary initiatives they have adopted. 64% of respondents are captured by the
CRC, 20% report under the EU-ETS and 30% have Climate Change Agreements. Only 23%
are not covered by a mandatory scheme or do not know if they are. Non-reporters in Figure
6 represent companies that report GHG emissions to regulators but choose not to report
their GHG emissions publicly.
Figure 6: Are your company’s operations / facilities subjected to the following compliance schemeswhich require you to report your greenhouse gas (GHG) emissions?
0
10
20
30
40
50
60
70
EU Emissions
Trading
Scheme (EU-
ETS)
Carbon
Reduction
Commitment
(CRC) Energy
Eff iciency
Scheme
Climate Change
Agreements /
Climate Change
Levy (CCA /
CCL)
Other None of the
above
Don't know
Perc
enta
ge
ofre
spondents
(%)
Reporters
Non-Reporters
Reporters
Non-Reporters
6.5 Voluntary external reporting
6.5.1 There are a wide variety of voluntary schemes that encourage companies to report their
GHG emissions. Principal amongst these is the CDP, and over half (54%) of survey
respondents are part of the CDP initiative.
6.5.2 After CDP are other voluntary initiatives which include DJSI and FTSE4Good, GRI, The
Prince of Wales’ May Day Initiative, ClimateWise, Carbon Trust Standard and service
P a g e 4 9 |
providers such as Sedex. This wide range of voluntary initiatives suggests that there are
already many drivers for GHG reporting that influence the behaviour of companies.
Figure 7: Is your company / facilities part of any of the following voluntary GHG emissions reportinginitiatives?
0
10
20
30
40
50
60
Carbon Disc los u re
Pro jec t
Sec to r-led
In it ia t ives
O ther vo lun tary
report ing in it ia tives
None of the above Don 't k now
Pe
rce
nta
ge
of
res
po
nd
en
ts(%
)
6.6 The importance of a climate change strategy
6.6.1 The business survey also explored the link between GHG reporting and the development of
a climate change strategy. In our sample, nearly three quarters of respondents have a
climate change strategy Figure 8.
Figure 8: Does your company have a climate change strategy?
3%
25%
72%
Yes
No
Don't know
6.6.2 The survey results show that the number of companies in the UK that have developed
climate change strategies has increased steadily over the years. There does not appear to
have been a seminal moment that led to a step change in the number of companies setting a
climate change strategy.
P a g e 5 0 |
Figure 9: When did your company first set a climate change strategy?
5%
25%
27%
18%
25%
First year1-2 years3-5 yearsMore than 5 yearsNo strategy
6.6.3 To support this finding, the survey identified a number of strong drivers for developing a
climate change strategy with the identification of risks and opportunities, anticipation of
future regulation and to demonstrate market leadership standing out. Reporting featured
relatively low on the list as a key driver to develop a strategy and a substantially smaller
number of respondents identified it as ‘very important’ compared to the top drivers. The
experience of CDP (see section 4) suggests that for some companies reporting has led the
development of climate change strategies.
Figure 10: How important are the following drivers to the development of the climate change strategy?
-12
-13
-13
-9
-6
-8
-7
-4
-1
-1
-1
-5
-1
0
-4
-4
-4
-4
-2
-3
-1
-1
-1
-1
48
49
37
47
55
39
34
40
51
43
44
42
14
15
30
21
15
33
42
35
37
45
47
50
-20 -10 0 10 20 30 40 50 60 70 80 90 100
Competitors are doing so
Pressure from employees and potential recruits
Pressure from consumers
As a response to findings from GHG measurement and reporting
Pressure from other external stakeholders (NGOs, media etc)
Pressure from investors
Compliance with existing regulation
Pressure from board
Brand building
To demonstrate market leadership
Anticipation of future regulation
To identify risks and opportunities from climate change
%
Neither /Nor
Don’tknow
Base
2% 0% 109
7% 0% 108
11% 0% 112
10% 0% 110
18% 0% 110
15% 0% 110
15% 1% 108
20% 0% 110
17% 2% 110
16% 1% 109
24% 0% 110
25% 0% 108
Not very importantNot important at all Important Very importantNot very importantNot important at all Important Very important
6.6.4 For participants that have identified a reduction in emissions, the survey identified the key
reasons that help drive emissions reduction. Efficiency savings, market leadership and
board pressure were identified as top drivers. In particular, nearly all participants believe
that efficiency savings is important or very important to a company reducing its emissions.
P a g e 5 1 |
Figure 11: How important are the following drivers in reducing emissions in your company?
-15
-9
-9
-13
-7
-3
-3
-3
-1
-1
-1
0
0
35
37
35
46
64
57
41
47
44
51
46
56
42
12
13
31
21
9
16
37
34
38
32
44
34
56
-20 -10 0 10 20 30 40 50 60 70 80 90 100
Impact of recession / reduced output
Competitors are doing so
Compliance with existing regulation
Pressure from consumers
Pressure from employees
Pressure from other external stakeholders (NGOs, media etc)
Pressure from investors
Reporting of our emissions results externally
Anticipation of future regulation
Brand building
Pressure from board
To demonstrate market leadership
Efficiency savings
%
Neither /Nor
Don’tknow
Base
2% 0% 66
10% 0% 68
15% 0% 68
15% 0% 68
16% 0% 68
13% 3% 68
22% 0% 68
18% 0% 67
19% 0% 68
21% 0% 68
41% 0% 68
31% 1% 68
0% 4% 4
7% 0% 68
Neither /Nor
Don’tknow
Base
2% 0% 66
10% 0% 68
15% 0% 68
15% 0% 68
16% 0% 68
13% 3% 68
22% 0% 68
18% 0% 67
19% 0% 68
21% 0% 68
41% 0% 68
31% 1% 68
0% 4% 4
7% 0% 68
Not very importantNot important at all Important Very importantNot very importantNot important at all Important Very important
6.6.5 Although GHG reporting is not a major driver to strategy development it is an integral part of
a climate change strategy. An overwhelming 96% of responding companies with climate
change strategy measure and report emissions. Correlation analysis shows that there is also
a strong link between those who measure emissions and those with a climate change
strategy (the sample size is insufficient to interpret results on reporting emissions and
climate change strategy). 86% of companies that measure emissions also have a climate
change strategy; while three quarters of those that do not measure emissions also do not
have a climate change strategy.
Figure 12: What does the climate change strategy include?
29
22
29
79
94
87
96
0
10
20
30
40
50
60
70
80
90
100
M easurement and
repo rt ing of
emissio ns
Emissio ns
reduct io n t arget
A ct io n p lan t o
red uce emissions
Employee
engagement
st rat egy
Linkages
bet ween
perf ormance
renumerat ion t o
climat e change
t arg et s
C arbo n
of f set t ing
Ot her
%
P a g e 5 2 |
6.6.6 Nearly all corporate climate change strategies included measurement and reporting of GHG
emissions, suggesting that all but a few companies recognise the importance of reporting
emissions to achieving change. The alignment between employee incentives to reduce
emissions and GHG reduction targets was also analysed, as this can be one of the most
important levers for incentivising change. Only 29% of the strategies set included this link –
suggesting that there are yet to be direct financial implications for failure to meet the goals
set out in the climate change strategy for a large proportion of companies.
6.7 Measurement and reporting of GHG emissions
6.7.1 Most companies which responded to the survey calculate some GHG emissions for their
company (79%). The majority of these companies were large in size as defined by the
Companies Act 2006. Not all companies that calculate emissions choose to report these
externally, in this survey, only 68% externally reported their emissions. A higher proportion
of SMEs that calculate GHG emissions choose not to report externally, further supporting the
hypothesis that external GHG reporting is largely a practice undertaken by larger companies.
Figure 13: Breakdown of respondents who calculate and report emissions externally
79% of respondentscalculate emissions
68% of respondentsreport emissions
LargeLarge
SmallMedium
SmallMedium
Large
155 respondents
Quoted
6.7.2 Of the companies that do not report the most common reason given was that it is not part of
the business strategy. Citing this response suggests that non-reporters do not see the net
business benefit of reporting to the organisation. It should be noted that this response is
based on a population of 15 company responses and cannot be taken to be representative
of why non-reporters choose not to report. The survey responses to this question are
explored further with the participants of the focus groups (see section 6).
P a g e 5 3 |
Figure 14: Why did management decide not to report GHG emissions?
0 5 10 15 20 25 30
Other
Don't know
It is commercially sensitive information that we do not want to
share
It is too costly to report on emissions
We only report on emissions data internally and this is sufficient
for our needs
We do not have the right internal resources to report on
emissions
It is not part of our strategy or business objectives to report on
emissions
Frequencyof #1 Ranks
5
2
2
1
0
2
3
% of aggregated rankings Base 15
6.7.3 The survey explored with non-reporters if they planned to report in the next two years. The
findings showed approximately a 50:50 split between those that plan to report and those that
do not plan to report in this time frame. The majority of those that do plan to report in the
next two years have not yet decided on a measurement methodology, and only 13% of this
group (or 5% of all non-reporters) plan to use the Defra/DECC guidance. Nearly a quarter of
non-reporters are undecided whether or not to report in the next two years.
Figure 15: Do you plan to report GHG emissions externally within the next 2 years?
39
23
5
5
5
16
9
0
5
10
15
20
25
30
35
40
45
Yes No Don't know
Perc
enta
ge
ofcom
panie
s
Base 44
Yes, but don't know whatmethodology
Yes, based on other standards
Yes, based on industrystandards
Yes, based on Defra / DECCvoluntary guidance
Yes, based on GHG Protocol
6.8 Reporting companies
6.8.1 A significant number (38%) of companies that do report, have been doing so for more than 5
years. About 7% are about to report for the first time this year and a further 22% have only
been reporting for 1-2 years. This suggests that reporting is still a new or evolving issue for
many companies. However, compared to companies with a climate change strategy, it
appears that reporting might have been relatively more well developed, with 27% of
P a g e 5 4 |
companies in our overall sample reporting compared to only 18% with a climate change
strategy five years ago (see Figure 16 and Figure 9).
Figure 16: How long have you been reporting GHG emissions?
5%
15%
23%
27%
30%
About to report for the first year
1-2 years
3-5 years
More than 5 years
Not reporting
6.9 What is reported
6.9.1 Companies which report GHG emissions were asked to identify what was included in their
reporting. The results in Figure 17 show that 65% of companies report an emissions target
and 59% disclose a strategy to reduce emissions. This suggests that reporting of GHG
emissions often, but not always, is aligned with companies setting targets and strategies for
reducing GHG emissions.
Figure 17: What do you report on externally?
92
6965
59
11
0
10
20
30
40
50
60
70
80
90
100
Emissions level Emissions
intensity
Emissions target Strategy to
reduce
emissions
Other
Pe
rce
nta
ge
ofc
om
pa
nie
s(%
)
Base 111
6.10 Methodology for reporting
6.10.1 The survey showed that the most common method applied was the GHG Protocol (44%),
followed by the Defra/DECC guidance at 34%, which is based on the GHG Protocol.
Together these approaches dominate the reporting of respondents, however the GHG
Protocol in particular can be adopted in different ways often resulting in incomparable
reporting. Therefore corporate GHG emissions reporting currently may be of less use to
external users looking to benchmark data within an industry or across the economy.
P a g e 5 5 |
Figure 18: What methodologies do you use to report GHG emissions?
3
44
34
5 5
9
0
5
10
15
20
25
30
35
40
45
50
ISO 14064-1 GHG Protocol Defra Methodology
developed in-
house
Industry
standards
Other
standards
Pe
rce
nta
ge
ofco
mp
an
ies
(%)
Base 111
6.10.2 As illustrated in Figure 19 just over three quarters of reporters have updated their GHG
methodology, scope or depth since they first started reporting. This suggests that both GHG
measurement and reporting are still an emerging practice and still do not have the same
level of standardisation as financial reporting. The evolving state of reporting also makes
comparability of data and information difficult at present, both within companies (over time)
and across companies.
Figure 19: Have the scope, depth or methodology of your measurement and reporting of GHG changedsince the start of your reporting of GHG?
77%
21%
2%
Yes
No
Don't know
6.11 Drivers of GHG emissions reporting
6.11.1 Respondents were asked to identify and determine the importance of the key drivers that led
them to report emissions externally. No single driver stands out as a key driver for reporting,
suggesting that several drivers combine to result in a company reporting its GHG emissions.
The top drivers identified as important or very important are pressure from investors,
reputation and brand drivers (e.g. to demonstrate market leadership, brand building,
pressure from NGOs and media) and anticipation of future regulation.
6.11.2 Specifically, nearly half of the respondents identified investor pressure as very important in
driving them to report GHG emissions. This is consistent with the emergence of large scale
initiatives such as the CDP. The number of respondents that identified reputation and brand
drivers with GHG reporting is also consistent with the general increase in public emphasis on
corporate responsibility.
P a g e 5 6 |
6.11.3 Interestingly, however, consumer and competitor pressure are relatively less important
compared to other drivers although still important, with over half of respondents identifying
them as important or very important drivers. This was explored further in the focus groups
(see Section 6).
Figure 20: How important are the following potential drivers for your company to report emissionsexternally?
6.12 Costs of reporting
6.12.1 Survey participants were asked to provide estimates of their setup and ongoing costs of
measuring and reporting GHG emissions, as well as a breakdown by staff, assurance and
other financial costs.
6.12.2 A proportion of companies were unable to answer these questions (around 20%, varies by
question), and only 9% of those who did answer were very confident of their estimates. In
particular, response from SMEs for these questions were very low, fewer than 6 companies
were able to answer these questions, which implies that the results are largely skewed
towards large companies’ responses. This also suggests that many companies have yet to
comprehend fully the costs (and possibly benefits) of measuring or reporting GHG
emissions.
