Although for some businesses the value of sustainability has been gathering credence over the last 10 years and leading organisations are fast recognising the benefit of managing their environmental impact, will recent legislation be what it really takes to get CFOs in all companies interested?
With Mandatory Carbon Reporting (MCR) having come into force on 6th April 2013 and as energy prices continue to rise, carbon management is no longer a luxury but a business necessity, Nathan Wimble, Commercial Director at The CarbonNeutral Company argues why now is the prime opportunity for firms to take action in managing their carbon footprint.
Companies are increasingly familiar with the benefits of measuring and managing carbon emissions – from reducing costs and unlocking new revenue streams, to improving employee and stakeholder engagement. In fact, 96% of the UK’s FTSE 100 companies and 69% of the FTSE 350 measured and reported their carbon footprint to the Carbon Disclosure Project (CDP) in 2012. Representing 722 institutional investors holding $87 trillion in assets, the CDP’s increasing influence indicates the shifting level of investor importance being aligned to management of carbon as a business risk. And to further demonstrate the point, in 2012 the CDP found that past companies on the CDP Leadership Index generated average total returns of 15.9% since 2010, more than double the 6.4% return of the Global 500.
Such evidence is just one example of why effective carbon management should be high on the agenda not only for HR/Sustainability teams, but for CFOs.
However, in the UK, the government is going a step further to ensure the challenge of reducing carbon emissions is pushed up the corporate agenda, with the introduction of Mandatory Carbon Reporting. Mandatory Carbon Reporting (MCR) came into force on the 6th April and made it compulsory for companies on the Main Market of the London Stock Exchange (LSE) to report greenhouse gas emissions in their annual reports. Putting carbon data on a par with financial data, MCR will propel environmental sustainability into the hands of the CFO and, whilst immediately impacting the UK’s largest listed companies, the domino effect of MCR will ripple downwards as larger firms inspect the environmental credentials of their supply chain.
Early Mover Advantage
In an increasingly competitive marketplace, companies have an immediate opportunity to differentiate, manage risks and meet stakeholder demand through a comprehensive carbon management programme. As operational, financial and regulatory risks related to environmental sustainability increase, rising energy prices are driving businesses to understand the true costs of their environmental impact and demonstrate real action to reduce it. A considered carbon reduction programme can monitor, minimise and control these risks. And in addition, boosting the environmental reputation of a company can do wonders for brand image and corresponding customer loyalty, plus driving positive employee and prospective employee engagement.
Understanding emissions is the first step in planning reductions and proving environmental credentials. Ultimately, immediate and decisive action is the key to gaining a competitive advantage. Even if an organisation is already measuring its footprint, the organisation and management of the data to meet the requirements of the new legislation will save time and ensure accuracy and credibility when integrating into financial reports.
Taking action to build carbon efficiency into a business and realise its powerful potential as a driver of performance,ultimately requires integration into the core of the business and leadership from the finance team to focus as much on business goals as environmental concerns. It is through this type of integration that a business will be able to differentiate from peers, demonstrate leadership and responsibility to investors, manage energy risks, and improve stakeholder relations. Plus meeting the requirements for compliance. Acting now will pay dividends.
Mandatory Carbon Reporting checklist.By considering these initial questions, firms can get on the front foot for MCR – whether they are required to act now or not. The CarbonNeutral Company provides an easy check-list for firms to follow:
- Have you determined whether you are a quoted company required to report within the terms of the regulation?
- Based on the date of your financial reporting year end, have you confirmed your first greenhouse gas (GHG) reporting year?
- Have you evaluated the impact on other GHG reporting frameworks, such as the Carbon Disclosure Project (CDP) of aligning your GHG reporting year with your financial year?
- Do you have a clear understanding of the operations for which emissions data will need to be reported, and if and how this differs from operations within the consolidated financial statement?
- If your company has established existing GHG accounting approaches, do you know if this covers all activities for which your company is responsible?
- Do you understand the full requirements of the information to be provided in the directors’ report and which GHGs are to be included in it?
- Do you know the recommended independent standards to ensure robust reporting?
- Have you chosen the intensity ratio you will express your emissions in?
- Are you confident you are fully equipped to report the information in the correct manner?
- Are the risks of non-compliance fully understood by the Board of Directors and other senior management?