UK: Mandatory Greenhouse Gas Reporting For UK Quoted Companies

Last Updated: 25 September 2013
Article by Malcolm Dowden
  • Quoted companies incorporated in the UK are subject to mandatory greenhouse gas (GHG) reporting requirements
  • Although the new Regulations come into force on 1 October they have retrospective effect, applying to any company financial year ending on or after 30 September 2013
  • Although binding only on quoted companies, voluntary compliance with the Regulations is highly advisable for private companies aspiring to or preparing for IPO.

On 1 October 2013 new regulations1 come into force requiring UK quoted companies to report on the greenhouse gas ("GHG") emissions for which the company is responsible worldwide. Although only coming into force on 1 October, the regulations have retrospective effect as they apply to any company financial year ending on or after 30 September 2013. Consequently, many companies falling within the new rules must obtain and report on emissions for periods dating back to the beginning of their financial year 2013 - 2014. For example:

The regulations were originally due to come into force in April 2013, but were delayed until October to coincide with other changes to company reporting requirements implemented on that date. One result of that delay is a need to ensure that backdated information is captured and included within the reports.

Quoted companies

The regulations apply to companies that are:

  • incorporated in the UK, and
  • whose equity share capital is:
    • officially listed on the main market of the London Stock Exchange, or
    • officially listed in a European Economic Area State, or
    • admitted for dealing on either the New York Stock Exchange or NASDAQ

Comply or explain

The regulations adopt a "comply or explain" policy to promote transparency and to recognise that the scale and complexity of a quoted company's global operations might make it extremely difficult to obtain reliable data, whether in respect of specific emissions, geographical locations or processes. Where that is the case, the company is required to identify and explain any significant gaps in its data.

The Financial Reporting Council Conduct Committee is responsible for enforcing the regulations. While aiming to work with companies to ensure compliance, the Committee has power to:

  • enquire into cases where it appears that relevant disclosures have not been Provided
  • apply to court for:
    • a declaration that the annual reports or accounts of a company do not comply with the requirements, and
    • an order requiring the directors to prepare a revised report or accounts

Non-compliance may also constitute an offence under Companies Act 2006:

  • Offence A: failure to produce a directors' report, s 415
  • Offence B: failure to comply with disclosure requirements, s 419
  • Offence C: untrue or misleading statements, s 469

Penalties under the Companies Act 2006 regime range from a fine of up to £5,000 on summary conviction to an unlimited fine following conviction on indictment for more serious or extensive offences.

There is also the possibility of civil liability to shareholders for negligent - or possibly even fraudulent - misstatement.

Where must GHG information be reported?

Information on GHG emissions must be set out in the Directors' Report, which is the narrative section of the annual report. Information may also be included in the Strategic Report if it provides information about environmental matters necessary for an "understanding of the development, performance or position of the company's business". Information must be included in the Strategic Report if it is considered to be "material".

What is "Material"?

Under the International Financial Reporting Standard 4.1 (Presentation of Financial Statements) omissions or misstatements of items are material if they could individually or collectively influence the economic decisions that users make on the basis of financial statements. Materiality "depends on the size and nature of the omission or misstatement judged in the surrounding circumstances".

In practical terms, the question is whether including information on GHG emissions would provide an insight into (i) the company's main objectives and activities, and (ii) the principal risks it faces and how they might affect future prospects.

Organisational Boundaries

When reporting on its GHG emissions a company falling within the regulations must define its own "operational boundaries". A UK quoted company is expected to report on GHG emissions for which it is responsible worldwide, with the concept of "responsibility" extending to the operation of companies within a group and to business operations in other jurisdictions.

When fixing its operational boundaries for reporting purposes, a company may adopt an approach based on:

  • Financial control
  • Operational control
  • Equity share tests, or
  • Boundaries established in accordance with the Climate Disclosure Standards Board (CSDB) Climate Change Reporting Framework

The regime is based on the "comply or explain" principle. In this context, a company must make it clear if (and why) it has fixed its organisational boundaries in a way that excludes certain operations or geographical regions.

Organisational boundaries may also be set in terms of time. For example, a company may elect to report on certain GHG emissions for a twelve month period differing from the company's financial year. However, if any such decision is made it must be disclosed and explained in the Directors' Report. Further, DEFRA guidance states that if emissions are reported for a period differing from the company's financial year, the majority of the emission reporting year should still fall within the period covered by the Directors' Report.

The objective is, in part at least, to prevent a company excluding from its report significant emissions attributable to an activity that ended during the current financial year or that began late in the current financial year. The requirement to "comply or explain" is intended to close down the scope for reporting on a selective basis to produce a misleadingly favourable picture.

What must be reported?

The new regulations require quoted companies to report the annual quantity of emissions in tonnes of carbon dioxide equivalent from activities for which the company is responsible, including:

  • The combustion of fuel
  • The operation of any facility
  • The purchase of electricity, heat, steam or cooling by the company for its own use.

The report must cover the "Kyoto" GHGs: carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs) and sulphur hexafluoride (SF6). In calculating its information a company must use at least one "intensity ratio", expressing its annual emissions in relation to a quantifiable factor associated with the company's activities.

From the second reporting year onwards information from the first or "base" year must be presented alongside that of the reporting year to provide a rolling indication of changes (whether favourable or unfavourable) against the initial intensity ratio. The objective is to encourage behavioural change.

Deciding on responsibility

Each company is required to decide whether it is responsible for particular GHG emissions. Guidance issued by DEFRA acknowledges that the decision is not always straightforward, for example where buildings or assets are leased by or to the quoted company.

As a rule of thumb, DEFRA guidance suggests:

Where a lessee is not responsible, the presumption is that the lessor is responsible. The objective is to ensure that GHG emissions are captured, but not double-counted.

Special rules also apply to GHG emissions from sources that ought not to be wholly attributed to the reporting company. For example, carbon dioxide released by combustion of biomass for electricity or heat generation, or from processes such as industrial fermentation, should be reported separately. This is because carbon dioxide would in any event be likely to be released from those sources through natural decay. However, GHGs other than carbon dioxide released by those processes might fall within the company's reporting obligations. While natural decay might release sequestered carbon dioxide, it would not release nitrous oxide or methane associated with combustion or other industrial processes. Consequently, where biomass is used by a company it must decide whether those other GHG emissions are sufficiently "material" to require disclosure.

Overlap with other reporting regimes?

Quoted companies affected by the new regulations are already likely to be subject to reporting requirements - in particular those under the CRC Energy Efficiency Scheme, which has been in operation since 2010.

The new regulations are more extensive than CRC as they cover the full range of "Kyoto" gases. CRC, by contrast, is concerned only with carbon dioxide emissions. As with the special rules applicable to biomass combustion, a company falling within the CRC regime must decide whether GHG emissions such as methane and nitrous oxide, emitted in small quantities when fuel is combusted to generate electricity, ought to be reported.

Acting now to avoid non-compliance

A company's compliance is assessed after the end of its reporting year, and on the basis of its Strategic and Directors' reports. The new regime is firmly based on the principle of "comply or explain", meaning that the enforcing authority is bound to be at least as concerned with omission as with actual statements. The retrospective effect of the regulations must be taken into account. If data has not already been collected and analysed, it must be in place when those reports are being prepared, or its absence credibly explained.

Footnotes

1. Companies Act 2006 (Strategic Report and Directors' Report) Regulations 2013, SI 2013/1970

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Malcolm Dowden
 
In association with
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.