The UK’s Department for Environment, Food and Rural Affairs (DEFRA) has ruled that firms listed on the LSE must report emitted greenhouse gasses from the start of the next financial year (typically April 2013).
According to DEFRA’s Final Impact Assessment:
What is the problem under consideration? Why is government intervention necessary?
Businesses can save money by reducing their emissions, e.g. by minimising energy and resource use. Even when measures to reduce emissions are cost effective, there may be barriers preventing action such as lack of information, transaction costs and organisational inertia (see section 4.1 to 4.7).
Regulating to require GHG reporting will ensure that quoted companies have the information and tools to reduce emissions, and, by creating consistency of disclosure, will provide investors and shareholders with information on climate change risks to inform their investment decisions.
Regulation is required because voluntary approaches have not led to a sufficiently high level of reporting nor consistency of reporting.
According to consultancy Carbon Trust:
The Carbon Trust’s ten-year experience footprinting the carbon emissions of companies shows that reporting, far from being a burden, can help deliver significant cost saving and enhance corporate reputation and new revenue opportunities.
There are indeed examples of global corporations that have reaped cost savings due to reduced energy use obtained via better carbon emission / energy management. At the same time, it’s unclear how firms achieve these cost savings: what complementary capabilities are required, what is the role/impact of advanced IT systems for managing carbon emission and energy data, is there more low hanging fruit in certain industries than others, etc. It is also unclear how and to what extent firms achieve intangible value such as reputation and enhanced innovation.
More research is needed to connect anecdotal claims (which are valid by themselves) with underlying conceptual reasons that explain how and under what conditions actions lead to outcomes in the carbon emission and energy management domain.
It is also unclear how this rule may impact rule setting in other countries directly (imitation) or indirectly (cross-listed global corporations enhance practices to meet LSE rule and apply those practices to all their operations globally).