The Business Case for Carbon Accounting and Verification
More and more companies are accounting for, and publishing, their carbon footprint, often as a part of their corporate responsibility report. The UK Government announced in June 2012 that it is to introduce mandatory emissions reporting for all quoted companies; the date of introduction is still to be confirmed but it may be as early as April 2013. In France, it will be mandatory for all companies with more than 500 employees, local governments of more than 50,000 people and schools of more than 250 people by to report by the end of 2012.
The benefits of carbon accounting are clear: if you can't measure it, you can't manage it. However, for carbon accounting to be meaningful, it needs to be accurate. At the present time, the methodologies that companies use to report on their emissions vary widely in both their scope and accuracy. This is where there is the need for Carbon Reporting Verification. Auditing and Verification are common terms in the financial accounting arena, with companies' annual reports being scrutinised to ensure they give a true and fair view of the company's activity in line with generally accepted accounting policies. In a similar manner, ISO14064-1:2006 is the International Standard for GHG reporting. Good companies out there are reporting their emissions annually, but the best companies out there are not only reporting, but also having their reports verified by a third party to scrutinise them in line with ISO 14064. ISO 14064 verification covers Scope 1 direct emissions and Scope 2 emissions from purchased electricity, heat and steam. Scope 3 (indirect emissions) are discretionary.
So, what is the point in going that step further and bringing in the third party verifiers?
- Integrity - allowing a third party to check any reported figures demonstrates integrity on behalf of the organisation.
- Transparency - there is a need to demonstrate a clear and appropriate methodology for how all figures have been determined.
- Accuracy - third party verification provides a 'check' to ensure that all figures reported are correct.
- Comparability - having figures verified to a standard methodology allows for comparability between reporting organisations.
- Standardised methodology - to receive verification, a standardised approach must have been followed. This will allow accuracy as well as comparison over time and across organisations.
- Shareholder Pressure - good carbon accounting practices exhibit to shareholders that a company is effectively managing its climate risks. The Carbon Disclosure Project (CDP) collates emission disclosures from thousands of listed companies each year. It works on behalf of 655 institutional investors who have an interest in the risks faced by these organisations. In its scoring and ranking methodologies, the CDP heavily favours companies that have had their reports externally verified.
- A level playing field - reporting to a standardised methodology that has been externally verified ensures that all organisations are reporting to a level playing field. This ensures that all companies will endure similar reporting costs and efforts, this not harming competitiveness.
More generally, if companies are going to be asked to mandatorily report, there is little point in the process if the reported figures are not meaningful; and for that we need third party scrutiny. Unfortunately, in the case of the UK, although reporting will be mandatory, verification will not be required. This is a missed opportunity and it can only be hoped that verification of emissions reporting will be the next step.
Verification is not a substitute for the various tools and methodologies that are available to assist companies in their carbon footprinting missions: Global Reporting Initiative, Bilan Carbone (in France) and Infosys' Enterprise Sustainability Reporting Solutions for example. Verification sits alongside these tools and methodologies to ensure the process is compliant with published standards. As with financial reporting, most organisations will require a suitable software platform that can manage the carbon data and processes in a similar manner to corporate financial accounting.
Carbon accounting verification is still in its relative infancy. Mandatory carbon reporting for organisations being led by countries such as the UK and France demonstrates a step in the right direction to us truly getting some way to accurately and meaningfully reporting the "planet" in the triple bottom line of people, planet, profit.