For some time the climate change responsibilities of companies have played second fiddle to other factors. The key section of the Companies Act 2006 states that, in relation to the duties of directors, environmental concerns are not statutory obligations, but simply something directors must "have regard to". However, the attitude directors must have towards environmental matters is evolving.
The changes to narrative reporting for quoted companies take effect on 1 October 2013. These include an obligation on such companies to include reporting of greenhouse gas emissions within the directors' report. In conjunction with the new mandatory greenhouse gas reporting requirement, Defra has recently issued new guidelines on a broad range of environmental reporting (which replaces previous guidance on voluntary greenhouse gas reporting) 1.
Defra's latest guidance addresses both mandatory greenhouse gas emission reporting and voluntary reporting of emissions (including greenhouse gases, waste, water and other contaminants).
It is very welcome that Defra has joined up its thinking with the Department for Business, Innovation & Skills (BIS) and coordinated this new environmental reporting initiative with the narrative reporting changes. This will encourage companies to treat reporting on environmental issues as part of their corporate narrative. However, there is also a risk that Defra has sought to be too all-encompassing and general in its approach.
An important characteristic of the new reporting requirement is that companies are not obliged to apply any common standard in a mandatory greenhouse gas emissions report, but may select a methodology appropriate to it. However, whilst no standard reporting metrics are required, one must anticipate that with time the market will adopt common metrics and comparable across sectors.
It is clear that government, as well as many in the investment community are keen to see greater provision of environmental information. The annual report and accounts is perceived to be the natural repository for this information. On the other hand, initiatives such as the FRC's work on "Cutting Clutter" seeks to keep non-financial information away from the annual report and accounts.
We are not yet at a point where there is an accepted "home" for very important, but non-financial information. What is becoming clear is that the report and accounts should not be treated as the default location, but there is not yet consensus on what should be the location. Perhaps there is a need for a second report and a slimmed down annual report and accounts.
To complete the picture, BIS has recently published a Call for Views on Corporate Responsibility and is clearly now of a view that responsible corporate behaviour and programmes to demonstrate this is behaviours expected of corporates.
Footnotes
1.The new Defra guidelines are available at https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/206392/pb13944-env-reporting-guidance.pdf .
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