Businesses listed on the London Stock Exchange (approximately 2,400) will have to disclose the amount of greenhouse gases (GHG) they are emitting, as part of new regulations laid in Parliament yesterday (12 June).

The Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013 will come into force on 1 October 2013 and have effect in respect of financial years ending on or after 30 September 2013.

First announced in June 2012, the regulations will see the UK become the first country to make it compulsory for companies to disclose their emissions data in their annual reports.

The change in the reporting law forms part of the UK’s commitment to cut carbon emissions to 50 per cent of 1990 levels by 2025. It is hoped that by making businesses publically disclose their greenhouse gas emissions, investors will be able to make more sustainably-minded choices in regards to investment. It is also hoped to actively encourage businesses to reduce their carbon footprint, potentially saving four million tonnes of CO2 emissions by 2021.

Legal details

According to the regulations, laid yesterday, a business’ strategic report must, ‘to the extent necessary for an understanding of the development, performance or position of the company’s business’, include:

• the main trends and factors likely to affect the future development, performance and position of the company’s business;
• information about environmental matters (including the impact of the company’s business on the environment);
• the number and make-up of the company’s employees; and
• social, community and human rights issues.

In regards to greenhouse gas reporting (part 7 of the regulations), data must cover the six main GHG’s highlighted in the Kyoto Protocol: carbon dioxide (Co2), methane (CH4), hydrofluorocarbons (HRCs), nitrous oxide (N20), perfluorocarbons (PFCs) and sulphur hexafluoride (SF6).

The report must state the annual quantity of emissions in tonnes of ‘carbon dioxide equivalent from activities for which that company is responsible’. These activities include the combustion of fuel and the operation of any facility, including those that are mobile, temporary and marine-based.

The report must also state the annual quantity of emissions in tonnes of carbon dioxide equivalent resulting from the purchase of electricity, heat, steam or cooling by the company for its own use, and outline the methodologies used to calculate that information.

With exception of the first year of reporting, businesses will have to disclose emissions data for both the current and the previous financial years.

New reporting standards will “help build trust and confidence”

Business Minister Jo Swinson yesterday (12 June) announced that reforms, saying that they aimed to ‘simplify and strengthen’ companies’ non-financial reports and address concerns that current reporting standards have ‘come to lack clarity, confusing readers and failing to be effective in fulfilling their purpose’.

Swinson said: “In order for shareholders to fully hold a company to account they need to have the right information to hand. Annual reports are a key tool for shareholders to get a good understanding as to how a company is performing, but they need to be produced in an open and transparent way.

“This helps build the trust and confidence that shareholders, and the wider public, need to have in our top companies. By including additional information on human rights, gender representation and greenhouse gases, these changes can only strengthen that level of trust”.

Commenting on the new requirements, Paul Holland, Director in the Sustainability Advisory Services team at KPMG in the UK, said: “It’s time for companies to wake up to emissions reporting requirements. The legislation, along with new guidance also issued yesterday heralds mandatory reporting of carbon and other greenhouse gas emissions for all UK main quoted companies.

“Some quoted companies, particularly at the larger end of the market, already publish data on their emissions. But they will still need to check that their current reporting is in line with the newly published guidelines.

“A fair number of quoted companies do not currently report this data. They will need to start thinking about how they will manage to do so – and fast. We expect audit committees to be raising this and asking what plans the companies have in place to ensure compliance".

Read the Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013 or guidance on how to comply.