UK companies need to improve their carbon emissions reporting, according to new research.
The study uncovered big spikes in reported emissions, suggesting unexplained volatility. The examination of FTSE 350 disclosures, led by international accounting firm Mazars, revealed almost a fifth of companies report changes of more than 25% in emissions, a range described by the researchers as “out of line with changes in underlying businesses”.
Where explanations were provided, they were “not as elaborate or developed as would be expected for similar changes in profit or revenue”.
The research comes in the year UK businesses face new reporting requirements for carbon emissions. Alexia Perversi, global audit and assurance director at Mazars, said: “Our research shows that current disclosure is not fit-for-purpose and is in many cases a box-ticking exercise that does not appear to be integral to the way management runs the business.
“Producing meaningful disclosures is not easy. Boards and management teams need to direct efforts into producing meaningful information that meets investors’ needs. Focus should be on substance rather than just form.”
Mazars believes companies need to offer better explanations, particularly for big changes, and focus on collecting reliable data.
Supply chains may be another issue. The Carbon Disclosure Project, a not-for-profit campaigning for better disclosures, says just 29% of suppliers reported cuts in emissions in 2019. According to Frederik Dahlmann of Warwick University, businesses need to focus on their suppliers if they are to report and cut emissions.
“Sustainability has become the issue of this generation,” he wrote. “If businesses are to prosper in this climate, they need to include their whole supply chain to claim they are truly on the planet’s side and not be accused of creative carbon accounting.”
The Mazars study comes at a time when doubts have been thrown on sustainability reporting elsewhere. In a recent paper, academics from Oxford Brookes University found that 72% of FTSE 100 companies used “very narrow reporting boundaries” for their sustainability reporting.
Dr Samantha Miles, a reader in accounting and finance at Oxford Brookes, said her findings offered a “worrying picture” of sustainability in some companies. Some could even be described as “greenwashing” she said, because they chose a reporting methodology that amounted to a “promotion exercise” focused on “reputation management” rather than accountability.
Sustainability in the spotlight
Both reports come as corporate leaders gathered in Davos to devote their discussion to “stakeholder” capitalism, with sustainability top of the agenda. Donald Trump attended to label environmentalists “prophets of doom”, while the teenage campaigner Greta Thunberg appeared to castigate politicians and corporate leaders alike.
“Any plan or policy of yours that doesn’t include radical emission cuts at the source, starting today, is completely insufficient for meeting the 1.5-degree or well-below-2-degrees commitments of the Paris Agreement,” she told dignatories at World Economic Forum conference.
Meanwhile, governance experts writing for the Harvard Law School Forum on Corporate Governance said that environmental and social aspects of ESG were now the leading item on governance agendas around the world, as companies realign themselves to focus on sustainability, purpose and climate.
“For the first time, in 2020, we see the focus on the ‘E’ and the ‘S’ of environment, social and governance (ESG) as the leading trend globally, including in the United States, where it traditionally has not received as much attention by boards,” wrote Rusty O’Kelley and Anthony Goodman. “Indeed, many of the key global trends for 2020, such as board oversight of human capital management (HCM), can be seen as subsets of ESG.”
They added that board members and management are “mostly playing catch-up” on how to define and integrate environmental and social principles into their strategies and policies.
“In 2020, boards will be expected to strengthen their oversight and knowledge of material E&S matters and disclose their connection to the business in the form of risks and opportunities,” they added.
“We expect to see a consensus emerge around reporting frameworks such as the Task Force on Climate-related Financial Disclosures (TCFD) and Sustainability Accounting Standards Board (SASB) to help guide companies when reporting on E&S criteria. ”