6.12.3 The range of costs stated by the participants of our survey varied considerably even within
large companies, consistent with the prediction from literature that suggests potential
differences in costs due to employee types, scope and methodology and time spent. In
addition, consultation with companies during the survey design period also revealed that in
practice, costs could vary because of:
- Company size – larger, higher profile companies may have different pay scalescompared to smaller, less established companies, affecting the staff costs associatedwith reporting;
- The level of verification and assurance – companies which seek internal assurancewill have a lower costs than those that seek external and/or more robust assurance
-12
-12
-9
-10
-8
-4
-5
-5
-5
-2
-3
-1
-8
-3
-4
-3
-2
0
-2
-1
0
42
34
46
40
40
44
54
50
35
53
50
11
22
14
31
31
31
27
32
48
33
39
-1
-30 -20 -10 0 10 20 30 40 50 60 70 80 90 100
Competitors are doing so
Pressure from consumers
Pressure from employees and potential recruits
Compliance w ith existing regulation
To identify risks and opportunities from climate change
Pressure from board
Pressure from other external stakeholders (NGOs, media etc)
Anticipation of future regulation
Pressure from investors
Brand building
To demonstrate market leadership
%
Neither /Nor
Base
9% 109
11% 107
10% 107
14% 103
12% 107
18% 106
20% 107
15% 105
27% 106
24% 106
34% 106
Not very importantNot important at all Important Very importantNot very importantNot important at all Important Very important
P a g e 5 7 |
- The level of engagement by senior management – the more involved or engagedsenior management is, the greater the staff costs; and
- The level of integration into day-to-day operation – if energy managers treatmeasurement and reporting of GHG as part of a wider role, the incremental costsattributed to GHG reporting become minimal.
6.12.4 Our analysis of the costs therefore focused on looking at the distribution of companies
across different ranges of costs, rather than average costs. The distribution of costs (see
figures in next sub-sections) also showed a skew in the distribution, limiting the usefulness of
looking at ‘average’ costs.
6.13 Costs of measuring GHG emissions
6.13.1 The vast majority of companies in our survey (around three quarters) spent less than one full
time equivalent person’s time on the measurement of GHG emissions in the last reporting
year (see Figure 36 and Figure 36 in Annex C). About one-third of companies identified
“corporate managers” as the main role with the responsibility of measuring GHG emissions,
and a further 13% allocate this responsibility to “engineering professionals” indicating that for
some companies there is a demand for technical competency or experience that is required
to carry out the measurement of GHG emissions.
6.13.2 Figure 21 presents the total costs of measuring GHG emissions, including both the set-up
and ongoing costs (Figure 37 in the Annex also presents the breakdown of ongoing costs by
type). Based on the responses, it appears that there are relatively few differences between
set-up and ongoing costs and that the distribution of costs across companies are broadly
similar. Over 50% of companies surveyed have measurement costs of less than £50,000. A
further quarter has total measuring costs of between £50,000 and £100,000. The remainder
of companies are spread across higher ranges of costs. Interestingly, though the majority of
responses were from large companies, the higher cost ranges provided include SMEs. This
demonstrates that company size may not always be a proxy for costs of measurement. The
distribution of costs for quoted companies is also broadly similar to those for the overall
sample (see Figure 38 in Annex).
P a g e 5 8 |
Figure 21: Please provide best available information / estimates on the setup and ongoing costsattributable to measuring GHG emissions:
0%
5%
10%
15%
20%
25%
30%<
£2
5k
£2
5k-5
0k
£5
0k-7
5k
£7
5k-1
00k
£1
00k-£
12
5k
£1
25
k-1
50k
£1
50
k-1
75k
£1
75
k-2
00k
£2
00k-£
22
5k
£2
25
k-2
50k
£2
50
k-2
75k
£2
75
k-3
00k
£3
00k-£
32
5k
£3
25
k-3
50k
£3
50
k-3
75k
£3
75
k-4
00k
£4
00k-£
42
5k
£4
25
k-4
50k
£4
50
k-4
75k
Cost range
Pro
po
rtio
no
fco
mp
an
ies
Set-up costs - L Set-up costs - M Set-up costs - S Ongoing costs - L Ongoing costs - M Ongoing costs - SBase 95
6.14 Costs of reporting GHG emissions externally
6.14.1 Nearly half of companies surveyed (47%) invested less than 5 weeks of full time equivalent
(FTE) in the last reporting year on the external reporting of GHG emissions (Figure 41 in
Annex). Compared to measurement of GHG emissions, more companies (around half) tend
to allocate the responsibility of GHG emissions reporting to “corporate managers”.
6.14.2 Figure 22 presents the total costs of reporting GHG emissions, again including both the set-
up and ongoing costs, with very similar observations to our findings on measurement (Figure
39 in the Annex also presents the breakdown of ongoing costs by type). There are again
relatively little differences between set-up and ongoing costs. 38% and 43% of companies
surveyed have set-up and ongoing reporting costs respectively of less than £25,000. A
further quarter has total measurement costs of between £25,000 and £50,000. Fewer than
20% have costs of reporting at around £50,000 - £100,000.
6.14.3 The results suggest that reporting is typically less costly than measuring. This concept is
further explored in section 7.2.1. However, when asked about how costs have changed
compared to previous years, over half of companies (57%) reported that they have
increased, with a further 43% claiming that they are broadly similar. This finding is consistent
with our results in Figure 19 which suggests that the scope, depth and methodology of
reporting evolve over time for a vast majority of reporters.
6.14.4 As with the costs for measurement, SMEs can experience costs of reporting greater than
those experienced by the majority of larger companies. The distribution of costs for quoted
companies is also broadly similar to those for the overall sample (see Figure 40 in Annex).
6.14.5 Virtually no companies have seen a decline in costs. This suggests that learning-by-doing
effects are not present in reporting, possibly because GHG emissions reporting remain an
P a g e 5 9 |
emerging and immature issue. Companies could also be expanding on scope, methodology
or coverage of their GHG reporting. Some of these reasons for increases in costs are
explored in discussions with companies through telephone interviews (See Section 7).
Figure 22: Please provide best available information / estimates on the setup and ongoing costsattributable to your external corporate reporting of GHG emissions:
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
<£
25
k
£2
5k-5
0k
£5
0k-7
5k
£75
k-1
00
k
£1
00k-£
12
5k
£1
25
k-1
50
k
£1
50
k-1
75
k
£1
75
k-2
00
k
£2
00k-£
22
5k
£2
25
k-2
50
k
£2
50
k-2
75
k
£2
75
k-3
00
k
£3
00k-£
32
5k
£3
25
k-3
50
k
£3
50
k-3
75
k
£3
75
k-4
00
k
£4
00k-£
42
5k
£4
25
k-4
50
k
£4
50
k-4
75
k
Cost range
Pro
po
rtio
no
fc
om
pa
nie
s
Set-up costs - L Set-up costs - M Set-up costs - S Ongoing costs - L Ongoing costs - M Ongoing costs - SBase 91
6.15 Benefits of reporting
6.15.1 Most benefits of reporting identified through our literature review are intangible and difficult to
quantify. Our survey has asked participants to identify the importance of GHG reporting to a
number of outcomes relating to climate change. The vast majority of respondents who report
GHG emissions were able to identify GHG reporting as an important or very important
contributor to many of the climate change outcomes.
6.15.2 Figure 23 shows that providing information to stakeholders ranks first and transparency to
investors third, reinforcing the importance of investors as a key stakeholder group. In second
place, but with the highest number of respondents ranking it as ‘very important’ is emission
reductions. This strongly supports the principle that what is measured can be managed.
Cost savings ranked surprisingly low overall, but cannot be discounted since it had only a
slightly lower overall importance than the top ranking factors and cost savings from energy
had the second highest number of ‘very important’ scores.
P a g e 6 0 |
Figure 23: How important is reporting in contributing to the following outcomes in your company?
Neither /Nor
Don’tknow
Base
4% 0% 103
5% 0% 110
7% 0% 109
8% 0% 108
8% 0% 108
13% 0% 109
14% 1% 107
14% 0% 107
16% 2% 109
18% 2% 109
19% 0% 108
24% 2% 108
32% 1% 106-15
-4
-6
-3
-3
-4
-1
-4
-4
-3
-4
-2
-2
-2
28
42
44
48
33
57
60
53
48
54
45
46
44
50
22
29
31
28
47
24
23
30
38
34
44
42
49
43
-20 -10 0 10 20 30 40 50 60 70 80 90 100
Development of new business lines / departments
Cost savings from resource efficiency
Improvement in transparency of climate change issues to consumers
Cost savings from carbon
Cost savings from energy
Improvement in transparency of climate change issues to employees
Development and refinement of climate change strategy
Brand building
Improvement in transparency to other external stakeholders
Improvement in transparency of climate change issues to board
Emissions target setting
Improvement in transparency of climate change issues to investors
Emissions reduction
Provision of response to stakeholder requests
%
6% 2% 108
Not very importantNot important at all Important Very importantNot very importantNot important at all Important Very important
6.15.3 When this question was posed to companies that plan to report in the next 2 years, cost
savings came out top (see Figure 43 in Annex).
6.15.4 Companies in our survey have been asked to quantify monetary benefits associated with
cost savings from energy, carbon and resource efficiency that are attributable to GHG
reporting. Around half of the companies were unable to answer the question,again
reinforcing the message that the monetary benefits of GHG reporting are not easily
quantifiable. Also, similar to the questions on costs, only a handful of SMEs were able to
answer this question, making our results skewed towards findings for larger companies.
There is no discrete pattern arising from the responses, however it is interesting to note that
about 14% of respondents have quantified energy cost savings of over £200,000, suggesting
that the benefits could be substantial for some companies.
P a g e 6 1 |
Figure 24: Please estimate the monetary savings that are attributable to external reporting:
2
65
45
32
3 3
5
14
65
0
5
10
15
20
25
30
Carbon Energy Resource Efficiency Other
Pe
rce
nta
ge
of
co
mp
an
ies
<1k £1,000 - £4,999 £5,000 - £9,999 £10k - £49k £50k - £99k £100k - £199k £200k+
Base 22Base 101 Base 102 Base 100
6.16 Preliminary Evidence for a Cost Benefit Analysis
6.16.1 One objective of this research project is to build evidence for a cost benefit analysis (CBA).
A full CBA that adheres to recommended best practices by the HM Treasury Green Book
may not be feasible at this early stage, for the following reasons:
- The difficulties associated with collecting robust data, in particular on the benefits ofreporting, meant that the evidence base would need to be strengthened;
- The options associated with a government intervention are still unclear, for examplewhich companies will be covered and what to be reported; and
- The distinctions between different reporting schemes are unclear, for exampleinformation that are collected for compliance with schemes associated with carbonregulations (such as the CRC or the EU-ETS) could also be reported externally,which makes assessing the additionality of external reporting difficult.
6.16.2 We have conducted a preliminary exercise to build evidence for a CBA, again these results
are not representative of the SMEs who were not able to answer the relevant survey
questions. A more robust analysis would be strongly recommended to build on and validate
these findings.
P a g e 6 2 |
Figure 25: Net benefit of reporting GHG emissions – distribution across reporting companies
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Net costs Net benefitsBase 58
6.16.3 Figure 25 attempts to compare the relative costs and benefits, by calculating the net benefit
for companies from reporting: the quantifiable benefit derived from cost savings from energy,
carbon and resource efficiency minus staff, assurance and other ongoing financial costs for
both measurement and reporting9.
6.16.4 Based on the responses, 60% of companies in our survey have a net cost of reporting, while
40% of companies have a net benefit from reporting. This takes into account only
quantifiable costs and benefits, and there may be other unquantifiable or intangible costs
and benefits that have not been taken into account, particularly on benefits. Also, given that
just over a quarter of companies have a net cost under £50,000, these intangible benefits
may be important drivers in explaining the rationale for a company deciding to report on its
emissions.
6.16.5 In summary, our results from the survey on net benefit of reporting show:
- A low sample base for companies that have responded to questions on costs andbenefits (roughly 37% of respondents completed all relevant questions on costs andbenefits) leading to a wide confidence interval (+/- 12%);
- There is a varying level of confidence in respondents’ answers (only around 9% ofrespondents were very confident of their answers); and
- A number of intangible benefits are perceived to exist by the respondents but theywere not able to quantify them or able to provide any estimate as to their value, forexample brand value and improved transparency to key stakeholders. This issue wasfurther explored in the telephone interviews.
9 There is a smaller base of companies that were able to answer the questionnaire on costs and benefits, thus the statisticalsignificance of the results is diminished.
P a g e 6 3 |
6.16.6 Given the inconclusive nature of this evidence, the idea of the net cost/benefit to a company
from reporting GHG emissions was further explored through telephone interviews with
companies. These interviews found that 53% of companies saw reporting as a net benefit
(22% net cost). Further details can be found in section 7.2.3. Further evidence is required
to form a firm conclusion on whether reporting is a net cost or benefit to businesses.
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7 Focus groups
7.1 Introduction
7.1.1 Three focus groups were held to validate the findings from the main survey on GHG
emissions reporting, comprising 9-13 participants within each group. Small, medium and
large business, as well as some sector associations participated in these discussions. In
total 16 companies that had completed the survey, 10 companies that had not and 5 sector
associations attended the focus groups. The focus groups also provided an opportunity to
seek views on other areas of GHG reporting that are relevant to the research objectives.
7.1.2 In total 31 different organisations participated: 20 large businesses, 6 SMEs and 5 sector
associations.
