The U.K. government today confirmed that it will introduce mandatory carbon reporting rules requiring around 1,800 of the country's largest listed companies to report annually on their greenhouse gas emissions.
In The Guardian, deputy prime minister Nick Clegg, who will tomorrow represent the U.K. at the Rio +20 Earth Summit in Brazil, wrote that long-awaited emission reporting rules would come into effect next April.
"Using resources responsibly is in business's own interests too," he wrote. "Pepsi depends on water, Unilever depends on fish stocks and agricultural land, and every firm relies on a stable fuel supply. But while nine out of 10 chief executives say sustainability is fundamental to their success, only two out of 10 record the resources they consume.
"So the U.K. will press for governments to come together, working with those companies already blazing a trail, to give 'sustainability reporting' a global push. By agreeing common standards and practices we can get many more firms on board.
"And in the U.K., from the start of next financial year, all firms listed on the London Stock Exchange will have to report the levels of greenhouse gases they emit."
The rules are initially expected to be restricted to firms listed on the main London Stock Exchange and will not cover private companies or those listed on the Alternative Investment Market. But the regulations are slated for review in 2015, and ministers are scheduled to consider expanding the rules to all large companies beginning in 2016, according to the Department for Environment, Food and Rural Affairs.
The move will be welcomed by business groups and green NGOs, including the CBI, which has been campaigning for the past year for the introduction of mandatory carbon reporting rules, establishing the issue as a key test of the government's green credentials.
There had been fears that the proposed rules could be dropped after the government missed a deadline in April for making a decision on the new rules, particularly after some business leaders argued that the new rules represent an unnecessary regulatory burden and overlap with the existing Carbon Reduction Commitment scheme.
But environment secretary Caroline Spelman insisted the delay was simply the result of ministers needing more time to ensure the administrative impact on businesses of the new rules are kept to a minimum.
Environmentalists hail the move
Green groups were quick to praise the government's decision, arguing that it will force businesses to track their carbon emissions and energy use, making it easier for them to identify areas where they can enhance efficiency while giving investors a better understanding of those companies that have embraced more sustainable business models.
Next page: Will other countries follow suit?
"While the final decision will be welcome, it's not that unexpected and won't be seen as a burden, given the wholehearted support for the decision from business during the consultation process," said Alan McGill, a partner in PwC's sustainability and climate change practice. "Of the four options under consideration, business backed mandatory reporting.
"The biggest winners will be the companies that took the early steps to measure and report on carbon, and understand the risks better. Investors will also get more from the information about the risks and liabilities of the business, and its efficiencies. Regulations on emissions reporting will indirectly increase everyone's attention on the issue, which should lead to improved performance."
He also dismissed concerns that the new rules will impose an onerous burden on businesses. "For large companies, this won't be seen as a huge burden," he said. "Our analysis of the FTSE shows it has the highest levels of board oversight and engagement on climate change strategy, compared to other global business indices."
Matthew Spencer, chief executive of green business think-tank Green Alliance, said the decision would also significantly bolster the coalition's green credentials. "It is great to see the Coalition being bold on the low carbon agenda, and credit is due to the leadership that UK business groups have shown in championing greater transparency in corporate reporting," he said.
However, Martin Baxter, executive director of policy at the Institute of Environmental Management and Assessment,argued the benefits associated with mandatory carbon reporting would only be maximised if the rules are extended to cover all large businesses.
"Mandatory greenhouse gas reporting will deliver benefits for both the UK economy and the environment, and turn the environment into a mainstream business opportunity," he said. "However, we will not see the full benefits of mandatory reporting until it is introduced for all large businesses (around 24,000). Currently the majority of listed businesses already report on their GHG emissions, so until this legislation is broadened out it will not achieve its full potential for environment and business."
Will other countries follow suit?
The government will be hoping that the introduction of the world's first mandatory requirements for emissions reporting will trigger other countries to adopt similar rules.
One of the key areas of agreement at the Rio Summit is a commitment to encourage businesses to report on their sustainability performance, a recognition of the importance of the global "green economy," and proposals to develop a mechanism for measuring so-called GDP Plus that takes account of natural capital, all of which have made it into the draft negotiating text to be considered by world leaders later this week.
"Whilst there is still a lot of work to do, this agreement means we have made progress towards achieving what the Rio Earth Summit set out to do – to get the world on the right path to achieve cleaner and greener growth that ends the damage we have done to the environment and helps end poverty," Spelman said. "We now have a global commitment to the green economy as a way to reduce poverty, sustain economic growth and use our natural resources in a more responsible way to protect them for future generations."
However, green groups have been highly critical of the draft text, arguing that it makes few firm commitments and lacks the ambition necessary to tackle the world's environmental challenges.