Carbon reporting - the small business impact | AccountingWEB

Carbon reporting - the small business impact

I recently asked Michael Gill - founder and chairman of the Environmental Investment Organisation - about the impact of the his new carbon emission rankings on small and medium-sized businesses.

He told “Let’s sort the big boys out first - our philosophy is that we should put pressure on the big boys as they’ve got the resources to disclose.

“If smaller companies are going down this route then they should go about it in the right way from the start - stick to at least scope 1 and 2 emissions, according to the greenhouse gas protocol.

“Another point is that the index is changing every year and smaller companies just outside the top 100 may find themselves in our rankings as they grow.”

What's your view on carbon reporting and is it just a matter of time before SMEs will be required to disclose and verify carbon reduction data?

Paul Scholes's picture

So many paths to the same goal will create slower progress

Paul Scholes | | Permalink

Thanks Robert for the summary of the EIO's operations. 

I have to say that when I first read an article about the EIO and its Environmental Tracking (ET) it not only filled me with confusion over how the ranking worked but also left me disinterested as it appeared to only relate to a proportion of the largest of the large companies and so it seemed to be of no significance to SMEs.

I've now followed the links and have absorbed more than before and, if anything, my views have moved backwards as to the direct relevance of this to SMEs.  It's worth a scan of the first two guides you link to in your article on the EIO's information Centre to get an idea of what I mean (fortunately only 6 pages of text in total).

Companies are ranked by (wait for it) "absolute Green House Gas (GHG) emissions intensity" which, from what I can tell, takes their CO2 (and equivalent) emissions in tonnes pa and then "intensifies" them (weights them to you & me) by their market standing or size and in 2011 they are keeping that simple by using turnover.  By using this in connection with the companies' marketization they can restate share indices and so give investors a better idea of the true value off each company, ie a bit like quoting its share price in differing shades of green & brown.

As admitted though by the guides this is still fraught with many uncertainites because there is still significant investor disinterest in environmental leanings, many companies still don't publish full emissions and, if they do, there's a real mish mash between those which report under all three "scopes" (below) and those who can only manage 1 & 2.  The problem (as acknowledged in other eporting initiatives) is that floating scope 3 emissions range from insignificant in some companies to overwhelming in others.

I have taken only the bits that I could understand but I hope I've got the drift of the EIO's current ranking model.  If I have then, given that the model depends on share price indexation I'm even less likely to feel that it will hit SMEs whether directly or via trickle down from the big boys.

I am however living more in hope over GHG reporting in general, ie the thrust of the question you now put.

Whether it's because of the anticipated regulations due out by 6 April next year requiring UK companies to disclose their GHG emissions or existing regs from the EU/CRC etc or even pressure from interested parties (customers, employees, investors) there has been a significant rise in the number of companies reporting their data and this is borne out by the study a few months back for the government by The Carbon Disclosure Project (CDP) & pwc.  This I'm sure has begun to trickle down to the smaller supplier & customer SMEs and I have experienced 2 clients in the past year asking me about my environmental policies & procedures. 

In other postings on this group I've previously made the point that it's a waste of time trying to decide on what & how to report without knowing how to measure what it is you are reporting on. However, as pointed out in DEFRA's guidance, small companies are actually better placed than others to easily identify the sources of their emisions, add up the units/kWhs and use online calculators or DEFRA's spreadsheets to calculate the CO2e tonnes being produced.

It doesn't then take too much imagination to understand that, as with reviewing overheads, once you start to measure something you will automatically identify ways in which to change it.  The DEFRA guidance linked above is a great first port of call for anyone seeking to understand what this is all about and gives a good summary of the 3 scopes of emissions I mention above, ie from Scope 1 which is where you create the emissions directly (burning fuel) to scope 3 where you influence others to do so, ie indirect.

In summary therefore whilst I do think that SMEs will inherit the requirement to report from their big brothers & sisters, I'm wondering whether, once they (AND THEIR ADVISORS) see how painless it is, and recognise the cost savings and marketing benefits associated with it, they may take the lead?

To finish on a down note.  The IIRC, first mentioned on this site by John in his posting on this group in August, have recently been flexing around their round table and seem more confident of being able to come up with full Corporate Social Responsibility (CSR) reporting requirements which, by definition, require elements on not only environmental impacts (of all sorts) but other non-financial data surrounding impacts on the community and society as whole. 

As I read somewhere, given it's taken 30 years to come up with a set of IFRSs we can all agree on and Global Reporting Initiatives on CSR has been around for 20 years with little effect, I'm hoping this third reporting path won't be opened up to us until after my retirement.

Thanks for staying to the end.



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