7.1.3 Participants in the sessions were asked to focus on the four following questions, reflecting
on the relevant findings from the survey and sharing their views and experience within their
organisations or sectors:
- What are the key drivers for reporting GHG emissions externally?- How does reporting GHG emissions help achieve climate change objectives?- Why are some companies not reporting GHG emissions?- 90% of mandatory reporters (those under EU-ETS / CRC) would report GHG
emissions even without these schemes. In your opinion, why is that the case?
7.2 What are the key drivers for reporting GHG emissions externally?
7.2.1 Figure 20 illustrates the findings from the survey and shows the key reporting drivers in order
of importance. In general, across all three focus groups, participants agreed with the survey
results.
7.2.2 However, a large proportion of participants felt that they would have expected the pressure
from consumers to be given much more importance than the survey results have shown.
For a significant proportion of participants customer/client pressure was the key driver
behind their GHG reporting.
7.2.3 There was a general consensus that the high importance given to pressure from investors in
the survey, with nearly half of survey respondents saying that is was very important, more
than any other driver, was surprising. Focus group participants agreed that the investment
community is increasingly interested in the environmental performance of companies but
they did not think that this interest was mainstream. It could be related to the sector
composition of the focus group, in which consumer facing organisations might be more likely
to be subject to customer / client pressure.
7.2.4 Participants felt that a reason why the spread of the answers is towards ‘important’ and
‘highly important’ is because of the type of organisations and individuals who responded to
the survey – carbon / sustainability managers primarily from large companies. It is possible
that these respondents are more likely to highlight benefits of reporting GHG emissions than
those in other parts of the organisation.
P a g e 6 5 |
7.2.5 SMEs in our focus groups highlighted the Climate Change Levy (CCL) as an additional
driver for reporting on GHG emissions, indicating that the CCL has had a positive effect
among SMEs to improve energy efficiency and to reduce their GHG emissions.
7.3 How does reporting GHG emissions help achieve climate change objectives?
7.3.1 Participants were asked to reflect on the survey results as presented in Figure 23. There
was agreement from all three focus groups that to manage effectively the performance of its
operations, a company first needs to be able to measure its performance. All participants
agreed that measurement of GHG emissions allows companies to understand better the
impact of their business on the environment and therefore how to manage them more
effectively.
7.3.2 There was also consensus that reporting in isolation does not reduce actual emissions. It
has to be followed by behavioural or operational changes within the business. It was said
that reporting can be effective if it is used in combination with other measures to improve
environmental efficiencies such as target setting. Also it was agreed that GHG emissions
reporting can be a useful tool to raise awareness among employees, educate the business
and to present environmental performance to senior management or the board.
7.3.3 It is noted that some participants also commented on the fact that the there is potentially a
danger that the UK’s focus on reporting obligations, for example as part of compliance with
the CRC, may drive companies to transfer some of their business operations abroad, buy
goods and services from alternative global producers that are not exposed to additional
regulatory costs linked to carbon. This needs to be considered in the wider context of
energy prices and the materiality of the costs of reporting.
7.4 Why are some companies not reporting GHG emissions?
7.4.1 Figure 14 identifies some of the reasons why companies in our survey do not report their
GHG emissions. Within the survey this question only applied to the non-reporting
companies. As only 15 companies answered this question we were unable to draw
statistically valid conclusions as to why some companies decide not to report on their GHG
emissions. During the focus groups several interesting points were raised regarding possible
reasons for not reporting. The discussion was split between general comments which can
apply to any type of company and other observations which are more specific to the SMEs.
7.4.2 One of the most common explanations for not reporting was the lack of adequate
infrastructure to gather data across different parts of the business operations. The majority of
participants agreed that this is one of the main challenges they face. It is especially difficult
for companies that do not own all of their sites or share premises with other organisations.
Companies often find that landlords are unwilling to provide information, for example on their
energy consumption or there are difficulties with separating meter readings within shared
buildings.
7.4.3 The lack of resources, time and know-how were also identified as issues that some
companies have to deal with. Resourcing issues were thought to be more acute among
SMEs. This point was strongly endorsed by a number of sector associations who
represented primarily SME members. It was said that SMEs are unlikely to engage in
environmental reporting unless they are required to do so, either by new legislation or strong
customer/client demand.
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7.4.4 It was also mentioned that companies that to date have had no requirement to report, are
not able to see the business benefit that reporting can bring. In order to start reporting a
certain level of investment or set up cost is needed and the recent economic downturn has
pushed this down the priority list as companies are still dealing with financial implications of
coming out of a recession.
7.4.5 Some companies are reluctant to publically report detailed GHG emissions that may give
competitors insights into issues that might be commercially sensitive, for example types of
operations and future plans.
7.4.6 Moreover, participants also felt that there seems to be a level of ‘competition’ among the
different reporting schemes which discourages companies from starting to report as they do
not know which methodology to adopt.
7.5 90% of mandatory reporters (those under EU-ETS / CRC) would report GHGemissions even without these schemes. In your opinion, why is that the case?
Figure 26: Would you have measured and reported GHG emissions without regulatory compliancerequirements?
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90%
Yes
No
Don't know
7.5.1 Figure 26 shows that the vast majority of companies would carry on reporting their GHG
emissions even without the regulatory requirement. It was noted in the focus groups that
until companies start to measure and report GHG emissions the benefits are not clear. Once
these are realised, measuring and reporting is viewed as a good investment.
7.5.2 Furthermore, focus group participants felt that if an existing reporter were to stop reporting
on its environmental performance, this could trigger stakeholder suspicions and potentially
damage their reputation. Reporting was also viewed as a competitive differentiator among
sector peers.
7.6 Additional findings
7.6.1 In two of the focus groups participants made a comparison between current environmental
reporting schemes and international accounting standards. Financial reporting has evolved
over time to reach a consistent international approach where as GHG emissions reporting
has only been in existence for around 10 years and has some way to go to achieve
international consistency.
7.6.2 A number of participants underlined the need for clarity on the future of energy and carbon
prices and also stated that once these costs become material to the companies a change
will follow as the business case for energy efficiency and lower carbon emissions and the
cost of in-action will become clear.
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7.6.3 Finally participants noted a lack of consistency among the different voluntary and mandatory
reporting standards, guidelines and methodologies that companies are encouraged (or
obligated) to follow. This was a cause for concern for companies covered by one or more
mandatory schemes as well as participating in voluntary reporting programmes. In some
cases, the lack of consistency makes it either very difficult or impossible to compare data
and adds complexity for the reporter. There was unanimous agreement about the need for
clearer guidance and standards for GHG reporting, with appreciation for differences in
sectors and not one rigid standard across all industries.
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8 Telephone interviews: costs and benefits ofGHG emissions reporting
8.1 Introduction
8.1.1 The views and experience of 32 companies (29 Large, and 3 SMEs) on the costs and
benefits of GHG emissions reporting was sought through telephone interviews. The focus of
the interviews was as follows:
- The sources of internal and external costs and benefits of GHG reporting;- The value of the costs and benefits of reporting;- Whether the external reporting of GHG emissions result in a net cost or a net benefit
for the company;- How the cost and benefit profile of GHG reporting has changed over time;- The key drivers of the cost of GHG reporting; and- For non-reporters, the reasons for not reporting.
8.1.2 These interviews about the costs and benefits of reporting sought to confirm the findings
from the survey and focus groups on this area. The most common driver of GHG reporting
was pressure from investors. Compliance with schemes such as the EU ETS and the CRC,
keeping up with competition, industry pressure and reputation were also identified but in only
a handful of interviews.
8.2 Sources and value of costs and benefits
8.2.1 Most interviewees stated that they do not actively measure the costs and benefits associated
with reporting their GHG emissions. Also, the majority of the benefits discussed were
intangible or would require significant assumptions that undermine the value and effort of
quantifying the benefit. Therefore, responses on whether reporting GHG emissions was a
net cost or benefit were based more on intuition of the interviewees rather than detailed
analysis.
Costs
8.2.2 The interviews confirmed that most companies do not usually differentiate between the costs
of disclosing GHG emissions externally and the costs of measuring GHG emissions.
Table 8: Costs of GHG reporting
Sources ofcosts
% ofcompaniesquotingcosts
Range ofquantifiedcosts
Further comments
Employeetime
50%(of which88% werelargecompanies)
20 days –3.5 FTEs
Activities quoted included the analysis andconversion of GHG data for multiplereporting schemes.
Developmentand running ofsystems
34%(of which91% were
£50,000 -£400,000
The majority of companies interviewed useself developed systems, many only usingspreadsheets, to manage their GHG data.
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Sources ofcosts
% ofcompaniesquotingcosts
Range ofquantifiedcosts
Further comments
largecompanies)
However, about a third intend to invest inmore specialised software in the near tomedium term. Only a handful of thecompanies interviewed currently usespecialised software to manage their GHGdata.
Externalconsultants
38%(of which92% werelargecompanies)
£10,000 -£100,000
Some of the consulting services procuredincluded the development of CSRprogrammes, identification of material issues,preparation of frameworks for internalreporting, support in completing CDPresponses and the assurance of GHG data.
Employeetraining
16%(of which80% werelargecompanies)
£5,000 -£10,000
Costs of training courses.
Verificationandassurance ofdata
31%(of which allwere largecompanies)
£20,000 -£100,000
This could depend on the organisationengaged to complete the external verificationor assurance.
Report designandproduction
19%(of which83% werelargecompanies)
£50,000 -£70,000
Time preparing report content and costs ofdesign, writing and printing of reports.
8.2.3 Combining these values to produce a total cost will not provide a true reflection of the total
costs for a company as few companies provided data and no company provided estimates
for all categories.
8.2.4 Though employee time was consistently viewed as the most significant cost of measuring
and reporting GHG emissions, only two (large) companies had employed extra people. Most
companies absorbed the time required to report GHG emissions without the need to incur
extra costs. However, as most of the companies interviewed were larger companies it is
possible they have the skills and resource capacity necessary where smaller companies
may not.
8.2.5 Over a third of respondents indicated that they intend to invest in systems and software to
improve the efficiency and quality of their reporting. For the most part this change is being
driven by the increasing complexity of measurement and reporting, and the need for more
accurate and verifiable information. Indeed almost a third of interviewees indicated that the
act of collecting more accurate data will increase costs, while more than a quarter have
acknowledged the investment required to meet their goals of verifying their emissions data in
the near or medium term.
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8.2.6 The relative costs of producing an external report compared to measuring GHG emissions
were explored. Most companies find it hard to differentiate these costs, but those that can
saw that producing a report can cost as much as measuring their GHG emissions when
costs of areas such as stronger internal controls, due diligence and printing are taken into
account.
8.2.7 Most companies viewed the costs of reporting as not financially material to the business.
However, the costs were very significant for the department responsible for managing and
reporting GHG emissions. Suggesting that if the costs and benefits of reporting are
considered by executive management the business case for reporting should become
clearer. This would suggest that requiring an executive director to sign off the information,
such as through inclusion in the annual report, may help address this.
Benefits
Table 9: Benefits of GHG reporting
Sources ofbenefits
% ofcompaniesquotingbenefits
Range ofquantifiedbenefits
Further comments
Cost savings 66%(of which95% werelargecompanies)
£200,000 -£60 million(over 5years)
Savings in the cost of energy and use ofother resources were usually identified as aresult of cost reduction programmes ratherthan GHG emissions reporting.
Support for thebusiness casefor managingsustainabilityissues
28%(of which100% werelargecompanies)
Notcurrentlyquantified
Data on GHG emissions (and widersustainability data), combined with the costimplications for the organisation, support thebusiness case for investing in themanagement of sustainability issues.
Reporting provides an important lever forgaining Board level support for climatechange related activities.
Reputation 50%(of which94% werelargecompanies)
Notcurrentlyquantified
Developing a reputation as a responsiblecompany taking climate change challengesseriously. Reputational benefits not onlyinclude brand enhancement, but are alsoperceived to reduce the costs of managingreputation. Interested stakeholders includecustomers, investors, suppliers, existing staffand potential future employees.
Timely andaccurateresponse tostakeholderrequests
38%(of which100% werelargecompanies)
Notcurrentlyquantified
The time saving an organisation achieves byhaving an easily accessible repository ofinformation that can be used to respond tostakeholder requests. Investors tend tomake the majority of requests, but customersand staff queries are also common.
Meetingtender
31%(of which
Notcurrently
Demonstration of credentials that meettender requirements. While only a few of the
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Sources ofbenefits
% ofcompaniesquotingbenefits
Range ofquantifiedbenefits
Further comments
requirements /competitiveadvantage
80% werelargecompanies)
quantified companies interviewed could attributewinning a contract as a result of GHGperformance, it suggests that there is agrowing emphasis on public disclosure as adriver of competitive advantage in theawarding of contracts.
Regulatorycompliance
16%(of which100% werelargecompanies)
Notcurrentlyquantified
Availability of data to meet regulatoryreporting under the CRC and EU ETS.
Identificationof costeffectiveactivities toreduceemissions
19%(of which100% werelargecompanies)
Notcurrentlyquantified
Measuring and reporting emissions hashelped companies to identify cost effectivemeans of reducing emissions. For example,to meet publicised GHG reduction targets.
Betterknowledge ofthe business
34%(of which100% werelargecompanies)
Notcurrentlyquantified
An improved understanding of the business,particularly for groups with numeroussubsidiaries and or international operations.The data collection process also encouragesengagement across businesses andterritories.
8.2.8 The qualitative and long term nature of many of the benefits attributed to reporting makes
placing an accurate value on them very difficult.
