UK Mandatory GHG Reporting - Data Collection Begins NOW

Happy New Year from the Carbon Clear team.

A reminder for companies affected by the UK's mandatory greenhouse gas reporting regulations: If your fiscal year follows the calendar year, your 2013 financial report must include carbon footprint data for the entire year.  That means you should already be recording your greenhouse gas emissions data against Defra's new requirements.

Not sure if you're covered by the regulations? Don't know what to include in your footprint report? Want to be certain your approach follows best practice? We're here to help you make the right start - just get in touch.

Previously:

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

Mandatory Carbon Reporting: From Compliance to Competitive Advantage

Mandatory Carbon Reporting: Lessons from the CRC

Mandatory Carbon Reporting: What's the Big Deal?

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.

After Doha: Living in a 3-Speed World

It's December, and that means we're once again picking through the results of a two-week United Nations climate change conference in search of meaning.

The UNFCCC website contains the text of all the official decisions reached in Doha. There's enough in there to keep the climate policy wonks busy for days.

But what does all of this mean for day-to-day practitioners involved in the fight against catastrophic climate change? It means, among other things, that we are living in a three-speed world. The UN negotiations are meant to pave the way for a unified international emissions reduction framework, with a global emissions reduction target that trickles down to individual country governments, and then to organisations and communities. When the Kyoto Protocol was drafted back in 1992, the plan was for a coordinated approach that ensures everyone made a fair contribution to truly ambitious global emission reductions.

With each subsequent climate change conference - from Bali to Copenhagen to Cancun to Durban to Doha - the limitations of this approach have become apparent. Government negotiators bicker over details small and large, for reasons of national sovereignty, economic advantage or sheer principle. The negotiating text, consequently, has splintered into parallel tracks, each of which must be agreed by consensus by 194 countries plus the EU - no majority voting here! With each subsequent round, the pace of negotiations has slowed, and the level of ambition seemingly has diminished.

In our three-speed framework, we'll label UN-speed "super-slow".

The news is slightly better at the country level.  The UK has set an ambitious 2050 reduction target and gradually is devising measures to meet a series of 5-year carbon budgets.  Australia has implemented an economy-wide cap and trade scheme to achieve its emission reduction targets.  So have New Zealand, South Korea and California (a U.S. state with an economy larger than many nations). Meanwhile, a host of other countries are developing national and regional cap and trade schemes, implementing some form of carbon tax, or are rolling out various greenhouse gas reporting regulations and financial incentives.  And of course, the European Union has deepened the reduction targets linked to the granddaddy of GHG cap and trade mechanisms, the EU ETS.

These are encouraging moves, and can take us part-way towards our global emission reduction targets.  The problem is that these are piecemeal efforts that are dependent in most cases on the whims of elected legislatures.  It is difficult for companies that operate under this system to make long term plans when the scheme may change with the next election.  What is more, the lack of international coordination encourages "environmental arbitrage", with some companies threatening to base their business investment (and employment) decisions on the relative cost of climate change legislation in different jurisdictions. Real or not, these arguments about economic competitiveness discourage many governments from taking more ambitious action to drive emission reductions.  At the country level, then we have real signs of progress, but fragmentary and subject to reversal.  Let us call national-speed "medium-slow" but inconsistent.

And then there is the business community. Taken together, the footprints of the 350 largest listed companies on the FTSE are greater than the UK's total direct emissions.  As our carbon maturity assessment showed, many companies are going far beyond their legal obligations to tackle their climate change impact.  Some companies have already achieved reductions of 20% or more and have set reduction targets that drastically outstrip those contemplated by governments or the United Nations.  In the U.S., Walmart has reached out to its global supply chain of over 100,000 businesses to help them evaluate and improve their environmental performance.

In the UK, meanwhile, Unilever is working with its customers to help them use its products in a more sustainable manner and Centreparcs has rolled out an incentive scheme to help employees save energy at home.  Other British firms, like Marks & Spencer and Sky, have gone "carbon neutral" taking immediate responsibility for 100% of their emissions* even while they work towards longer term footprint reductions.

