Will more environmental disclosures have to be made in the directors’ report?
On 11 May 2011 the Department for Environment, Food and Rural Affairs (Defra) launched a consultation document (the Document) on four options for the reporting of greenhouse gas (GHG) emissions by companies. The Document can be read here.
The consultation invites responses on:
- Whether regulations should be introduced to make it mandatory for some UK companies to report on their GHG emissions,
- Or whether the Government should continue to encourage measuring and reporting of GHG emissions on a voluntary basis.
Any new GHG disclosures would need made in the directors’ report that is required to be contained in a company’s annual report by Chapter 5 of Part 15 of the Companies Act 2006 (the Act). The requirement for such mandatory disclosures would be introduced by making regulations under the Act.
The Climate Change Act 2008 and the Government’s desire to reduce regulation
Section 85 of the Climate Change Act 2008 requires the Government to make regulations by 6 April 2012 requiring the directors’ report of a company to include information about GHG emissions, or to lay a report before Parliament explaining why no such regulations have been made.
The consultation seeks to gather views from business and other interested parties as to what to do about this section 85 requirement. The Document states that any decision to make new regulations in response to section 85 has to be balanced against the Government’s key priority of reducing regulation and so “Ministers will consider the potential impacts on business of regulatory as well as non-regulatory options”.
The four options
The Document considers four different options, including a voluntary approach, designed “to promote more widespread and consistent reporting by companies of GHG emissions”. Those options are:
- Enhanced voluntary reporting.
- The mandatory reporting of GHG emissions in the directors’ report for all quoted companies.
- The mandatory reporting of GHG emissions in the directors’ report for all “large” companies.
- The mandatory reporting of GHG emissions in the directors’ report for all companies whose UK electricity consumption exceeds a threshold.
Defra produced guidance in 2009 for companies wishing to measure and report in their GHG emissions. That guidance can be read here.
Interaction with BIS’s work on narrative reporting
The Department for Business, Innovation and Skills (BIS) is currently working on changes to quoted companies’ narrative reporting requirements generally, as we discuss in this post. Defra acknowledges the need for its approach on GHG reporting to take account of the Government’s policy approach to the narrative reporting framework as a whole. BIS will be consulting on its detailed proposals for narrative reporting in early summer and the Document states that if Defra does introduce new regulations on GHG disclosures, its approach will be aligned with BIS’s proposals for a clearer and more focused reporting framework.
The consultation closes on 5 July 2011.
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