8.2.9 Many companies made the point that they do not benefit simply from publishing GHG
information externally. The benefits gained were primarily driven by the act of measurement
of energy use and/or GHG emissions. This measurement helped identify opportunities for
emission reductions and the setting of KPIs and targets. Therefore directly attributing
emission reductions to external reporting is difficult, even if there is clearly a need to
measure in order to report externally.
8.2.10 Various schemes are already driving the companies interviewed to measure GHG
emissions, for example EU ETS, CRC and to an increasing extent CDP. The latter, in
particular, illustrates the extent to which “voluntary” schemes such as the CDP have evolved
to have a quasi-mandatory impact on companies to report.
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8.3 Does reporting result in net cost or a net benefit?
Table 10: Net benefits / costs of GHG reporting from telephone interviews
Evidence Net benefit Net cost Neither Don’t know /insufficientdata
Telephone survey 53% 22% 3% 22%
Business survey 26% 37% n/a 36%
8.3.1 Over half of the companies interviewed believe that reporting is a net benefit to the
businesses. It is worth noting that those companies that view it as a net cost generally have
been reporting for less time. Several of the companies that believe reporting results in a net
cost indicated that they believe reporting will eventually result in a net benefit once the initial
set-up costs are covered and opportunities for improvement are identified. While the results
are still inconclusive, they suggest that the results of the net cost-benefit analysis from the
survey may not have captured some of the potential intangible benefits. It is worth
emphasising that the results from both the survey and telephone interviews do not provide a
clear indication of whether reporting is likely to generate a net benefit or net cost to a
company.
8.4 How have costs changed over time and what are the drivers of costs?
8.4.1 The companies interviewed were generally split on how the costs of reporting have changed
over time, with roughly equal proportions suggesting that costs had increased, decreased or
remained flat.
8.4.2 Half of the companies involved suggested that anything that increases the scope of reporting
will result in cost increases. This would include inclusion of Scope 3 emissions in GHG
reporting requirements and the inclusion of international operations and acquisitions.
8.4.3 Roughly a quarter of companies also suggested that altering the methodology for measuring
and reporting emissions will increase costs as employees will need to learn the new
approach and adjust the measurement and reporting systems accordingly. New regulation
is seen as one vehicle for altering both the scope and methodology of reporting.
8.4.4 Most companies stated that the costs and benefits of reporting change over time, but no
common journey for the evolution of costs and benefits was identified. The following factors
were noted as affecting the costs and benefits over time:
- Experience: the time taken to generate and report data tends to decrease withexperience.
- Complexity of corporate structure: the number of sites / operating units / groupstructure and degree of management control.
- Changes in scope: companies tend to increase the scope of emissions reported overtime, often in search of new opportunities for savings.
- Time between investment and realising the benefits: as climate change hasincreased in profile so the timeframe between investing in reporting and realisingbenefits, such as reputation, has shortened.
- Increasing number of schemes: the increasing number of reporting schemesincreases the effort required to respond. For instance, for UK companies the EU
P a g e 7 3 |
ETS, the CRC, CDP may be relevant. For companies with overseas operations thenumber of schemes can significantly increase. Each scheme usually has a differentscope and boundary for reporting which increases the effort to present the data tocomply with the individual requirements.
- Trialling reporting internally first: companies have historically trailed reportinginternally before publishing data externally. With the introduction of mandatoryschemes such as the CRC the opportunity for this is decreasing and companies seethat they will have to invest more to get the reporting ready for external reporting.
- Timing of IT system investment: new IT systems usually represent a significantinvestment. The time when a company chooses to implement an IT system thereforeaffects the evolution of costs.
- Assurance of data: this is another potentially significant cost associated withreporting. With no current formal requirements for gaining external assurance oncorporate GHG emissions reporting, a company’s decision on whether or not to getassurance and the timing of this decision impact the evolution of costs.
8.5 Why companies chose not to report
8.5.1 81% of the companies interviewed are already publicly reporting their GHG emissions in
some way. Of the six companies that were not, half measured emissions internally. The
reasons cited by non-reporting companies include a lack of resources, the relative
unimportance of GHG emissions to the organisation and a fear of accusations of green-
wash. These are all consistent with the results from the business survey and the focus
groups.
8.6 Investment in GHG emission reduction activities
8.6.1 The costs associated with efficiency measures tended to result clearly in a net benefit
because they had to meet investment criteria within the companies. Therefore these
benefits were not felt to be directly attributable to external reporting of GHG emissions.
8.6.2 The cost of such efficiency measures is likely to decrease over time as the opportunities on
an abatement curve with shorter payback periods get implemented. Companies that like to
see performance of externally reported information improve over time will find the costs of
continued performance improvement ramp up as the payback period increases.
8.6.3 As with the focus groups, some of the companies interviewed raised the need for more
certainty on future energy and carbon prices so that these can be factored into investment
appraisal processes. It was felt that an appropriate price for carbon, rather than external
reporting alone, will enable actions to reduce emissions to be implemented by business.
8.7 Quality of reporting
8.7.1 When asked about the quality of reported GHG emissions, most companies stated that the
current quality of reporting was fit for the current purposes but is not as robust as the
standards of financial reporting. Some companies highlighted that the inclusion of GHG
emissions data in external corporate reports required a greater level of accuracy than would
be necessary for internal reporting as the use of the information was seen to be different.
Few companies gain external assurance specifically covering their GHG emissions data and
those that did noted that extra effort was required to get GHG emissions data ready for
assurance.
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8.7.2 A few companies noted challenges in getting the necessary quality of data from suppliers to
meet high quality reporting standards, particularly from energy suppliers and landlords.
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Annex A: Literature Review
Article Authors (Year) Summary
The introduction of reporting
Regulatory Impact Analysis forthe Mandatory Reporting ofGreenhouse Gas EmissionsFinal Rule (GHG Reporting)
US EPA (2009) Threshold: Hybrid approach - The thresholds fall generally into three groups: capacity, emissions, or entire source category (“All in”).Typically, a facility that emits 25,000 metric tons CO2e/year or more reports all sources for which there are methods. The capacity and “all-in” thresholds are roughly equivalent to 25,000 metric tons CO2e/year. A facility may be subject to a capacity threshold when alreadyreporting (e.g. ARP) or to another type of threshold due to unique issues or where an emissions-based threshold is not practical (e.g., GHGgeneration threshold for landfills).
Methodology: Combination of direct measurement and source-specific calculation methodologies:
Direct measurement of emissions from units at facilities that are already required to collect and report data using continuous emissionmonitoring systems under other Federally enforceable programs, including for other regulatory programs (e.g., CO2 emissions fromElectricity Generating Units [EGUs] in ARP; requirements of NSPS, NESHAP, SIP)
Source-specific calculation methods using facility-specific information for other sources at the facility
Frequency: All reporters would report their emissions annually. Exception for those already reporting quarterly for existing mandatoryprograms (e.g., Acid Rain Program, Energy Information Administration)
Verification: Self-certification with EPA verification. A facility would report emissions data and supporting information directly to EPA; EPAwill use the information to verify the data.
Press release: EPA Finalizesthe Nation’s First GreenhouseGas ReportingSystem/Monitoring to begin in2010
US EnvironmentalProtection Agency(EPA 2009-i)
On January 1, 2010, the U.S. Environmental Protection Agency will, for the first time, require large emitters of heat-trapping emissions tobegin collecting greenhouse gas (GHG) data under a new reporting system. This new program will cover approximately 85 percent of thenation's GHG emissions and apply to roughly 10,000 facilities.
Fossil fuel and industrial GHG suppliers, motor vehicle and engine manufacturers, and facilities that emit 25,000 metric tons or more of CO2equivalent per year will be required to report GHG emissions data to EPA annually. This threshold is equivalent to about the annual GHGemissions from 4,600 passenger vehicles.
The first annual reports for the largest emitting facilities, covering calendar year 2010, will be submitted to EPA in 2011. Vehicle and enginemanufacturers outside of the light-duty sector will begin phasing in GHG reporting with model year 2011. Some source categories includedin the proposed rule are still under review.
Copenhagen Update – COP 15 Climate DisclosureStandards Board(CDSB) (2009)
CDSB plans to develop and expand research on evaluating the relative merits of different national approaches and incorporate bestpractices into its Reporting Framework.
Australia: corporations that meet an National Greenhouse and Energy Reporting (NGER) threshold must report their greenhouse gasemissions, energy production, energy consumption and other information specified under NGER legislation;
Canada: GHG emissions reporting program targets facilities in Canada that emit the equivalent of 100,000 tonnes or more of GreenhouseGases (in CO2 equivalent units) annually;
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Article Authors (Year) Summary
SEC Issues InterpretiveGuidance on DisclosureRelated to Business or LegalDevelopments RegardingClimate Change
U.S. Securitiesand ExchangeCommission(2010)
The SEC voted to provide public companies with interpretive guidance on existing SEC disclosure requirements as they apply to business orlegal developments relating to the issue of climate change.
Federal securities laws and SEC regulations require certain disclosures by public companies for the benefit of investors. The relevant rulescover a company's risk factors, business description, legal proceedings, and management discussion and analysis. Specifically, the SEC'sinterpretative guidance highlights the following areas as examples of where climate change may trigger disclosure requirements:
Impact of Legislation and Regulation
Impact of International Accords
Indirect Consequences of Regulation or Business Trends
Physical Impacts of Climate Change
The business drivers of reporting
Transparency: WhatStakeholders Demand
Esty D. (2007) Increasingly, customers, employees, and capital markets—as well as governments and NGOs—expect companies to release public reportson greenhouse gas emissions, make progress in improving energy efficiency, and hit targets for reducing emissions. Companies that fail tomeet those expectations face potentially serious business consequences, for four broad reasons:
Subpar environmental performance has become hard to hide and threatening to a company’s reputation.
smart management of environmental issues has become a way to positively shape brand image and attract new customers
Reporting signals a company’s seriousness about climate change and provides a gauge of its ability to track and manage emissions.
Financial markets are beginning to recognize that inattention to greenhouse gas emissions may soon have real cost and riskimplications.
Conversation: Alyson Slater,Global Reporting Initiative’sdirector of strategy, on howdisclosing emissions benefitscompanies
Slater A. (2009) The reporting process help a company address climate-related risks as companies realize that reporting cannot happen without strategydevelopment. As firms start the process of putting a report together, they would need to talk to stakeholders, examine their core businesses.They will also have to ask several questions: What is our strategy on climate change anyway? What is our approach to managing this risk?
The discipline of sorting out which activities are material to report on and in what depth, and what data will be used to document progress,forces companies to formulate strategies. For companies that have not been engaged in climate change and need to catch up withcompetitors that are disclosing, the reporting process is a stimulus for opening up a dialogue with stakeholders about the issue.
The report also serves as an accountability mechanism. It allows a company to make commitments and show through performance that it isdoing what it said it would do.
Turning Questions intoAnswers: Environmental issuesand annual financial reporting
EnvironmentAgency and theInstitute ofCharteredAccountants inEngland andWales (2009)
(EA / ICAEW)
Internal reporting systems should be capable of providing sufficient usage and cost information to enable the financial impact ofenvironmental issues, both systematic and non-systematic, to be estimated reliably, using advice from specialists if necessary.
It can be advantageous to companies to exceed the minimum disclosure required in annual reports where there is a financial or reputationalgains in doing so. For many businesses, there is a range of possible environmental concerns among stakeholders and some companies findit useful to instigate various forms of engagement to have dialogue and provide feedback to users on environmental issues. In this way,critical concerns can be managed and sometimes be turned to advantage.
Institutional investors are increasingly seeking a narrative discussion and quantitative information about environmental risks companies faceand the steps being taken to mitigate those risks. The National Association of Pension Funds and Association of British Insurers (ABI) issueguidelines encouraging such disclosure. More generally, there is a need for consistency, comparability, relevance and reliability, and anintegration of environmental information within annual reports.
A competitive advantage is often gained from adopting a positive approach by giving, for example, investors, customers and employees
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information on the operation of an environmental management system or compliance with environmental laws and voluntary codes, andperformance against annual targets to alleviate the impact of their operational activities, reduction of emissions and waste, as well asinformation on environmental improvements undertaken and the results of these.
Accounting and theenvironment
Hopwood A.(2009)
Reporting has some potential to give a greater degree of visibility to corporate environmental activities and consequences, casting light onwhat is often invisible.
Companies can also have an interest in using reporting to facilitate the construction of a new and different image of the company. Reportingcould also serve as a corporate veil, simultaneously providing a new face to the outside world while protecting the inner workings of theorganization from external view. This is an area in need of more research.
Carbon Costs: CorporateCarbon Accounting andReporting
Aldersgate Group(2007)
Existing drivers for corporate carbon disclosures:
1) Compliance with legislation e.g. EU Emission Trading System Directive / Companies Act 2006
2) Compliance with International & UK company reporting standards although currently a weak driver as standards act as little more thanrecommendations
3) Voluntary Measures e.g. World Business Council for Sustainable Development (WBCSD), Green House Gas Reporting campaign, GlobalReporting Initiative and Carbon Disclosure Project
4) Investor pressure e.g. Institutional Investors Group on Climate Change, Climate Risk Group and Henderson Global Investors
All together now: a commonbusiness approach forgreenhouse gas emissionsreporting
CBI (2009) With businesses also facing growing regulatory pressure to reduce their emissions footprint, measurement and reporting are increasinglybecoming major business issues.
Measurement can show where there are inefficiencies in business processes, in the building stock or the transport of goods. It also allows abusiness to compare its energy and emissions data with peers.
The reporting process can also drive behavioural change. Putting in place the systems and processes to capture emissions data will developemployees’ carbon management skills, as well as provide a focus for management attention on the specific investments needed.
