Wednesday, 19 December 2012

Defra's Mandatory GHG Reporting: Some Answers, Even More Questions

The UK's Department for the Environment, Food and Rural Affairs (Defra) has been holding consultation workshops over the last three days to get feedback on the proposed guidance document for the Mandatory Greenhouse Gas Reporting legislation that will go through Parliament next year. Carbon Clear and other members of the industry organisation we helped found, ICROA were on hand to lend our expertise and learn more about Defra's intentions.

There have been a few changes to the proposed legislation since the consultation draft was released in July. Most notably, companies now have to include their GHG emissions totals in their Directors' report only for fiscal years ending after 1st October 2013. This is a change from the 1st April date that Defra originally proposed, but there is no time for complacency.

If your company's fiscal year follows the calendar year, you need to start collecting your data as of 1st January - two weeks from now.  Are you ready?

Defra clarified that the GHG footprint report should state totals in terms of carbon dioxide equivalent (CO2e), but that companies should be including emissions data from the 6 main Kyoto gases (carbon dioxide, methane, nitrous oxide, perfluorocarbons, sulfur hexafluoride, and hydrofluorocarbons). The newest addition to the Kyoto greenhouse gas list, nitrogen trifluoride (NF3) has been excluded from the list - according to Defra's representative at the consultation, they cannot include it until Parliament amends the Climate Change Act.

One of the concerns we heard during the initial consultation process was that Defra seemed to be reinventing the wheel - coming up with its own footprint boundary definitions that do not match the ones used by popular standards like ISO 14064-1 and the WBCSD/WRI GHG Protocol. It turns out there is a reason for the discrepancy - the new requirements integrate with the country's largest pieces of existing legislation, the Companies Act. What is more, the reporting legislation does not oblige businesses to use a specific standard. As a result Defra has attempted to develop their carbon measurement rules using terminology consistent with the Companies Act, and in a way that does not give preference to any one existing footprint standard. Easier said than done!

This approach means that there is still considerable ambiguity in the legislation and even in the guidance documents.  Questions remain about the use of intensity ratios, Defra's definition of Scope 2 emissions, whether and how companies can include their emissions from agricultural and land use activities, and range of other subjects.  While the final draft of these documents will address some of these points, they will still leave room for interpretation by companies, assurance providers and - importantly - enforcement authorities.

Defra has, importantly, clarified the enforcement aspect of the legislation. They note that the Conduct Committee of the Financial Reporting Council will enforce the provisions of the legislation, and can use section 456 of the Companies Act to obtain a declaration that the annual report of a company does not comply with the requirements of the Act.  They also note that Section 397 of the Financial Services and Markets Act means a person who makes a misleading or false statement is liable to a fine or up to six months' imprisonment. These enforcement measures make it more important than ever for companies to ensure their carbon footprint report meets the requirements of the law.

Carbon Clear will continue working with companies throughout the year to help them assess their readiness for Mandatory Greenhouse Gas Reporting, and put in place measures to comply with the requirements of the law. Please contact our carbon advisory team to find out what you should do next.