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Carbon disclosures: how to reduce global divergence?

Author: ICAEW Insights

Published: 07 Nov 2024

With investors struggling to find comparable, comprehensive data on the impact of corporate climate change, a new ICAEW-commissioned study highlights disclosure disparities and offers suggestions for reporting improvements.

Analysis of disclosure in 2020/21 of climate-related emission metrics by thermal power generation companies listed in the UK and China has unveiled significant differences, highlighting continued problems of reliability and comparability for investors and global markets.

More and more governments around the world have realised that comparable and high-quality climate-related information plays a vital role in corporate carbon-emission reduction and achieving net-zero targets.

Moreover, global capital markets urgently need access to reliable, consistent and comparable climate-related information that allows investors to price climate-related risks and opportunities, and help them make investment decisions.

Yet with no set of globally agreed rules on climate-related disclosures, the ICAEW-commissioned academic study ‘Climate Disclosure: Disclosure of Climate-Related Emission Metrics: Thermal Power Generation Companies Listed in UK and China’ found substantial differences in disclosures within the UK and China, but also between the UK and Chinese listed companies.

Reporting from the UK

Authored by Zi Wei, Central University of Finance and Economics, Beijing, and Professor Richard Barker, University of Oxford, the report’s findings from the UK showed that all five sample companies disclosed most of the climate-related metrics and they all adopted the Greenhouse Gas (GHG) Protocol as their methodology. 

But it also found “considerable differences” existed in the disclosed categories of Scope 3 emissions and different approaches adopted to define companies’ GHG reporting.

As for the disclosure position of the climate-related emission metrics, most of the UK sample companies reported most of their emission metrics in both their annual report and sustainability report.

The study suggested that the UK “could focus on whether it is necessary and feasible to require companies of all the industries or all sizes to disclose Scope 3 emissions mandatorily”. 

It suggested a voluntary disclosure requirement of Scope 3 emissions could be retained for non-financial industries “until the conditions become mature” for companies to provide comparable and accurate information of Scope 3 emissions.

Another recommendation for the UK includes providing guidance on where climate-related data should be disclosed.

Since 2022, the UK has required listed companies to disclose climate-related information based on TCFD (Task Force on Climate-related Financial Disclosures) in the strategic report and directors’ report, which are included in the annual report.

Reporting from China

The findings from China revealed that just three of the five sample companies disclosed GHG emissions (Scope 1, Scope 2 and emission intensity) voluntarily in their environmental, social and governance (ESG) reports. None of the five companies disclosed Scope 3 emissions.

“The companies which voluntarily disclose GHG emissions preferred to disclose the information of GHG emissions in their ESG report only. Little GHG emission information was disclosed in the annual report,” according to the study. 

The report noted that this disclosure was different from the UK-listed sample companies, which disclosed most of the GHG emission metrics in both their annual financial report and sustainability report.

China requires companies to calculate the Scope 1 and 2 emissions based on designated methods, have the emissions verified by a third party and report to the Ministry of Ecology and Environment each year. But the ministry will not publicly release these companies’ GHG emission data.

China, the largest developing country in the world, said in 2020 that it would aim to peak carbon dioxide emissions by 2030, and achieve carbon neutrality by 2060.

“Disclosure of climate-related emission metrics can greatly improve the market efficiency of green investment and finance, which is crucial to achieving [China’s] targets”, the report said.

Policy suggestions for disclosure of GHG emissions in mainland China include the recommendation to “establish a set of GHG emissions calculation and reporting standards in line with the internationally accepted GHG accounting and reporting methodology as soon as possible”. 

The report also found that “there is no reason for GHG emissions to remain a voluntary rather than a mandatory disclosure”, given that mandatory disclosure of pollutant gases, water and solid waste in the annual report has been in place for a long time. 

Improving climate-related disclosures

Currently, there are many different initiatives that provide guidelines to boost and improve the disclosure of climate-related data. “In this plethora of initiatives, two main orientations can be distinguished. One strand is impact reporting, which is usually embedded in sustainability or ESG reports,” the report says. 

The other “increasingly influential strand” is more focused on the impact of climate issues on the company itself, rather than on external impact. This provides investors with data on how climate-related issues might impact the company’s future financial performance, the report said.

Commissioned by the ICAEW’s charitable trusts, the report is part of a series of research projects conducted in collaboration with the China Accounting Standards Committee (CASC) and falls within ICAEW’s broader Sustainable Development Goals (SDGs) research.

Read the report

Download the report by Zi Wei, Central University of Finance and Economics, Beijing, and Professor Richard Barker, University of Oxford, to read their findings in full.

Climate disclosure report cover

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