Additionally, having emissions data to-hand is likely to become increasingly important in a low-carbon economy where government andbusinesses look to incorporate emission requirements into their supply chain through procurement criteria and consumers seekenvironmentally responsible products and services.
Environmental DisclosureQuality in Large GermanCompanies: EconomicIncentives, Public Pressures orInstitutional Conditions?
Cormier D.,Magnan M., VanVelthoven B.(2005)
The quality of corporate environmental disclosure is related to the accountability towards shareholders and debt holders, which provides anobligation to disclose value-relevant information that could affect a firm’s cost of capital. However, this consideration would be traded off withinformation that could affect the firm’s profitability. The level of public pressures (i.e. external stakeholders) and the market and institutionalcontext, e.g. what competitors are doing, the history of the business, and regulations, also matter.
Corporate social andenvironmental disclosure
Gray, R., Kouhy,R. and Lavers, S.(1995)
Corporate social and environmental reporting (CSER):
is not a systematic process and is subject to popularity trends;
does not appear to be associated with same-period profitability;
appears to be related with firm size, absent a control for other factors;
is subject to industry-specific effects;
Is subject to country-specific effects.
Firm size potentially affects the level and quality of environmental disclosure as larger firms are more visible targets for the public, facepotentially higher political risks and costs of non-disclosure and have more investors and other financial stakeholders that could enquire for
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information.
Managing Greenhouse Gasemissions Research report
ICAEWBUSINESSOPINION 2009
“Senior management commitment is the key driver behind firms undertaking initiatives to reduce their carbon footprint, regardless of size.Cost savings are also a key driver, especially among medium and large firms, listed by approximately three quarters in each (compared to60% of smaller firms with less than 49 employees).
Large firms are more likely than SMEs to list brand related benefits (73% vs. 49%). They are also more likely to list external pressures asdrivers for action such as regulatory/compliance requirements (63% vs. 50%), pressure from investors (31% vs. 16%) or pressure fromlobby groups (21% vs. 13%).”
The national drivers of reporting
Press release: EPA Finalizesthe Nation’s First GreenhouseGas ReportingSystem/Monitoring to begin in2010
US EnvironmentalProtection Agency(EPA 2009-i)
EPA Administrator Lisa P. Jackson claims that approximately 85% of the total U.S. emissions will be captured to the “American public, andindustry itself, will finally gain critically important knowledge and with this information we can determine how best to reduce thoseemissions".
EPA's new reporting system is expected to provide a better understanding of where GHG are coming from and will guide development of thebest possible policies and programs to reduce emissions. The data will also allow businesses to track their own emissions, compare them tosimilar facilities, and provide assistance in identifying cost effective ways to reduce emissions in the future. This comprehensive, nationwideemissions data will help in the fight against climate change.
Regulatory Impact Analysis forthe Mandatory Reporting ofGreenhouse Gas EmissionsFinal Rule (GHG Reporting)
US EPA (2009) The mandatory GHG reporting program will provide EPA, other government agencies, and outside stakeholders with economy-wide data onfacility-level (and in some cases corporate-level) GHG emissions, which could assist in future policy development.
Accurate and timely information on GHG emissions is essential for informing some future climate change policy decisions.
The facility-specific data will also improve our understanding of the factors that influence GHG emission rates and actions that facilities arealready taking to reduce emissions. In addition, the data collected on some source categories could also potentially help inform offsetprogram design by providing fundamental data on current baseline emissions for these categories.
OMB Circular A-4 indicates that one of the reasons a regulation such as the GHG reporting rule may be issued is to address market failure.
The mandatory GHG reporting rule seeks to address inadequate or asymmetric information between and among GHG emitters and variousother stakeholders including the public. There currently is significant variation in which sectors of the U.S. economy report GHG emissionsand methods used for calculations. As a result, existing information is inadequate or various stakeholders have very different information onwhich to base decisions about GHG emission levels and possible reductions.
Although not its primary focus of the rule, the GHG reporting program will provide information on for future climate policies designed toaddress externalities. Since GHG are an externality, the lack of information on their emissions means the information asymmetry leads to aninefficient outcome, and providing such information is a necessary step to internalize the externality.
Goals of the mandatory reporting system:
Obtain data that is of sufficient quality that it can be used to support a range of future climate change policies and regulations.
Balance the rule coverage to maximize the amount of emissions reported while excluding small emitters.
Create reporting requirements that are consistent with existing GHG reporting programs by using existing GHG emission estimation andreporting methodologies to reduce reporting burden, where feasible.
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Market failure: the case formandatory social andenvironmental reporting
Doane D. ( NewEconomicsFoundation)(2002)
Voluntary codes can be manipulated for any desired outcome by the company concerned, while at the same time obscuring all means tosee it as a legitimate accountability tool for stakeholders.
Some companies utilise the accounting sector to provide a statement of verification for the contents of a report, these loose statements dolittle to provide assurance that the report is adequate. For example, it is common practice for a verification statement to ignore what has notbeen included in the report.
Government has a responsibility to provide an adequate framework.
Benefits of mandatory reporting:
Levelling the playing field: If all businesses were to undertake reporting, the costs for doing so would not be a competitive decision. The‘free rider’ who argues they are doing something for society would rightly be penalised by the market, and ‘best in sector’ would becomemore relevant with all comparable information on the table.
Reducing costs through limiting gloss: Mandatory social and environmental reporting should see the reduction of costs by limiting spinthrough the production of high-cost PR reports, focusing business on the management issues at hand and including this information in theannual report to shareholders.
Simplifying processes: some companies experience ""questionnaire fatigue""; by limiting bespoke reporting to investors and otherstakeholders, mandatory reporting would establish a definable standard for business and minimise transaction costs.
Clarifying responsibilities: Public affairs departments spend inordinate amounts of time and money trying to gauge what is expected ofthem by the public, consumers and governments. By pooling resources, through collaborations such as the GRI, these expectations can bemore clearly defined, while reducing costs. Industry associations can also cut lobbying expenditure in this area."
Greenhouse Gas EmissionsReporting Program
Ministry ofEnvironmentCanada (2010)
The Government of Canada’s Greenhouse Gas Emissions Reporting Program is part of Canada’s ongoing effort to develop, through acollaborative process with the provinces and the territories, a harmonized and efficient GHG reporting system that minimizes duplication andeases the reporting burden for industry and governments alike. The program's four main objectives are to provide Canadians with timelyinformation on GHG emissions; to enhance the level of detail in the National Greenhouse Gas Inventory; to support provincial and territorialrequirements for GHG emissions information; and to support the development of regulations.
Japan’s New Climate ChangeProgram
Takemoto A.,Ministry ofEnvironment,Japan (2006)
Key to success in Kyoto includes securing transparency on emission data, in particular a reporting system that mobilizes businesses’voluntary efforts for emission reductions.
Current trends and approachesin Voluntary and MandatoryStandards for SustainabilityReporting
UNEP and KPMG(2006)
Rationale for introducing mandatory reporting:
Credibility: The use of recognised practices and tools, or the publication of a sustainability report or equivalent that has been preparedusing recognised guidelines should enhance the credibility of information provided in response to stakeholder concerns and interests.
Changing the corporate culture: Mandatory requirements foster openness and transparency with respect to sustainability issuespreviously lacking in corporate culture. Mandatory requirements would place CSR issues and social and environmental issues in particular,squarely on the agenda of corporations.
Incompleteness of voluntary reports: Voluntary reports often fail to address certain issues, notably on fundamental human rights issuesand key aspects of a company’s environmental performance.
Comparability: There is no standardisation of the information found in reports because of the varying choices and approaches of differentcompanies. It is often argued that the voluntary nature, progressive character and number of standards envisioned in initiatives such as theGRI and other national and international initiatives, are unlikely to result in the standardisation of sustainability reporting practices.
Non-disclosure of negative performance: Positive information and messages tend to be emphasised in most sustainability reports. Thereports are also time and event specific. Firms may disclose information when it suits their interests, but not when it may negatively influence
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perceptions, or relate to future earnings and potential cash flows negatively (Walden and Schwartz, 1997).
Legal certainty: In addition to NGOs and individuals calling for mandatory reporting requirements, business has often called for governmentintervention to “level the playing field”. An emerging litigious risk over alleged marketing claims in public reports (e.g. Kasky vs. Nike – seebox) has led to calls in some quarters for a “safe harbour” for executives from unreasonable legal disputes that threaten the very future ofcorporate reporting. In the UK there have been efforts to redefine materiality under the reform of company law. In the end the Operating andFinancial Review (see next section for a discussion) replaced the concept ‘materiality’ with the need to report on non-financial issues ‘to theextent necessary’.
Market failures: Because of externalities, asymmetric information, the dominant position of a market participant, or the production of “publicgoods”. If there is asymmetric information concerning the status of a company or a market, an investor will only be willing to make aninvestment if he is adequately paid for bearing the remaining risk. It could therefore be assumed that companies will report and discloseinformation in the interests of maximizing profits and returns. Adequate, voluntary disclosure resulting from market forces seems, at least inthe short to medium term, unlikely, given the often conflicting interests of management.
Cost savings: In the absence of mandatory disclosure, investors might engage in duplicative and inefficient searches for information aboutpublic companies.
Equal treatment of Investors: Legally required corporate disclosure encourages equal treatment of investors with regard to the informationdisseminated pursuant to law. If certain groups of persons are privileged in the disclosure of information, other groups will be prejudiced.The equal distribution of information to investors has also been supported and demanded by several corporate codes e.g. The GermanCorporate Governance Code"
Preliminary Cost-Benefit andLeast Burdensome AlternativeAnalysis: Reporting ofEmission of GreenhouseGases
Department ofEcology, State ofWashington (2009)
Ecology expects mandatory reporting at the state level to generate benefits through:
Tracking the progress towards goals;
Public to understand business and government actions and consumer behaviour, a benefit that applies to both reporters and non-reporters;
Creation of a comprehensive database that reflects emissions composition, through planning and policy that is more appropriate;
Inclusion of GHG emitters likely to participate in an emissions trading scheme in the future would allow businesses more flexibility asbusinesses with documented early emissions reductions may be able to use them as offsets for allowances; and
A comprehensive reporting rule will create greater public confidence on the emissions estimates and quality.
The business case forregulation of corporate socialresponsibility andaccountability
Unerman J.,O’Dwyer B. (2007)
Paper refers to Porter and van der Linde (1995) who argued that greater regulation will force businesses to become more economicallyefficient in their operations (reducing costs) and to provide products with ‘environmental attributes’ valued in consumer markets.
Regulations can serve to reduce actual and perceived risks inherent in many business activities, and perceptions of risk are importantfactors in determining the ongoing support and trust any business enjoys from a variety of its stakeholders, with the trust of a range ofstakeholders being essential in delivering shareholder economic value.
Social and environmental accounting and reporting (SEAR) is a potential form of accountability mechanism aimed at demonstrating howcorporate responsibilities have been discharged. However, the academic literature indicates that rather than providing a genuine, fulland honest account in this manner, SEAR is predominantly used by corporations to portray a very partial image such that the rhetoric ofSEAR is usually different from the reality of underlying corporate activities and social and environmental impacts (Gray et al., 1996;Unerman et al., 2007). The theoretical framework developed in this paper implies that unregulated SEAR portraying misleadingimpressions of CSR actions and impacts can lead to SEAR lacking credibility. If SEAR is to be a worthwhile activity in terms of informingthe stakeholders of any corporation of that corporation’s CSR actions and impacts, then it needs to have credibility. We argue below thatone possible route for building and maintaining such credibility is a rigorous and independent SEAR regulatory regime.
Tightly and independently regulated SEAR might not give corporations as much scope to portray highly positive images of the futureCSR consequences of their current actions as they have in the absence of such regulation.
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Where an outside stakeholder relies upon the information reported in a corporation’s SEAR to ascertain the social and environmentalactions of that corporation, if an event occurs that demonstrates this information to be unreliable or misleading, then such stakeholdersmay not only disbelieve the information presented in this corporation’s SEAR, but they may reflexively develop mistrust in the SEAR of awide range of corporations.
Knowledge of the presence of an effective SEAR regulatory regime could enhance the credibility of information reported via SEAR by allcorporations subject to the regulations.
The cost of reporting
Getting Ahead of the Curve:Corporate Strategies ThatAddress Climate Change
Hoffman A.,prepared for thePew Centre (2006)
Companies have developed or are working to develop new systems for measuring and tracking emission reductions. These systems can belabour intensive (requiring, for example, energy reporting and verification of third party invoices) and may require further work to beintegrated with other information systems (such as SAP35 and Environmental Management System (EMS) under ISO14000).
Preliminary Cost-Benefit andLeast Burdensome AlternativeAnalysis
Regulatory Impact Analysis forthe Mandatory Reporting ofGreenhouse Gas EmissionsFinal Rule
Department ofEcology, State ofWashington (2009)
US EPA (2009)
The key areas of costs identified by the literature include: Costs of administration and technical support; Costs of data management and verification; Costs of management and oversight; Costs to non-reporters of the determination of compliance, especially under complex schemes
Current trends and approachesin Voluntary and MandatoryStandards for SustainabilityReporting
UNEP/KPMG(2006)
Mandatory reporting creates additional layers of costs and complexity, in particular: Costs to government of program implementation, the development and maintenance of the data collection system; Undermining the ability to tailor responses to stakeholder demands, by seeking to force industries of very different natures, sizes,
capacities and local contexts into the same box; Inflexibility as a mandatory regime may be slow in keeping up with changing circumstances and technologies; Lack of incentive to innovate as companies will tend to adopt a reactive, tick-box approach rather than devising own methodologies to
tailor to their own needs; Constraints on efficiency and competitiveness especially for multinational companies as different national level requirements and
indicators could place substantial compliance burden on these companies.
