Last reviewed 3 September 2013

John Barwise summarises the requirements for mandatory GHG reporting under current legislation.

From 1 October 2013, the Companies Act 2006 (Strategic and Directors’ Reports) Regulations 2013 will require companies listed on the London Stock Exchange to report annual greenhouse gas (GHG) emissions in their directors’ report. Around 1100 of the UK’s largest quoted companies are affected by the new regulations. Currently over 60% of the UK’s GHG emissions are regulated by the EU Emissions Trading Scheme (ETS) and the Carbon Reduction Commitment (CRC). The new regulations extend the reach of companies that must report GHG emissions.

The 2013 Regulations will provide a transparent GHG reporting format that companies can use to manage climate change impacts, set targets for future emissions reductions and demonstrate their commitment to sustainability to shareholders and other stakeholders. Mandatory GHG reporting is welcomed by the Climate Disclosure Standards Board (CSDB), whose members are drawn from business and environmental organisations. Industry bodies have also given their backing to the new reporting initiative. In a recent news release Rhian Kelly, CBI Director for Business Environment, said: “Mandatory carbon reporting is a great way of making boardrooms aware of the savings possible through energy efficiency. To be effective, it is important that the Government phases in the introduction of mandatory reporting and makes the process simple for companies to follow.”

Summary of regulations and requirements

Below is a summary of the regulations and the requirements for mandatory GHG reporting.

The current draft Statutory Instrument (SI) 2013 Regulations Part 3 covers amendments to the directors’ report and outlines the seven key aspects that must be included. Part 7 relates to the disclosures in relation to GHG emissions. For the purposes of meeting the regulatory requirements the following definitions apply.

  • “Emissions” means emissions into the atmosphere of a greenhouse gas as defined in s.92 of the Climate Change Act 2008(a) that are attributable to human activity.

  • “Tonne of carbon dioxide equivalent” has the meaning given in s.93(2) of the Climate Change Act 2008.

Compliance dates

The regulations come into effect on 1 October 2013 and require GHG reports to be produced annually in line with financial years ending on or after 30 September 2013. A GHG statement must be included in the directors’ report for the first financial year ending on or after 30 September 2013.

Summary of reporting criteria

All greenhouse gases defined in s.92 of the Climate Change Act are included — carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs) and sulphur hexafluoride (SF6). Details can be expressed in tonnes of carbon dioxide equivalent (CO2e). The range of activities covered includes operations of any facility and the combustion of fuel, plus the carbon dioxide equivalent for the purchase of electricity, heat, steam and cooling used by the company.

Emissions from these sources are broadly defined within Scope 1 and 2 emissions outlined in the Kyoto GHG Protocol. Some Scope 3 emissions that are not owned or controlled by a company (eg imported mining and other resources) need not be included, which indicates that total embodied GHG emissions may still not be fully accounted for in directors’ reports. However, where it may not be practical to obtain all the information, the directors’ report must state what is omitted and why.

Calculation procedures

The Guidelines for Company Reporting of GHG Emissions produced by the Department for Environment, Food and Rural Affairs (Defra) provide protocols for estimating the amount of GHGs emitted using activity data, including the amount of fuel used and conversion factors, such as calorific values. The methodology for Defra’s 2012 Guidelines to Defra/DECC’s GHG Conversion Factors for Company Reporting is available online.

Key performance indicators

Further guidance is also available to help companies determine key performance indicators (KPIs) for reporting GHG emissions. The guidance covers information on how to measure and report each KPI identified, including both direct KPIs such as operational impacts (eg vehicle fuel and gas) and indirect KPIs such as energy use, water and logistics. Templates for logging data are provided to illustrate how the data can be presented.

Reporting methodologies

There is no prescriptive methodology in the regulations for reporting emissions, although GHG emissions reporting guidelines were published in July 2013 and are now available from Defra. The guidelines adopt a step approach to organising the reporting framework including determining boundaries (eg operations and operational control boundaries), the data collection period, key impacts (eg KPIs), collecting and measuring data and reporting contents (eg summary, how to manage impacts and progress against targets).


According to the regulations, the directors’ report must state at least one ratio that expresses the quoted company’s annual emissions in relation to a quantifiable factor associated with the company’s activities. For example, one ratio factor could be the emissions per unit of sales revenue or floor space. With the exception of the first year, the directors’ report must also state the information disclosed in the preceding financial year’s report.

Verification of GHG report data

The Conduct Committee of the Financial Reporting Council monitors annual reports and accounts to ensure compliance with the requirements of the Companies Act. At present there is no statutory requirement for the GHG emissions data in the directors’ report to be independently verified. However, financial statements are audited and the auditor is required to check that there are no material discrepancies between the GHG disclosures and the financial statement. Verification is also included in ISO 14064: 2006, the international standard with guidance for quantification and reporting, which includes requirements for the design, development, management, reporting and verification of an organisation’s GHG inventory. ISO 14064 is now used extensively both in the UK and elsewhere by companies wanting to demonstrate their commitment to emissions reduction. Further details are available from the International Organization for Standardization.

In summary, the UK’s mandatory GHG regulations represent a renewed commitment to encourage businesses to measure and report GHG emissions and will compliment other initiatives such as the EU ETS and CRC. Scope 3 emissions are not included and therefore the issue of accounting for all embodied carbon in company products and services is still unresolved.

Still to come

The Government has outlined further plans to introduce a new Energy Savings Opportunity Scheme (ESOS), as part of our requirement under the European Energy Efficiency Directive. Larger businesses with more than 250 employees or an annual turnover of over €50 million will take part in the scheme, with enabling legislation in place by 2014.

Further details will be published on Croner-i as more information becomes available.