Burgess COMMENTARY

Peter Burgess

ENERGY & CARBON MANAGEMENT ... Will dodgy numbers in your MCR report really matter?

The uncomfortable reality of Mandatory Carbon Reporting is that company reputations may be at stake as the numbers are picked through by stakeholders and competitors. Beware warns Shaun Bainbridge.

Mandatory Carbon Reporting or “em cee arr” as it is affectionately known took its final leap to reality last week when the government announced that it had been written into law. The carbon legislation was wrapped up in a series of amendments to the Companies Act 2006 and was signed off by Department for Business, Innovation and Skills (BIS) on 6th August. Just a quick point of clarity here as many people are confused – from here on the involvement of BIS ends and the scheme will be administered by Department for Environment, Food and Rural Affairs (DEFRA) and enforced by the Financial Reporting Council (FRC).

That’s as far as I go on the technical detail. If you want the nitty-gritty, read our white paper.

On the face of it, the legislation will bring about just a small change to the way annual reports look with the inclusion of a short section on the company’s emissions of Greenhouse Gases which is signed of as part of the Directors’ report. However, behind the signed-off carbon numbers in the Directors’ report there is a lot of work in measuring and reporting the correct numbers. There is the uncomfortable likelihood that reputations may be at stake as the numbers are picked through by stakeholders - shareholders, consumers and staff - and competitors!

Some companies have seen their environmental reporting numbers and methodologies pulled apart in the public domain with some quite hilarious headlines:

• A large German power group over-reported sulphur emissions by a factor of 1000 by using kilotonnes instead of tonnes for three years in a row.
• A Swedish pulp and paper group were unaware that they owned a significant business until researchers pointed out that it was a subsidiary of a recent acquisition.
• A coal fired power station in Germany was omitted from the carbon footprint of both the power company and the major car producer it provided electricity to. Each one assumed it was under the operational control of the other!
• A major Italian energy company reported in 2009 that its total carbon dioxide emissions were 122,089 million tonnes - four times the global total that year!!
• An international car manufacturer said in 2004 that it generated more mineral waste in North America than in the whole world, including North America!

Back to MCR. No one really knows how companies who report erroneous data will be treated by the regulator and if a gentle “lead in” will be given as the regulation “beds in”. How quickly the FRC shows its teeth is unknown. What is apparent is that the numbers will be publicly scrutinized by others.

Independent verification of these numbers by Greenhouse Gas or “carbon” auditors is not part of the legislation but DEFRA recommends independent verification to add to the accuracy and robustness of the exercise. Additionally, having the checks done by an accredited verifier enables the numbers to be publicly endorsed by UKAS, the UK’s accreditation body, if certain other requirements are met. This is a bonus and allows companies to add marketing value to an otherwise dull mandatory engagement.

Of course, as an accredited GHG auditor we would say that, wouldn’t we?