Experience with voluntary reporting
Corporate Responses in anEmerging Climate Regime:The Institutionalization andCommensuration of CarbonDisclosure
Kolk.A. Levy.D.,Pinkse.J. (2008)
"Companies at the vanguard no longer question how much it will cost to reduce greenhouse gas emissions, but how much money they canmake doing it. Financial markets are starting to reward companies that are moving ahead on climate change, while those lagging behind arebeing assigned more risk. (Cogan, 2006)"
Business frames climate change as an opportunity rather than a burden (Margolick and Russell, 2004). Investing in low emission products and technologies is one core element, exemplified by BP’s investment in solar energy as part of its
new ‘Beyond Petroleum’ strategy. Firms are also seeking to reduce emissions from their operations, including transportation and buildings. Walmart is focusing on these
operational efficiencies, and the CEO recently stated that reducing greenhouse gases would ‘save money for our customers, make us amore efficient business, and help position us to compete effectively in a carbon-constrained world’.
As emission trading emerges - another core element of corporate strategy for climate change is development of the organizational andinformational infrastructure for assessing, measuring, reporting and managing GHG emissions and their associated impacts.
Voluntary corporate carbon disclosure represents a form of institutional entrepreneurship geared toward leveraging carbon disclosure as
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Article Authors (Year) Summary
a form of governance. The institutionalization of carbon disclosure is a political project because it entails a change in the structures of corporate governance in
a way that shifts attention toward environmental objectives and enhances the legitimacy and engagement of environmental NGOs ingovernance processes.
Firms developing low emission products and technologies stand to prosper in a carbon-constrained environment. Investors have alsobecome aware of these risks. Considering the financial, regulatory and environmental liability risks, some of the largest investmentbanks, including Citigroup, JPMorganChase and Morgan Stanley, have issued restrictive guidelines for new coal investments.
Carbon trading
Carbon trading - encouraged firms within sensitive sectors to began to invest substantial amounts in low-carbon technologies;influenced partly by the management interaction with other leaders during conferences, seminars, climate negotiations etc these globalindustries and the ‘issue arena’ of climate change itself have become more important institutional influences on corporate strategy thanthe home country environment.
On the economic level, competitive pressures and interdependence have compelled firms to respond to each other’s moves. Reasons for joining - might be anticipating mandatory controls, attempting to shape future trading systems, establishing baselines to
gain credit for early action or hoping to gain competitive advantage through early trading experience. Many larger firms need to developan emissions management system for their European operations.
Voluntary carbon trading has been accompanied by the rise of voluntary carbon disclosure.
CDP
CDP has framed carbon disclosure as an extension of carbon trading; carbon reporting was portrayed as parallel, even integral tofinancial reporting, drawing from its legitimacy and regulatory mandate; it represents a form of "civil regulation"
Effective commensuration still presents a major challenge, both on the level of carbon disclosure reporting that CDP promotes as wellas the more detailed process of carbon accounting.
Part of the reason why CDP does not live up to its full potential is that the format of the questionnaire has been changing over the years;issues with missing data; information differences within sectors - so comparability very difficult
Response rates have been quite impressive but a closer look at the information that is disclosed by those firms that answered thequestionnaire sheds a different light on the apparent success of CDP.
Commensuration is still lacking both on the level of carbon disclosure reporting that CDP promotes as well as the more detailed processof carbon accounting.
The frequent lack of disclosure of types and meaning of emissions data, and of reliability checks, means that it is very difficult to getinsight into reported emissions, let alone firms’ actual achievements.
Even experienced analysts of climate change and emissions data find it very hard to make sense of firm reporting as part of CDP(Kiernan, 2008).
Getting Ahead of the Curve:Corporate Strategies ThatAddress Climate Change
Hoffman A.,Prepared for thePew Centre,(2006)
The importance of companies engaging in external outreach as part of their climate strategy. Public reporting may be strategiccommunications to its stakeholders. The study found that most important stakeholders in the communication of climate-related strategy areNGOs, employees, government, public, investors and shareholders.
Several case studies have also been quoted in terms of practical experiences with voluntary reporting of emissions: Baxter International: by having a goal and reporting on the progress publicly each year, the company has information systems and
verification processes in place to capture their performance; Alcoa: measurement and reporting are a fundamental part of attaining any target; Shell: the sustainability report acts as the company’s public face, reporting its activities to the outside world, help as an internal
coordinating mechanism, giving staff and the various business units a guiding vision, and a channel to help those units communicatetheir concerns and ideas during the process of compiling the report.
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Article Authors (Year) Summary
Sustainable Value, CorporateResponsibility, MarketValuation and Measuring theFinancial and Non-FinancialPerformance of the Firm
EABIS ResearchProject (2009)
“Obstacles with the Investor Community
• Investors’ mindsets, decision techniques and investment time horizons tend to skewed towards quantitative analysis and short-termism intheir investment decisions. ESG issues are much more geared towards qualitative analysis and long term investment decisions. Also datacollected on ESG issues, is often undermined by inconsistencies and insufficiencies arising mainly from the differences of ESG data in termsof actors, industries, regions and countries.
• Investors’ perceptions of ESG issues; most investors tend to think that ESG issues are complex, expansionary, and, therefore, contestable;complexity is particularly tied to the challenge involved in understanding the boundaries of ESG issues – i.e. what is in and what is out;complexity is further intensified by terminology - some of the terms used to describe this practice include – ESG, non-financial performance;CR; extra-financial performance, sustainability. The expansionary nature of ESG issues is also a source of concern for many investors e.g.,obesity or water scarcity wasn’t featured a decade ago.
Obstacles inside Companies
• Companies are at different stages of CR maturity (and even within the same firm, may be more mature in certain parts of the business oron particular topics), and only some companies, therefore, will have significant improvements in ESG performance to be able to report; •Even many of the more mature companies when it comes to embedding CR and sustainability have only recently made the explicit linkbetween this commitment and their overall strategy; others have still to do so;
• Many have struggled with how to explain this linkage satisfactorily, in terms of how the failure to link creates corporate risks, and howmaking the link creates opportunities; hence senior managers may not, therefore, yet appreciate the significance of ESG performance datapresented to them in terms of potential or actual impact on business performance; or they may understand the significance of the data butnot yet trust their robustness and accuracy.”
The legislation ofenvironmental disclosures inthree Nordic countries - acomparison
Siv Nyquist (2003) Stakeholder theory: the firm responds for ethical reasons to the interest groups’ demands; thus firms are disclosing information as aresponse to stakeholders’ demand, making regulation unnecessary (Donaldson and Preston, 1995; Maltby 1997)
Disadvantages: Letting firms set standards for environmental information include that one report may not satisfy all stakeholders (Azzone et al.1997)
and that the information may be too extensive to report compressed (Maltby 1997). Voluntary reports are often incomplete and are not related to the firm's actual environmental performance Positive info seems to dominate reports Firms may disclose information in their own self-interest but seldom when it can affect future earnings and potential cash flows
negatively (Walden and Schwartz 1997)All together now:a common business approachfor greenhouse gas emissionsreporting
CBI (2009) Making the transition from voluntary to mandatory reporting Set realistic and proportionate size thresholds for mandatory reporting in line with existing compulsory schemes Ensure mandatory reporting requirements align with existing compulsory schemes Lead international discussions over a global common approach to emissions measurement and reporting Help businesses to develop their reporting capacity and skills with targeted support
CBI response to Defragreenhouse gas emissionsreporting guidance
CBI (2009) The CBI has advocated that mandatory reporting should be conditional on a number of key issues being resolved: Voluntary Defra guidance must be properly tested by large and small companies prior to the government review in December 2010. Resolving potential conflicts between multiple reporting methodologies – particularly between the EU-ETS, Carbon Reduction
Commitment and the Defra guidance.Environmental disclosures,The Second major Review ofEnvironmental Reporting in theAnnual Report & Accounts ofthe FTSE All-Share
EnvironmentAgency / Trucost(2007)
Within FTSE All-Share, 82 companies, which represent 15%, have disclosed data in accordance with the Government guidelines 58% of companies didn’t report any quantified environmental data in their annual reports 15% of companies made quantified disclosures that were entirely in accordance with the guidelines; 3% followed guidelines for all core
environmental KPIs. Within FTSE 350, 22% disclosed information entirely in line with Government guidelines for one or more of the three core KPIs (climate
change/energy use, waste and water); less than 5% reported on all three core environmental KPIs.
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Experience with mandatory reporting
The Danish Green Accounts:Experiences and internaleffects
(Environmental ManagementAccounting – Purpose andProgress)
C. Thy, DanishEPA (2003)
The Danish Ministry of Environment and Energy carried out an evaluation of companies’ experience with the Green Accounts Act based oninterviews with managers in over 500 companies (over 60% of the managers responsible for the submission of the green accounts). Keyfindings: To some companies, the preparation of green accounts has been an introduction to more systematic environmental work, to other
companies a supplement to ongoing environmental efforts. A large proportion of companies use the obligation to prepare and publish the required information for internal decision making (ranging
between 40 and 60% depending on the issue). 41% of companies believed they had achieved environmental improvements vs. 56% considered they had not achieved improved
environmental performance, whilst 3% were uncertain. Key areas of improvement among the companies which had achievedenvironmental improvements are energy, water, waste and resource use.
Companies generally agreed that green accounts had created a better overview of their own environmental situation in particularresource and energy consumption and emissions
The primary target group for green accounts is the general public – but this group distrusted the quality of information and used theaccounts on a very small scale. Professional users such as investors and governmental purchasers were marginally more trusting of theinformation.
External stakeholders showed relatively little interest in acquiring and using the green accounts. Stakeholders usually go directly to thecompany or to the local authorities, even when they are aware of the existence of green accounts. However companies were betterequipped to respond when enquired.
Green accounts had enhanced dialogue with employees
Greenhouse Gas Reportingand Disclosure: Key Elementsof a Prospective U.S. Program
Pew Centre (2002) The Toxics Release Inventory (TRI) is an example of mandatory reporting regime. TRI is maintained by the U.S. Environmental ProtectionAgency (EPA) in accordance with the Superfund Amendments and Reauthorization Act of 1986, section 313 (SARA 313). Under SARA 313,about 23,000 facilities annually report the amount of certain toxic chemicals they release to the environment.TRI was designed to maximize public availability, making the TRI perhaps the best-known federal environmental information program. SARA313 also gave the EPA authority to expand the group of covered chemicals and facilities and lower the threshold for reporting, which theEPA has done. The EPA has also taken several steps to ease the cost associated with reporting, including producing an interactive softwareprogram to guide facilities through reporting.The results of the program have been impressive: manufacturers’ release of the 340 chemicals initially listed under SARA 313 dropped by45.5 percent from 1988 through 1999. While some of this reduction was due to the regulation of the chemicals, especially under the CleanAir Act, voluntary action is believed to have motivated a large portion of these reductions as well. Some of the voluntarism was spurred by adesire to reduce the economic waste represented by the loss of the chemicals and some by an interest in demonstrating environmentalleadership to the public.With TRI reporting, companies could face penalties if they either fail to report or intentionally misrepresent their emissions. Several currentenvironmental reporting programs allow, for example, fines of up to $25,000 per day of violation for failure to report or false reporting.
Methodology
The Danish Green Accounts:Experiences and internaleffects
Danish EPA (dateunknown)
About half the companies preparing green accounts report gaining economic benefits from their work with the accounts. Most companiestaking part in the evaluation could not give actual figures for their savings and revenues. But the approximately 25% who had experiencedeconomic benefits and quantified them
Monitoring the uptake of GHGMeasurement / AssessmentTools & Links Between Tools &Emission Reductions
ERM 2010 The impact of measurement and reporting need to be considered with other complementary drivers (costs, regulation, competition andreputation)
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Article Authors (Year) Summary
Preliminary Cost-Benefit andLeast Burdensome AlternativeAnalysis
Department ofEcology, State ofWashington (2009)
Estimation of time costs by understanding the job categories and average wage levels for each job category. 20-year analytical time frame for annualising costs 7% discount rate in the US across sectors
Regulatory Impact Analysis forthe Mandatory Reporting ofGreenhouse Gas EmissionsFinal Rule
US EPA (2009) The US EPA analysis relies on significant amount of assumptions on the threshold (which could include capacity, emissions, or sourcecategory), reporting and verification methodology, and frequency.
Other general comments
Current trends and approachesin Voluntary and MandatoryStandards for SustainabilityReporting
UNEP and KPMG2006
Reporting is only the tip of the iceberg and that - for both reporter and legislator - the emphasis should be on performance; The voluntary versus mandatory debate does not imply an "either / or" position, but rather finding a balance between regulation in
certain high risk or high impact areas, and allowing industry associations or individual companies to make decisions other areas.
Accounting and theenvironment
Hopwood A.(2009)
Emphasis should move on from changes in strategies to changes in actions - i.e. reporting and assessment of actions rather thanchanges in strategy
Advocates for Connected Reporting Framework - as a more holistic concept of reporting; it seeks to demonstrate how both economic/financial and environmental/sustainability info can presented
The legislation ofenvironmental disclosures inthree Nordic countries - acomparison
Nyquist S (2003) Author refers to a study of corporate social disclosures reported by Adams et al. (1998) which found a significant difference among boththe types and the amounts of information between countries that could not be explained simply by company size or industry type. Theauthors claim that the social and political environment in different countries may be an influential factor when companies decide toreport on social issues (see also Kolk et al., 2001).