We may be nearing a tipping point in which the business community as a whole embraces the need for an ambitious low-carbon transformation, but most of the action to date has been confined to a handful of global leaders, and primarily consumer facing brands. The emissions-intensive extractive industries have done significantly less to measure, report, reduce and offset their footprint beyond the bare minimum required by legislation, and efforts within other industry sectors remains spotty at best.

Let us call business-visionary-speed "fast", even as we acknowledge that there are not nearly enough companies in this category.

The Doha climate change negotiators reaffirmed this three-speed model of the world. COP 18 in Doha gave us a global commitment to extend the existing Kyoto Protocol mechanisms until a new global agreement is negotiated in 2015, and this new post-Kyoto agreement is expected to come into force no later than 2020. Encouragingly, some countries and negotiating blocs unilaterally increased their reduction targets. Distressingly, many of the biggest polluters - China, the U.S., Japan, Russia and Canada - have refused to commit to "Kyoto 2", but will continue to participate in negotiations. All of this is better than no effort to reach a comprehensive agreement at all, but it lacks the sense of urgency required to keep us within the 2 degree warming target required to stave off the worst climate change impacts.

While the global-level debates dragged on nearly 48 hours beyond the official deadline, individual country governments moved faster. Maldives pledged to become carbon-neutral by 2020, while Norway has made an unconditional 30% reduction pledge below business as usual over the same period. A host of companies, meanwhile, have pledged even greater reductions and a growing number are declaring themselves carbon-neutral every day.

Speaking in 2011, Christiana Figueres, Executive Secretary of the UNFCCC acknowledged the importance of the business community in this three-speed system, noting, "It is essential that from the outset we take into account the needs of the private sector, as, in the end, it will be the engine for action."

I think Secretary Figueres's observation captures the most important lesson from the recent Doha climate change conference. This three-speed system is a reality. We will - we must - continue working towards binding agreements that ensure every nation is doing its part to reduce global emissions levels. But the importance of that effort does not diminish the impact that pioneering nations can have when they set their own targets to drive emission reductions in advance of a global pact.  If anything, it is more important than ever for those countries to show leadership so that the rest of the international community can follow suit.

And the sometimes stuttering pace of national regulations does not dim the light shone by visionary corporate leaders, who go beyond compliance to achieve ambitious emission reductions in their operations, with their suppliers and customers, and through the use of offsets beyond even the boundaries of their own footprint.  Corporate leadership in our three-speed system can give country governments the courage to increase the scale of their ambition and encourage a faster transition to a low carbon world.

Mandatory Carbon Reporting: From Compliance to Competitive Advantage

Four weeks have passed since the close of DECC's consultation on mandatory greenhouse gas reporting. That means we are now four weeks closer to the anticipated launch of the scheme in April 2013.  Now is not the time to rest easy.  We expect yet another consultation - on the guidance notes for the legislation - sometime in December.

We may have weeks or months to wait before DECC publishes the results of the legislative consultation. However, it would be a mistake for companies to wait until the final legislation is published before taking action. As I noted in a previous post, the original Carbon Reduction Commitment rules were only finalised a month before the legislation came into force.  Firms that fail to prepare in advance will find themselves at a disadvantage when it comes to complying with the new carbon reporting rules.

So what can companies do to get ready?

Many firms that need to report their carbon footprint make the mistake of leaping immediately into the data collection phase without specifying how they plan to use the resultant information.  In many cases, this approach yields a carbon footprint report that fails to generate broader benefits for the company.

We recommend that businesses take a more focused approach if they wish to get long-term value from their carbon reporting efforts.  The first step in this approach  is to determine the correct measurement and reporting strategy to pursue.  The measurement and reporting strategy will help dictate the human and financial resources the firm allocates to the initiative, the software and other data collection systems that will be employed to process the information, and even how the company will be able to communicate its accomplishments.

So what questions must the reporting team answer to determine their carbon measurement strategy?  One of the key issues is to understand the types of benefits the company expects to gain from their carbon reporting.  Is the main driver the promise of financial savings that result from better management of corporate resources, or does the business also expect to reap reputational rewards from their carbon disclosure? A logistics business focused on cost savings might go beyond the legislation to collect very fine-grained data on their fleet using a telematics solution, and then drive efficiencies through driver education. Meanwhile, a consumer facing retailer seeking reputational benefits might go beyond the requirements of the legislation in a different way and report voluntarily on a broader range of activities in its supply chain.  Each of these decisions has implications for the types of data a company chooses to collect, and the data collection tools and systems it uses to assemble this information.

