Businesses Show Progress on Climate Change Reporting, But Room For Improvement Remains

The ACCA and GRI released a report during the Copenhagen Climate Change Summit that provides insight into the efforts of businesses worldwide to report on their greenhouse gas emissions and mitigation strategies.  While noting positive steps in the right direction, the report details areas for improvement.

by Abhijit Khanna, Green Economy Post

Reflective of the mixed news coming out of last week’s international climate change summit (with some politicians and environmental groups hailing forward progress while others deride the agreements as not going nearly far enough), on December 14th, 2009 the Association of Chartered Certified Accountants (ACCA) in partnership with the Global Reporting Initiative (GRI) announced a report providing insight into the efforts of companies worldwide to report their greenhouse gas emissions and mitigation strategies.  The report, entitled “High Impact Sectors: the Challenge of Reporting on Climate Change.” notes that despite encouraging signs from businesses in emerging markets such as Brazil, India, China and South Africa, standards for voluntary corporate climate change disclosures can be improved.  Better reporting is ultimately dependent on the existence of a concrete political framework.

According to Teresa Fogelberg, deputy chief executive at GRI, although governments negotiate commitments for reductions in greenhouse gas emissions, it is ultimately companies that will enact and realize these reductions.

“It is important to consider that while governments spend months and years in climate negotiations, it is companies who are in fact the proverbial elephants in the room.  What I find particularly encouraging is that we can look towards many large companies from emerging markets in China, India and South Africa as leaders who are setting concrete reduction and adaptation targets, and measuring progress made towards their targets using  a common framework.”

Similarly, Roger Adams, executive director of policy, ACCA, notes that “as reporting drives behavior, the extent to which businesses [in emerging economies] continue to embrace climate change reporting” will have a tremendous impact on mitigating climate change.  One of the findings of the report is that the reporting performance of “high impact” industries, such as aviation and oil, falls short of what investors and users of financial statements actually want.  The report also found that developed countries and Third World nations need to work more closely together in order to better cooperate.  In addition to these areas for improvement, the report included an analysis of mandatory and voluntary disclosure schemes that are currently being operated and showcase that the imperative for disclosure by businesses is growing each year.

The report provides specific recommendations of the ACCA and GRI on what specific items companies should include in their climate disclosures. These items include:

• Policy – companies policies should be detailed in their annual sustainability reporting, including their stance on climate change and any commitment to binding targets.
• Governance and strategy – disclosure of how policy is governed and managed within the organization, and how climate change issues and risks are incorporated into the core business strategy.
• Risk – companies should demonstrate a clear process for addressing business risks associated with climate change (i.e. physical, regulatory, financial and reputational risks).
• Greenhouse Gas (GHG) Emissions – the report should include trend data for emissions, as well as progress against prior targets.
• Mitigation and Adaptation – how the organization is attempting to mitigate its climate change impacts and emissions and how it intends to adapt to risks posed should be detailed.
• Credibility – to ensure credibility the report should shed light on efforts to achieve independent verification/assurance of GHG emissions data and claims.

Pursuant to providing recommendations for the model climate disclosure, the ACCA/GRI report delves into an examination of climate change reporting in general as well as an analysis limited to emerging markets. Initially the report discusses the necessity for carbon accounting and reporting by summarizing the background of scientific research into climate change (including the International Panel on Climate Change) and international efforts to address carbon emissions (specifically, the establishment of UN organizations and various meetings and protocols such as the Kyoto protocol). These efforts have provided the starting point for a framework for national GHG inventories. It is for this reason, carbon accounting (which includes the ability to identify, establish and manage inventories, set emissions objectives and targets, monitoring and analyzing performance and reporting on and assuring performance) becomes necessary.

The report then examines some of the current initiatives in place, looking first at the most prominent standards and guidelines that address the technical requirements of accounting and reporting (be they international or local; required or voluntary), and then at initiatives designed to compel or require accounting, reporting and assurance. Some of the more prominent standards that are detailed are;

• the 2006 IPCC Guidelines for National Greenhouse Gas Inventories
• the World Business Council for Sustainable Development (WBCSD) – World Resources Institute GHG Protocol
• International Standards Organization (ISO) 14064 series – Greenhouse Gas Inventories and Verification
• The Global Resources Institute G3 Indicators
• Flexible Mechanisms (Joint Implementation and Clean Development Mechanism) as defined by the Kyoto Protocol

In addition to providing further detail and background on these various initiatives, the report puts forth the caveat that as long as the accounting, reporting and verifying of GHG data remains voluntary, there will be little impetus to standardize.

The report authors then list the 11 most prevalent existing reporting and assurance schemes available, including the Carbon Disclosure Project, the European Union Emissions Trading System, the Climate Registry and the Chicago Climate Exchange to name a few. A table listing the schemes and general criteria they can be compared against is provided along with corresponding explanations of each system for interested parties. After providing this background, this section of the report concludes by describing the changing landscape of carbon disclosure and going over various efforts to develop or improve carbon accounting and reporting schemes that are in the works around the world. Some examples of these up and coming schemes include

• the Climate Disclosure Standards Board – seeking to develop a single framework for compiling climate change related disclosures.
• ISO 14067 – for the assessment of products’ carbon footprints.
• The Western Climate Initiative – a joint effort by seven US states and four Canadian provinces begun in February 2007 to develop a regional GHG cap and trade program.