Studies have shown that firms with environmentally hazardous areas are more willing to disclose environmental info than others. In the investigation made by the Danish EPA, it was found that between 10 and 20 percent of the different stakeholders did not trust the
information in the green accounts. If the information the company provides is checked by external auditors, the reliability may increase,and by this, the usefulness of the report.
Responding to Public andPrivate Politics: CorporateDisclosure of Climate ChangeStrategies
Reid E., Toffel M.(2009)
Study based on CDP - authors found strong support for our hypotheses that firms are more likely to agree to engage in practicesconsistent with the aims of a social movement if they or other firms in their industry have already been targeted by a shareholderresolution on a related issue.
Culture, institutional factorsand differences inenvironmental disclosurebetween Canada and theUnited States
Buhr N.,Freedman M.,(2001)
Authors suggest that the greater extent of mandatory (i.e. legal/cost) disclosure in the US is due to the litigious environment. Such anenvironment encourages companies to make fuller disclosure of required items in order to avoid any litigation stemming from omissionof information. A litigious environment also reduces the amount of voluntary disclosure provided as certain information can provide fuelfor a lawsuit. A society with a more individualistic approach such as the US should be less prone to communicate (provide disclosure)than a group-oriented society such as Canada. Therefore, there is a greater extent of voluntary disclosure provided in Canada becauseof greater emphasis on stakeholders and possibly because of greater awareness of the natural environment.
PricewaterhouseCoopers 13thAnnual Global CEO Survey,
PricewaterhouseCoopers(2010)
UK Base 69 64% of UK CEOs agree their response to climate change initiatives will provide a reputational advantage for their company 57% believe it will lead to new product and service opportunities 65% believe consumers will place a higher emphasis on a company's environmental and corporate responsibility practices before
making a purchase 34% are very/somewhat concerned about climate change compared to 25% in 2009 Concerns about other potential threats to growth prospects: Energy costs (49%); shift in consumer spending and behaviour (36%);
climate change (34%), supply chain security (27%), materials scarcity (21%), and biodiversity loss (14%)
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Article Authors (Year) Summary
Narrative Reporting: Analysts’Perceptions of its Value andRelevance
ACCA 2008 “environmental reporting was, for the cohort of analysts, perhaps the least read and least relevant part of the entire annual report. Analyst A14 expressed this view: ‘Corporate and social responsibility report? Forget it. Just forget it’ after which the interviewer pressed,
‘Is CSR reporting totally useless to you?’ ‘Yes!’ ‘Not material at all. There might be analysts out there who sit and read this from cover to cover but is there anything in here material
that’s going to affect the share price? No.’ ‘I know that there is an increasing demand in the market for ethical investment and those sorts of disclosures can help convince people
of the ethics of investing in companies but we’re really interested in financial performance and valuation. I’m not convinced that at themoment those sorts of considerations [such as] CSR disclosures drive share prices.’
‘I wouldn’t say they were completely useless but nothing from those sections go[es] into our models on how the companies work. Wenever write about that section at all.’
‘If banks by their lending can be held accountable for what the company does with the loan that would make it close to impossible forbanks to do anything. The environmental impact, just doing the actual report they would have to use half an entire rain forest just topublish the report.’
‘The size of the change needed was highlighted by Analyst A3, who was asked: ‘Could you ever see a situation where an environmentaldisclosure or a community disclosure would ever be material disclosure for you as an analyst?’ Yes I could. It would purely be if it wasdriven by my clients – if we end up with a huge socially responsible investment community that dominates the landscape. At themoment the sort of people, like you and I, [who] invest in our pensions [want] to have a safe retirement, it may be nice to think about theenvironment a bit on the side, but I don’t like to inlay that decision into my pension pot.’”
Managing Greenhouse Gasemissions Research report
ICAEWBUSINESSOPINION 2009
“Overall, almost two-thirds of organisations feel that they have sufficient information on best practice and guidelines on how to reducegreenhouse gas emissions.
Larger organisations (250+ employees) are more likely than others to feel they have enough information. This is possibly because theyhave more resources at their disposal to get the information they need and also potentially driven by a wider range of stakeholder andregulatory pressures to address the issues.”
“Among those that feel they don’t currently have enough information to reduce greenhouse gas emissions, better guidance andexamples of best practice would be highly motivating: 67% of those with some programmes in place, and 72% of those yet to initiateactivities, claim they would be motivated by better, practical information.”
“Overall, 61% of organisations are currently undertaking programmes or initiatives to help reduce their greenhouse gas emissions. Notsurprisingly, this is most prevalent among those that feel better informed. However, almost one in four of those that consider themselvesinformed about what they could do to reduce greenhouse gas emissions, have no specific plans in place. Conversely, it is encouragingthat even among those less well informed, a large minority have some initiatives in place, suggesting an appetite to reduce greenhousegas emissions, plus potential to increase further what they are doing to address their carbon footprint.
“There is considerable variation by size of business, with large firms most likely to have some initiatives in place.”
The kind of programmes or initiatives that are being undertaken most commonly focus on reducing energy consumption, recycling andimproving waste management. Renewable energies, more energy efficient vehicles and machinery, more stringent rules on businesstravel and reduced or improved packaging are also making a contribution.”
Seizing the initiative – ClimateChange Survey 2009
EEF Manufacturers are taking action in climate change Understanding and awareness of climate change is good, but smaller companies need support Voluntary action is becoming more commonplace but companies are sceptical about the benefits of green procurement Companies consider that addressing climate change increases their costs Manufacturers are sceptical about the business opportunity of the green economy
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Annex B: Bibliography
Aldersgate Group, "Carbon Costs: Corporate Carbon Accounting and Reporting"; 2007
Buhr N., Freedman M., “Culture, institutional factors and differences in environmentaldisclosure between Canada and the United States”; Critical Perspectives on Accounting(2001) 12, 293–322
Canada Ministry of Environment website, http://www.ec.gc.ca/pdb/ghg/ghg_home_e.cfm
Carbon Disclosure Project 2009; Global 500 Report
Carbon Disclosure Project 2009; FTSE 350 Report
Carbon Disclosure Project, “Investor Research Project – Investor use of CDP data” 2009
Carbon Disclosure Project, “Investor Research Project 2007”
CBI, All together now: a common business approach for greenhouse gas emissionsreporting 2009
CBI, "response to Defra greenhouse gas emissions reporting guidance", 2009
Climate Action Network Europe, Monitoring, reporting and permitting: NGO perspective onstrengthening the backbone of the EU ETS, 2007
Climate Disclosure Standards Board, Copenhagen Update - COP 15, 2009
Commission for Environmental Cooperation, “Chemical industry sees benefits in reportingpollutant emissions”;http://www.cec.org/Page.asp?PageID=122&ContentID=2444&SiteNodeID=463 - as of 14th
June 2010
Cormier D., Magnan M., Van Velthoven B., “Environmental Disclosure Quality in LargeGerman Companies: Economic Incentives, Public Pressures or Institutional Conditions?”,European Accounting Review, Vol. 14, No. 1,3-39, 2005
DECC 2010 - Final Impact Assessment on the Order to implement the CRC EnergyEfficiency Scheme
Defra, “Guidance on how to measure and report your greenhouse gas emissions”September 2009
Defra, “Impact Assessment of guidance on measurement and reporting on greenhouse gasemissions”, Post Consultation, September 2009
Defra “Energy efficiency and Trading Part ll: Options for the Implementation of a NewMandatory UK Emissions Trading Scheme”, April 2006
Department of Ecology, State of Washington Preliminary Cost-Benefit and LeastBurdensome Alternative Analysis Chapter 173-441 WAC Reporting of Emission ofGreenhouse Gases September 2009 Publication no. 09-02-017
Doane D., “Market failure the case for mandatory social and environmental reporting”, NewEconomics Foundation, March 2002
EABIS Research Project, Sustainable Value, Corporate Responsibility, Market Valuation andMeasuring the Financial and Non-Financial Performance of the Firm, September 2009
EEF, “Seizing the initiative”, Climate Change Survey 2009, December 2009.
European Commission, Commission Decision of 18 July 2007 establishing guidelines for themonitoring and reporting of greenhouse gas emissions pursuant to Directive 2003/87/EC of
P a g e 8 8 |
the European Parliament and of the Council (notified under document number C(2007)3416) (1)
Read more: http://vlex.com/vid/guidelines-reporting-greenhouse-emissions-36467981#ixzz0qqKweNfz
EEF, “Measuring performance – Environmental survey 2008” – June 2008
Environment Agency, Environmental disclosures, The Second major Review ofEnvironmental Reporting in the Annual Report & Accounts of the FTSE All-Share, Trucost,October 2007
Environment Agency and the Institute of Chartered Accountants in England and Wales,"Turning Questions into Answers: Environmental issues and annual financial reporting";2009
Environmental Resources Management (ERM), “Monitoring the uptake of GHGMeasurement / Assessment Tools & Links Between Tools & Emission Reductions”; January2010
Esty D., “Transparency: What Stakeholders Demand”, Climate Business, Business Climate,Special Report, Harvard Business Review, October 2007
Ethical Corporation; “Corporate Greenhouse Gas Emissions Reporting 2008; How theFT500 report on their GHG Emissions”; June 2008
European Sustainability Reporting Association's (ESRA); “The State of SustainabilityReporting in Europe: Commission Statement” March 2009;http://www.sustainabilityreporting.eu/general/downloads/ec08.pdf
Financial Executives International / Canadian Financial Executive Research Foundation,“Corporate sustainability reporting in Canada”, March 2009
Gray, R., Kouhy, R. and Lavers, S., “Corporate social and environmental disclosure”,Accounting, Auditing and Accountability Journal, 8(1), pp. 44–77 (1995)
GRI and ACCA, “High-impact Sectors: the Challenge of Reporting on Climate Change”December 2009
Hoffman A., Prepared for the Pew Centre, “Getting Ahead of the Curve: CorporateStrategies That Address Climate Change” (2006)
Hopwood A., “Accounting and the environment”, Accounting, Organizations and Society 34(2009) 433-439
ICAEW BUSINESS OPINION December 2009 MANAGING GREENHOUSE GASEMISSIONS
Kolk A., Levy D., Pinkse J., “Corporate Responses in an Emerging Climate Regime: TheInstitutionalization and Commensuration of Carbon Disclosure”, European AccountingReview, Vol 17, No 4, 719-745, 2008
Ministry of Environment Canada, Greenhouse Gas Emissions reporting Program, 2010
Nyquist S., “The legislation of environmental disclosures in three Nordic countries - acomparison”, Business Strategy and the Environment 12, 12-25 (2003)
OECD and IEA, “Reporting and Recording Post-2012 GHG mitigation commitments, actionsand support”; October 2009
OECD and IEA, “GHG Mitigation Actions: MRV Issues and Options”; March 2009
Ontario Environmental Registry, “Greenhouse Gas Emissions Reporting Regulation andGuideline” 2009 http://www.ebr.gov.on.ca/ERS-WEB-
P a g e 8 9 |
External/displaynoticecontent.do?noticeId=MTA3NzU2&statusId=MTYyNzIx as of 14th June2010
Pew Centre, The Feasibility of Greenhouse Gas Reporting, September 2002
Pew Centre, Greenhouse Gas Reporting and Disclosure: Key Elements of a ProspectiveU.S. Program, March 2002
PricewaterhouseCoopers 13th Annual Global CEO Survey, January 2010
Reid E., Toffel M., "Responding to Public and Private Politics: Corporate Disclosure ofClimate Change Strategies”, Working Paper, Harvard Business School, June 2009
Rikhardsson,Páll M, "DEVELOPMENTS IN DANISH ENVIRONMENTAL REPORTING"Price Waterhouse and the Aarhus School of Business, Aarhus, Denmark; Business Strategyand Environment, Vol. 5, 262-272, 1996 c: John Wiley & Sons
Slater. A., “Conversation: Global Reporting Initiative’s director of strategy, on how disclosingemissions benefits companies” in Climate Business, Business Climate, Special Report,Harvard Business Review, October 2007
Takemoto A., Ministry of Environment Japan, Presentation on Japan’s New Climate ChangeProgram to the US EPA 2006
The Climate Registry Annual Member Survey, February 2010
Thy C, “The Danish Green Accounts: Experiences and Internal Effects” in EnvironmentalManagement Accounting – Purpose and Progress 2003, by Benneth M, et al.
UNEP / KPMG, “Current trends and approaches in Voluntary and Mandatory Standards forSustainability Reporting (Carrots and sticks for starters)”, 2006
UNEP / KPMG, “An update on trends in Voluntary and Mandatory Approaches toSustainability Reporting (Carrots and Sticks Promoting Transparency and Sustainability)”,2010
UNEP, “Fiduciary responsibility, Legal and practical aspects of integrating environmental,social and governance issues into institutional investment”; July 2009
Unerman J., O’Dwyer B., “The business case for regulation of corporate social responsibilityand accountability”, Accounting Forum 31 (2007) 332-353
US Environmental Protection Agency website,http://www.epa.gov/climatechange/emissions/ghgrulemaking.html
US Environmental Protection Agency, Press release: EPA Finalizes the Nation’s FirstGreenhouse Gas Reporting System/Monitoring to begin in 2010 (EPA 2009-i)
US Environmental Protection Agency, Regulatory Impact Analysis for the MandatoryReporting of Greenhouse Gas Emissions Final Rule (GHG Reporting) (EPA 2009-ii)
US Securities and Exchange Commission – SEC Issues Interpretive Guidance on DisclosureRelated to Business or Legal Developments Regarding Climate Change, 2010
World Resources Institute, Comments to the United States Environmental Protection Agencyon the Proposed Rule for Mandatory Reporting of Greenhouse Gases; June 2009
World Resources Institute, Shally Venugopal, Clay Rigdon, Florance Daviet; Accounting forRisk: Conceptualizing a Robust Greenhouse Gas Inventory for Financial Institutions; August2009
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Annex C: Findings from literature review
Figure 27: Drivers of GHG reduction activities
(Source: ICAEW BUSINESS OPINION December 2009 MANAGING GREENHOUSE GAS EMISSIONS)
P a g e 9 1 |
Figure 28: Methods of encouraging GHG emission reductions
(Source: ICAEW BUSINESS OPINION December 2009 MANAGING GREENHOUSE GAS EMISSIONS)
Figure 29: Information gap in measurement of GHG emissions
P a g e 9 2 |
(Source: ICAEW BUSINESS OPINION December 2009 MANAGING GREENHOUSE GAS EMISSIONS)
Figure 30: Is the information provided on best practice sufficient?
