The Climate Change Act 2008 saw the UK government legally bind the country to reduce greenhouse gas emissions (GHGs) by 34% by 2020 and 80% by 2050. The Act was a firm commitment by government as it sought to take a lead in reducing greenhouse gas emissions and transitioning to a low carbon economy.
DEFRA has been clear that reductions of this scale need a change in behaviour from UK business. It wants companies to measure and report their GHGs - as Ed Milliband recently stated ‘what gets measured gets managed’.
The legislation set out a clear timeline under which DEFRA issued guidelines for voluntary reporting in October 2009 and will determine the extent of mandatory reporting by April 2012. Whilst not yet mandatory, the rising tide of stakeholder awareness and interest in environmental issues points towards mandatory reporting and the auditing profession is seeing increasing requests to provide assurance on emissions reports and the trend looks set to grow.
In response to the rapid increase in interest, the International Auditing and Assurance Standards Board is developing a bespoke greenhouse gas emissions assurance framework and has recently undertaken a consultation exercise with the profession. BDO, through its GHG Task Force, has submitted a response to this consultation to ensure the framework meets the demands of reporting in a complex and unique area. The GHG Task Force, established recently to promote awareness of emissions reporting and deliver commercial solutions to our clients, consists of representatives from across BDO’s service streams internationally.
To achieve the challenging targets, the government wants all companies, charities and public sector organisations to measure and report their emissions. Lobbyists, including the CBI, continue to push for proportionate size thresholds for mandatory reporting.
What seems clear is that the rising levels of consumer focus on emissions provides an opportunity for early movers and represents a commercial risk to those that fail to adapt.
The form and content of GHG reporting remains an evolving area but both DEFRA guidance and the internationally respected GHG Protocol for accounting and reporting emissions have helped create a compliance framework. Businesses can expect to be reporting key emissions against a baseline with clear and transparent explanation of scope, methods of calculation, carbon offsetting and changes to their approach. Assurance reports are increasingly demanded by stakeholders and the evolving assurance framework will apply many of the principles of financial reporting audit and assurance to this new area of the business.
Mandatory reporting from 2012 will need UK businesses to start preparing well in advance of that date. As with financial reporting, the reporting of emissions will require investment in systems and controls to capture data which is rigorous and comparable, particularly as the information required is not routinely recorded by financial based systems. Similarly, reporting will need investment in people to provide the technical expertise to understand and apply the reporting frameworks, make key judgements and manage the reporting process.
Importantly, even without mandatory reporting, measurement and control of emissions is becoming increasingly important to consumer brand perception and is forming an increasing part of the scorecards of procurement departments within large corporate and government bodies. Against this backdrop of stakeholder pressure and increased legislation, UK business has work to do.
If these issues are relevant to your business then please contact Ian Plunkett, Head of Manufacturing & Industrial Markets and partner in BDO’s multi-disciplinary Energy & Environment team on 0207 893 2628 or Ryan Ferguson, MIM Audit Manager and GHG Task Force project lead on 0207 893 3745.