What is Corporate Reporting?
Corporate reporting – also known as GHG Reporting, Carbon Footprinting, or creating a GHG Inventory for example – is the act of reporting a company’s (or organisation’s) emissions in a manner that preferably adheres to the following principles as defined in the WRI GHG Protocol[1]:
- Relevance – ensuring the reported emissions reflect the reporting company within a determined “inventory boundary”
- Accuracy – ensuring the reported data is no an under- or overestimate as far as possible
- Completeness – the faithful accounting of a company’s GHG emissions within the boundary justifying exclusions
- Transparency – refers to the manner in which the data and reporting process is undertaken; there should be an audit trail to aid internal (and external) verification
- Consistency – consistent, credible methodologies should be used to accurately measure emissions clearly documenting this
In a world, where the effects of climate change are being felt with a 0.8oC global temperature rise[2] – considering the fact that we as a planet need to limit temperature rise to no greater than 2oC above pre-industrial levels (1861-1890)[3], which involves cutting anthropogenic (man-made) emissions by 80%, and the fact that in May 2013, we passed the 400 ppm (part-per-million) milestone[4] – the need to manage our emissions has never been higher.
It is no secret that a majority of these emissions are from corporate activities, such as mining and aviation, and thus, as an aid to managing these emissions, corporate reporting is a means to find out just how much CO2e organisations emit. Not only can this information give an absolute figure of emissions, the value can highlight risks the organisation may be exposed to, such as regulatory risks, and opportunities to cut emissions, and thus fortify organisational resilience.
How Wide Spread Is Corporate Reporting?
Within the past few years, the concept of sustainability reporting is starting to take root. A reported 5,000 companies worldwide are reported to be issuing corporate reports according to CorporateRegister.com. Of the many reasons a company may choose to produce a corporate report, it can be agreed that there is certainly an increase in pressure from stakeholders to be more transparent about how an organisation conducts operations; about the steps a company is taking to manage its energy use; about the steps the company is taking to become more sustainable in its business practices.
For example, Harvard Business School Professor Robert G. Eccles, one of the leaders of the Integrated Reporting movement[5], said:
“Even so-called mainstream investors are increasingly recognising that a company’s ESG performance increasingly affects its ability to create value for shareholders over the long term, and can even put its license to operate at risk.”
Further, François Passant, Executive Director of the European Sustainable Investment Forum, said:
"Looking at non-financial aspects of an investee company is becoming the new norm for investors, and one has just to look at the spreading of ESG integration practices to realise this[6]."
Why Report in the First Place?
It is also very clear that companies produce these reports for a manner of different reasons. A study by Ernst & Young: “2013 Six Growing Trends in Corporate Sustainability”, highlighted the top four key reasons (among many others) of producing these detailed reports amongst the companies they surveyed were: increasing sustainability awareness (63%), for transparency with stakeholders (56%), enhancement of corporate reputation and brand (54%), and the creation of a competitive advantage (37%).
Being completely impartial, it is unwise to state that in completing a corporate report, there is a level of short-term risk involved; particularly reputation-wise. (What if the report is not completed to the required standards? What if the required information is found to be unavailable? What if the information found is not particularly positive?) But the risk is far outweighed in the long-term due to:
- Better measurement of the company’s triple bottom line – environmental, social, and economic performance - Reporting annually improves the methods and quality of reporting, which can be a distinct advantage when regulations become tighter, or reporting becomes mandatory;
- Increased risk management - Corporate reporting can highlight the areas of the business that are exposed to risks linked to climate change (such as in the supply chain) and sustainability;
- Increased operational efficiency - Highlighting the above mentioned risks can lead to innovations in product offerings and the way the company does business leading to increased productivity and efficiency; and
- Enhanced decision-making ability.
On the other hand, failure to report can lead to:
- Increased (and perhaps avoidable) business risk;
- Appearing less transparent with stakeholders – especially if competitors already do so.
The communication value of these reports is immense allowing the companies to reach customers, investors, business partners, media and a range of other stakeholders. They also have value within the organisation where they can be used as a tool to raise awareness of the non-financial aspects of the organisation, for example, having them become mandatory reading for employees. This can perpetuate the company’s aims if it is pursing sustainability initiatives, and wishes to cut out undermining activities in addition to aiding internal communication.
A document published in July 2013 by the United Nations Environment Programme Finance Initiative (UNEP FI) outlines that carbon footprinting will ultimately reduce policy, regulatory, and financial risks associated with GHG emissions[7], which will almost inevitably increase as the effects of climate change get worse[8].
GHG reporting additionally aids in the battle against climate change by indirectly supporting sustainable development. This is because as reporting highlights where emissions are coming from, where there are risks, and where they can be reduced, it is within the power of the reporting company to make the steps to reduce the emissions. As such companies will be better placed to drive investment toward low carbon projects – either internally such as renewable energy integration, or externally supporting international projects, i.e. carbon offsetting or carbon insetting.
Suggestions
As reporting is a means of documenting performance, it can be an aid to target setting and meeting goals. It may even aid in meeting goals the company has set; reporting helps the company identify business areas where costs can be cut, and resources can be conserved. Some targets imposed may take the form of KPI’s, or Key Performance Indicators, which can be used to measure performance internally and even externally with competitors assuming the KPI’s are comparable. These KPI’s are then often reported.
It highly instrumental to choose the issues and indicators (KPIs) your organisation will place focus upon determining the overall quality of the report, and will aid in its preparation. The organisation is encouraged to determine the extents of its operational and organisational boundaries to establish the scope of the reporting to again aid in the report preparation process[9].
To help decide what to report upon, the organisation could engage with stakeholders to determine what is important to them, so that when the stakeholder reads the finished report, they will have access to the information they have requested. Further, in engaging stakeholders, the organisation can better formulate strategies that align with the interests of the stakeholders.
Conclusion
Despite the challenges presented in producing these reports, it is hard to argue against the merits. It aids corporate compliance, better prepares the company to future regulations, identifies risks and resilience issues. It is useful as a means of determining whether the company is meeting emissions targets, and strengthens the organisations longevity by identifying where costs can be minimised and drives sustainable development.
The act of reporting will not simply vanish. New legislations such as the UK’s Mandatory Reporting comes into effect this year (2013), which will make it compulsory for FTSE companies to do corporate reporting with the long-term goal of extending it to all companies. Further, in producing these reports, it is hoped that in time, the tools required to produce high quality reports will improve[10] – having being termed “rudimentary” – compared to the tools used in financial reporting for example.
Written by: Jimmy P. Olet
[1] http://www.ghgprotocol.org/standards/corporate-standard
[2] http://revcom.us/a/305/urgent-climate-change-wake-up-call-en.html
[3] den Elzen M.; Meinshausen M. (2005). Netherlands Env. Assessment Agency. Meeting the EU 2°C climate target: global and regional emission implications.
[4] http://www.theguardian.com/environment/2013/may/14/record-400ppm-co2-carbon-emissions
[5] State of Green Business 2013 – Joel Makower and Associates (2013)
[6] http://www.businessgreen.com/bg/news/2283988/investors-demand-clearer-sustainability-reporting
[7] http://www.businessgreen.com/bg/news/2283988/investors-demand-clearer-sustainability-reporting
[9] Ernst&Young – Seven Things CEOs Boards Should Ask About Climate Reporting (2013)
[10] State of Green Business 2013 – Joel Makower and Associates (2013)
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