Analysis of Carbon Disclosure Among Developed Nations

The second main section of the report focuses on trends in carbon reporting among high-impact sectors from 2003 – 2008 and delves into the methodology used. To obtain an adequate sample selection, the study assessed the standard of carbon reporting of a sample of 36 companies, across 15 sectors.  The sample was limited to companies headquartered in developed nations. Those companies whose reports were selected met the requirements of having published a sustainability report annually from 2003 to 2008, belonging to a high-impact sector (as defined by FTSE4Good) and being among the largest companies in the world by market capitalization. The companies were assessed along 45 criteria, grouped into 6 main groups, and assigned a score of 0 or 1 for each criteria. These scores were added up for each year to get an overall percentage score. The report provides overall results as well as results for each criteria grouping. From an overall perspective, the following findings were noted:

• 56% was the top score achieved by any company
• The average score in 2008 was 28%
• 28 of the 36 companies sampled scored less than 40%

Although the scores may appear to be less than desired, there has been an overall trend of improved reporting from year to year.

Overall carbon disclosure score by sector from 2003 to 2008

Overall Carbon Reporting Performance of All 36 Companies From 2003 to 2008.

The report provides results for each individual criteria group.

Overall carbon disclosure score broken down by each individual criteria group from 2003 to 2008

The specific six groupings for the criteria upon which each company was evaluated and summary statements for each set of results are provided below:

1. Policy – the assessment of this group was based on disclosures of organizational climate change policy, covering operations, products and the company’s “position” on binding climate change targets and the scientific consensus. Performance for this group improved from an average of 20% across all companies in 2003 to 43% in 2008.
2. Governance and Strategy – This criteria group is concerned with how companies disclose information on how climate change is managed internally, through board level ownership, committees and support from the CEO. It also covers whether the organization has explained how climate change is aligned and integrated with core business strategy. Performance for this criteria group has improved between 2003 and 2008, with average scores for all companies ranging from 12% to 29%.
3. Risk – this criteria group is concerned with disclosures on climate change risk identification and management, spanning regulatory requirements, financial risks, reputational issues and physical risks. Performance of all companies assessed against the ‘Risk’ criteria group has improved from an average of just 9% in 2003 to 18% in 2008, indicating that this was a challenging area for companies to report on.
4. GHG emissions – assessment of this criteria group is split into two parts: performance and targets. Disclosure requirements for assessment here included gross and intensity-based GHG emissions data spanning Scopes 1, 2 and 3 (as defined by the WBCSD GHG Protocol) and long-term and short-term targets for performance improvements. The average performance of all companies assessed against the ‘GHG emissions’ criteria group has increased from 21% in 2003 to 33% in 2008 – so there is a better ‘basic’ performance across the companies in 2003 but the extent of improvement is not as marked. This indicates that most companies are reporting their GHG emissions but in varying degrees of detail. Setting both absolute and intensity-based targets for climate change was also a rarity among the companies assessed.
5. Mitigation and adaptation – the criteria group was concerned with disclosures on companies’ climate change mitigation and adaptation activities, as well as their engagement with supply chains to encourage performance improvements downstream. The average performance of all companies assessed against the ‘Mitigation and adaptation’ criteria group has increased from 39% in 2003 to 53% in 2008, so to some extent this was the criteria group against which they performed best overall. This indicates that most companies are reporting on their mitigation and adaptation activities (primarily mitigation). Many companies do not clearly distinguish between mitigation (taking actions to reduce GHG emissions and to enhance sinks aimed at reducing the extent of global warming) and adaptation (taking action to adapt to the effects and minimize the risks of global warming).
6. Credibility – this criteria group was concerned with whether companies’ climate change disclosures were a credible source of information, with independent assurance of GHG-emissions data, use of emissions guidance such as the ISO Standard and GHG protocol, and the GRI Guidelines. The average performance of all companies assessed against the ‘Credibility’ criteria group has increased from 31% in 2003 to 36% in 2008, indicating that companies are (slowly) moving towards disclosing more credible information for stakeholders.

Overall carbon disclosure score by sector from 2003 to 2008

Analysis of Carbon Disclosure Among Developing Nations

The next main section of the “High Impact Sectors” report provides the results of the study when examining the climate change reporting of developing countries rather than developed ones. This portion of the study was conducted with the same methodology as that detailed in the prior section, with the exception that the sample selection was limited to companies headquartered in the BRIC + SA bloc (Brazil, Russia, India, China and South Africa), as these countries are expected to account for 75% of GHG emissions over the next 25 years. Of the 73 companies that met the selection criteria, only 32 issued a report covering sustainability related issues. Only reports from 2007 on were utilized in assessing each company against the established criteria.  General results, and results that reflect trends by sector, trends per country and results per criteria are provided. The section concludes with overall conclusions. For the final section of the report, various experts provide their perspectives on the results of the study.

The full report is available here.

© 2010, Abhijit Khanna. All rights reserved. Do not republish.

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