Similar, though more extensive requirements have been in place for longer for quoted companies, but the majority of other large companies will have had the experience of incorporating energy and carbon reporting into their annual reports for the first time over the last year or so.

“For the unlisted companies it’s a relatively new thing, some may have missed it, and hopefully been told by their auditors that they need to do it by now,” says Andrew Jones, Director, Narrative Reporting at Mazars.

However, he is not convinced that all are making good use of the data generated – it is how the reporting requirements are used that will make it a success, he says. A good deal of this has to do with the quality of data recorded by businesses.

“The carbon reporting needs more tie-in to business activity,” he adds.

“At the moment you get data on the amount of carbon that is produced, and you probably get an intensity ratio, linking carbon emissions to activity. But not a lot of it comes with a commentary of why things have gone the way they have,” says Jones.

“To be useful, data needs to be good enough to make decisions about whether a company is worth investing in as far as this is concerned.”

This is particularly relevant to large manufacturers and traditional generators of carbon emissions. With these types of business, it’s useful to tie in reporting to production, says Jones.

Challenges in reporting energy and carbon use

The basic data required of unquoted companies can be collected from utility bills, fuel usage and from the available conversion tables.

Getting more information for investors or other firms is more difficult, says Jones, because of the difference between product and company carbon reporting.

“For scope three emissions: upstream; things that you are using in business that someone else is producing, or downstream; emissions from your customers’ use of your products, then it’s more difficult, because the company that is producing the carbon report gives you company level details, when you may need product details.

“It will be quite a big ask for that company to provide, for example, carbon dioxide emissions per unit of product, when the only obligation is to produce reporting at a company level.”

It will involve a fair amount of estimation, says Jones, and skill in managing and understanding the supply chain.

“I have seen some companies move towards doing this quite well. Really quite frequently the majority of emissions are from your supply chain - it shouldn’t be beyond the bounds of possibility for even relatively small businesses to make reasonable estimates here, but that doesn’t mean it is easy.”

At present, however, unquoted companies need only report on scope one and two emissions: scope one here is the burning of fuel, gas and petrol; gas for heating, petrol only for transport, scope two is electricity. 

“You don’t have to measure industrial emissions as an unquoted company,” says Jones. “If you’re a concrete manufacturer that’s going to produce very different disclosures between a quoted and unquoted business doing the minimum.”

Improvements for reporting companies

Firms are broadly complying but improvements can always be made.

If a firm has very big industrial emissions, its reporting should be considered, although minor emissions that are not material can be discounted.

“If it’s a diesel generator to drive the lift then I’m probably happy to say that it’s not material. If it’s got several sites overseas, then it’s not good practice to omit them, even though this element would be non-mandatory. If it’s one small office in one location, then it’s less likely to be material,” says Jones.

Reports should explain the carbon emissions and energy use as fully as possible.

“When you’re describing your energy efficiency programmes, which is one of the requirements of the regulations, then please concentrate on important ones and put them in the context of the business as a whole.” says Jones.

“It’s about proportionality and putting things in context of the business, and explaining in broad terms.”

Practical tips

One of the issues companies sometimes struggle with is how to allocate emissions in shared office space or other facilities. If the companies sharing facilities are in a group this can be resolved by only reporting at the group level, says Jones.

Another question which turns up fairly regularly, is whether UK subsidiaries of foreign companies which have their own carbon reporting obligations can use the group reporting exemption to avoid having to report at the UK subsidiary level. The answer to this one is no.

Jones has a series of recommendations for firms planning their energy and carbon reporting under the new requirements next year.

• Work out where your energy use happens, and what is driving it. This is more important if your energy use is core to the business, rather than small use like lighting, heating etc. 
• Energy use ought then to be tied into the means of production: how does it fit into the business model? How does it drive that?
• Tie energy use to the finance, for accruals. When you’re doing accruals already for the rental period end for utility bills, why not build in the accruals for energy use at the same time, as it is the same ratio. This solves the problem of accounting for it to the end of the year.

Make sure you’ve got the entire scope, and you know what’s in there, and you have completeness with the data, reconcile it with your heat and fuel bills. We do see omissions here when the carbon reporting isn’t driven by the business reporting.

Streamlined energy and carbon reporting and TCFD

Jones says the energy and carbon reporting requirements interact with the metrics and targets part of the Taskforce on Climate-related Financial Disclosures (TCFD) framework. 

“TCFD asks you to consider how the carbon emissions are being built into your strategy, and how you are adjusting to climate change targets. Firms should consider their governance of these targets, and how they are measuring the risks for climate change.”

“How are you going to achieve that carbon emission reduction plan? Does the intensity measure relate to it?” asks Jones.

He suggests four considerations:

• Are figures consistent with business activity year on year?
• Do you need to produce more granular data to make the figures usable?
• Do the intensity measures tie in with your efficiency plans? 
• Can you explain changes over time?

ICAEW members can watch the following webinar on the implementation experience of the Streamlined and Energy Carbon Reporting Requirements and consider how emission disclosures can be improved in the future: Streamlined Energy and Carbon Reporting

ICAEW also has a dedicated webpage for members covering Carbon and energy reporting