(Source: ICAEW BUSINESS OPINION December 2009 MANAGING GREENHOUSE GAS EMISSIONS)
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Annex D: Additional results from businesssurvey
Figure 31: Survey flow chart
Section 1Backgroundinformation
Q: (1) to (7)Sector, company size, geographical presence
Section 2Climate changestrategy
Q: (10)Do you have astrategy?
Q: (12)How embeddedis the strategy?
y Q: (13)Drivers of thestrategy
Q: (14)What does itinclude?
n
Q: (11)What did itstart?
Q: (15)Details oftarget
If target exists
Section 3Reporting
Q: (16)Calculateemissions?
y
Q: (18)Reportexternally?
y
Q: (27)Plan to reportwithin 2 years?
n
n
Q: (28)Why not?
n
Go toSection 4
Q: (19) - (23)Format (years,assurance,methodology)
y
Q: (24)Why doyoureport?
Q: (29) - (34)Actual costs &benefits
Section 4Changes inemissions
Q: (17)Emissionsdata
Q: (36) - (40)Estimatedcosts &benefits
Q: (17)Emissionsdata
Surveyends
Q: (41)Change comparedto 3 years ago
Q: (42)Drivers ofreduction
Q: (43)Barriers toreduction
Fallen
Increased Q: (45)Emissions forecastfor next 3 years
Surveyends
Q: (8) to (9)Mandatory or voluntary reporting
Q: (25) - (26)Stake-holders’response
Q: (35)Wouldreportanyway?
Go toSection 3
mandatory
Q: (44)Plans toreduce
P a g e 9 4 |
Table 11: Sector breakdown for sample relative to UK companies
100%100%TOTAL
34.6%17.4%Services (professional, administrative, education, health, arts)
3.5%4.5%Real estate activities
2.0%4.5%Financial and insurance activities
6.9%11.0%Information and Communication
3.3%6.5%Transport and storage
6.2%1.9%Accommodation and food service activities
17.1%9.0%Wholesale and retail
13.5%4.5%Construction
0.3%8.4%Utilities
6.0%23.9%Manufacturing
6.5%3.9%Primary sectors (e.g. agriculture, mining, forestry)
UKcompanies
Sample
Overall
100%100%TOTAL
34.6%17.4%Services (professional, administrative, education, health, arts)
3.5%4.5%Real estate activities
2.0%4.5%Financial and insurance activities
6.9%11.0%Information and Communication
3.3%6.5%Transport and storage
6.2%1.9%Accommodation and food service activities
17.1%9.0%Wholesale and retail
13.5%4.5%Construction
0.3%8.4%Utilities
6.0%23.9%Manufacturing
6.5%3.9%Primary sectors (e.g. agriculture, mining, forestry)
UKcompanies
Sample
Overall
Figure 32: Breakdown of sample by employee size
14% 13%
4%
9%
15%
44%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Less than 50 Between 50 and
249
Between 250 and
499
Between 500 and
999
Between 1,000
and 4,999
5,000 and above
Employee size
%
Figure 33: Breakdown of sample by annual turnover
13%
4%6%
2% 3%
17%15%
38%
0%
5%
10%
15%
20%
25%
30%
35%
40%
less than
£6.5 million
between
£6.5 million
and £9.9
million
between £10
million and
£25.9 million
between £26
million and
£49.9 million
between £50
million and
£99.9 million
between
£100 million
and £499.9
million
between
£500 million
and £999.9
million
more than £1
billion
Annual turnover
%
P a g e 9 5 |
Figure 34: Costs of measurement and reporting of GHG emissions
Costs
Measurement Reporting
Set-up costs Ongoing costs Set-up costs Ongoing costs
Assurance costs
Costs
Measurement Reporting
Set-up costs Ongoing costs Set-up costs Ongoing costs
Assurance costs
Staff costs
Other financial costs
Figure 35: Please provide best available information / estimates on the employee time spent on the firstyear of external corporate reporting - setup costs
0
5
10
15
20
25
30
<1 week 1-5 weeks 6-10 weeks 11-26 weeks 27-51 weeks 52-260 weeks >260 weeks
Employee time (FTE)
%
Base 109
Don’t know 10%
P a g e 9 6 |
Figure 36: Please provide best available information / estimates on the employee time spent on the lastreporting year: – ongoing costs
0
5
1 0
1 5
2 0
2 5
3 0
< 1 w ee k 1 -5 w e e ks 6 -1 0 w e e ks 1 1 -2 6 w ee k s 27 -5 1 w e e k s 5 2-2 6 0 we e k s > 2 60 w e e ks
Emp lo ye e time (FT E)
%
Figure 37: Please provide best available information / estimates of the ongoing costs attributable to yourmeasurement of GHG emissions
10
2019
23
7
0
2
0
5
10
15
20
25
30
35
40
45
50
<1k £1000-£4,999 £5,000-£9,999 £10k-£49k £50-£99k £100k-£199k £200k
%
Assurance Costs
12
6
9
38
8
43
0
5
10
15
20
25
30
35
40
45
50
<1k £1000-£4,999 £5,000-£9,999 £10k-£49k £50-£99k £100k-£199k £200k
%
Staff Costs
Base 108
Don’t know19%
13
8
15
21
3
0 00
5
10
15
20
25
30
35
40
45
50
<1k £1000-£4,999 £5,000-£9,999 £10k-£49k £50-£99k £100k-£199k £200k
%
Other Financia l Costs
Base 97
Don’t know20%
Base 78
Don’t know41%
10
2019
23
7
0
2
0
5
10
15
20
25
30
35
40
45
50
<1k £1000-£4,999 £5,000-£9,999 £10k-£49k £50-£99k £100k-£199k £200k
%
Assurance Costs
12
6
9
38
8
43
0
5
10
15
20
25
30
35
40
45
50
<1k £1000-£4,999 £5,000-£9,999 £10k-£49k £50-£99k £100k-£199k £200k
%
Staff Costs
Base 108
Don’t know19%
13
8
15
21
3
0 00
5
10
15
20
25
30
35
40
45
50
<1k £1000-£4,999 £5,000-£9,999 £10k-£49k £50-£99k £100k-£199k £200k
%
Other Financia l Costs
Base 97
Don’t know20%
Base 78
Don’t know41%
P a g e 9 7 |
Figure 38: Total costs of measuring GHG emissions – Quoted companies
0%
5%
10%
15%
20%
25%
30%
<£25
k
£25k-5
0k
£50k-7
5k
£7
5k-1
00k
£100
k-£
125k
£1
25k-1
50k
£1
50k-1
75k
£1
75k-2
00k
£200
k-£
225k
£2
25k-2
50k
£2
50k-2
75k
£2
75k-3
00k
£300
k-£
325k
£3
25k-3
50k
£3
50k-3
75k
£3
75k-4
00k
£400
k-£
425k
£4
25k-4
50k
£4
50k-4
75k
£4
75k-5
00k
Cost range
Pro
po
rtio
no
fco
mp
an
ies
Set-up costs Ongoing costsBase 45
Figure 39: Please provide best available information / estimates of the ongoing costs attributable to yourreporting of GHG emissions
18
24
14
18
3
0
2
0
5
10
15
20
25
30
35
40
45
50
<1k £1000-£4,999 £5,000-£9,999 £10k-£49k £50-£99k £100k-£199k £200k
%
Assurance Costs
11
13 13
31
6
4
2
0
5
10
15
20
25
30
35
40
45
50
<1k £1000-£4,999 £5,000-£9,999 £10k-£49k £50-£99k £100k-£199k £200k
%
Staff Costs
Base 108
Don’t know19%
1617
11
15
5
0 00
5
10
15
20
25
30
35
40
45
50
<1k £1000-£4,999 £5,000-£9,999 £10k-£49k £50-£99k £100k-£199k £200k
%
Other Financial Costs
Base 91
Don’t know21%
Base 75
Don’t know36%
18
24
14
18
3
0
2
0
5
10
15
20
25
30
35
40
45
50
<1k £1000-£4,999 £5,000-£9,999 £10k-£49k £50-£99k £100k-£199k £200k
%
Assurance Costs
11
13 13
31
6
4
2
0
5
10
15
20
25
30
35
40
45
50
<1k £1000-£4,999 £5,000-£9,999 £10k-£49k £50-£99k £100k-£199k £200k
%
Staff Costs
Base 108
Don’t know19%
1617
11
15
5
0 00
5
10
15
20
25
30
35
40
45
50
<1k £1000-£4,999 £5,000-£9,999 £10k-£49k £50-£99k £100k-£199k £200k
%
Other Financial Costs
Base 91
Don’t know21%
Base 75
Don’t know36%
P a g e 9 8 |
Figure 40: Total costs of reporting GHG emissions – Quoted companies
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
<£25
k
£25k-5
0k
£50k-7
5k
£7
5k-1
00k
£100
k-£
125k
£1
25k-1
50k
£1
50k-1
75k
£1
75k-2
00k
£200
k-£
225k
£2
25k-2
50k
£2
50k-2
75k
£2
75k-3
00k
£300
k-£
325k
£3
25k-3
50k
£3
50k-3
75k
£3
75k-4
00k
£400
k-£
425k
£4
25k-4
50k
£4
50k-4
75k
Cost range
Pro
po
rtio
no
fco
mp
an
ies
Set-up costs Ongoing costsBase 44
P a g e 9 9 |
Table 12: Role of staff responsible for measurnment of GHG emissions
Main role Number of companies Proportion ofrespondents
Corporate managers 35 32%Engineering professionals 14 13%Environmental health officers 5 5%Administrative and secretarial role 5 5%Financial managers and charteredsecretaries
4 4%
Management accountants 3 3%Quality assurance managers 2 2%Other 42 38%
Figure 41: Staff time on reporting of GHG emissions – ongoing costs
0
5
10
15
20
25
30
35
40
<1 week 1-5 weeks 6-10 weeks 11-26 weeks 27-51 weeks 52-260 weeks >260 weeks
Employee time (FTE)
%
Table 13; Role of staff responsible for reporting on GHG emissions:
Main role Number of companies Proportion ofrespondents
Corporate managers 53 48%Engineering professionals 9 8%Administrative and secretarial role 4 4%Environmental health officers 4 4%Financial managers and charteredsecretaries
2 2%
Information and communicationtechnology managers
3 3%
Management accountants 3 3%Quality assurance managers 1 1%Other 31 28%
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Table 14: Correlation analysis on measurement of GHG emissions and climate change strategy
Calculate GHG emissionsYes No Total
Has a climate changestrategy
Yes 86% 25% 75%No 14% 75% 25%
Pearson Chi-square testChi-square 45.33 (Statistically significant at the 0.05 level)
Figure 42: How has the cost attributable to reporting GHG emissions changed relative to previousyears?
0 1
43
27
1713
0
10
20
30
40
50
60
70
80
90
100
Decreased
significantly (by
over 20%)
Decreased
somewhat (5-
20%)
Broadly similar
(+/- up to 5%)
Increased
somewhat (5-
20%)
Increased
significantly (by
over 20%)
Don't know /
Did not report
in previous
years
%
Figure 43: Non-reporters but planning to report: How important is reporting in contributing to thefollowing outcomes in your company?
0
-7
-4
-11
-15
-4
0
-7
-8
-4
-4
0
-4
-7
-4
0
-4
-4
-4
-4
-7
-4
-4
0
-4
0
-4
-4
0
-4
17
19
35
30
33
33
35
41
42
41
33
30
31
56
19
0
30
12
26
22
26
23
22
27
33
41
44
46
26
63
-20 -10 0 10 20 30 40 50 60 70 80 90 100
Other
Cost savings from carbon
Development and refinement of climate change strategy
Emissions target setting
Improvement in transparency to other external stakeholders
Development of new business lines / departments
Provision of response to stakeholder requests
Improvement in transparency of climate change issues to investors
Improvement in transparency of climate change issues to consumers
Improvement in transparency of climate change issues to board
Brand building
Emissions reduction
Cost savings from resource efficiency
Improvement in transparency of climate change issues to employees
Cost savings from energy
%
Neither /Nor
Don’tknow
Base
4% 7% 27
7% 4% 27
11% 11% 27
11% 11% 27
15% 4% 27
12% 12% 26
19% 7% 27
27% 12% 26
19% 11% 27
19% 7% 27
19% 11% 27
31% 15% 26
26% 15% 27
17% 67% 6
8% 8% 26
Neither /Nor
Don’tknow
Base
4% 7% 27
7% 4% 27
11% 11% 27
11% 11% 27
15% 4% 27
12% 12% 26
19% 7% 27
27% 12% 26
19% 11% 27
19% 7% 27
19% 11% 27
31% 15% 26
26% 15% 27
17% 67% 6
8% 8% 26
Not very importantNot important at all Important Very importantNot very importantNot important at all Important Very important
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