Another key consideration in the determination of a company's carbon measurement and reporting strategy is the internal implementation capacity of the business.  Even with the best will in the world, a company that is unable to devote technical, financial and human resources to carbon measurement cannot achieve as much as one with a larger, more experienced team and proportionately greater budget. Understanding your resources, capabilities and limitations can help prevent over-reach and potential underperformance.

What you need, then, is an approach that is tailored to your company.  Carbon Clear has been helping firms determine their carbon measurement and reporting strategy, both in terms of the benefits they can reasonably expect to achieve and in terms of their internal capability to roll out their reporting initiative.

 Among other things, these basic criteria allow us to create a rough snapshot that plots corporate carbon measurement strategies within four quadrants, as shown below:

Carbon Measurement & Reporting Strategy Quadrants

(Copyright Carbon Clear, all rights reserved)

Every business needs a carbon measurement and reporting approach customised to their requirements.  However, we have found that this snapshot helps companies focus on the issues most relevant to their position, while avoiding the one-size-fits-all approach of some solution providers.

Companies that pursue a "Compliance" strategy tend to have limited internal capacity to implement a sophisticated measurement programme and see little reputational benefit from reporting their carbon data (perhaps because they are not consumer-facing a consumer-facing brand or anticipate limited investor pressure for carbon disclosure).  Firms in the "Compliance Quadrant" tend to follow the letter of the law. Their primary objective is to avoid any negative repercussions that result from failure to meet the legislation's requirements.  Financial savings that result from better data and efficiency improvements are secondary. These businesses may use a simple carbon accounting software package or even a spreadsheet tool to calculate their carbon footprint. 

Like their "Compliance" counterparts, firms in the lower-right "Cost Reduction" Quadrant lack strong reputational drivers for developing their footprint measurement and reporting system.  However, their strong internal implementation capability (budget, staff, management systems) means they are better able to use more sophisticated carbon accounting diagnostic tools to identify emissions hot-spots and drive footprint and cost reductions.

The upper-left quadrant, housing Performance Strategy firms, is for companies that face brand or reputational pressure to disclose their carbon performance, but who have limited ability to put in place a sophisticated measurement and reporting system.  These companies may choose to start with a basic carbon footprint report and embark on a programme of continuous improvement, that encompasses ambitious overall reduction targets.  In most cases, these firms will try to capture more and more of their total footprint as their data management capability improves over time.

Companies that stand to gain brand and reputational benefits from carbon measurement and reporting, and that have the internal capability to implement a robust data collection and management programme may find themselves in the "Leadership Strategy" Quadrant. These firms want to use their carbon reporting to demonstrate to stakeholders their commitment to environmental sustainability, achieve a high score at the top of the CDP and carbon maturity league tables, and use their carbon reporting initiative as a vehicle to engage their staff, their customers and, increasingly, their investors.  They may use more sophisticated carbon accounting tools that integrate with their accounting system and capture data for a range of other sustainability indicators at the same time.


Many companies that begin in the "Compliance", "Cost Reduction" or "Performance" quadrants may move to the "Leadership" strategy quadrant as their systems improve and as the broader benefits of carbon reporting and management become evident.  However, it isn't necessary to begin there, and many firms may be comfortable staying where they are. What it shows, however, is that there is no "one-size fits all" approach to carbon reporting.

Choosing the right carbon measurement and reporting strategy is the first step in preparing a fit-for-purpose carbon footprint report.  Getting it right requires a thorough evaluation of your company's business drivers and of your internal resources and capabilities.

These decisions will influence every other aspect of your company's response to Mandatory Carbon Reporting, so it is important to know where you stand.  The good news is that you don't have to wait for DECC to release the final details around the carbon reporting legislation before you determine the right approach.  We have already begun helping companies define carbon reporting strategies that range from compliance to competitive advantage, ensuring that they spend resources wisely and helping identify business benefits.