Like a party balloon, corporate emissions reductions move around according to where you squeeze them. As organisations try to cut pollution in Europe, their suppliers in China chuck out more gas. As globalisation sees entire industries shifted offshore and supply chains stretched across the globe, tracking carbon emissions becomes more challenging. And if we do not track corporate emissions, how do we know we are cutting them?

This spring, a small group of high-level campaigners, including Lord Whitty (the former parliamentary under-secretary at Defra) and the Bishop of Liverpool, tried to nail that problem. They inserted a House of Lords amendment to the climate change bill, a legal framework underpinning UK emissions reduction targets, due to go through another reading in the House of Commons early this summer.

“Any company which is required to produce a business review under the Companies Act 2006 must report on greenhouse gas emissions,” they stated. Compliance with governmental guidance on reporting on the issue would constitute compliance with the Act, they added.

An amendment to the Companies Act itself came into force in October 2007, requiring companies to provide information about environmental matters in the business review section of their annual report and accounts, or to explain why they do not believe that environmental issues are relevant to their business.

The Lords amendment is more specific, since it refers to greenhouse gas emissions. The purpose of both amendments is clear: to close the enormous loopholes in emissions reporting that make it so difficult to realistically assess how companies are performing.

Taking responsibility
Consistency is one problem. Whether and how to take responsibility for supplier emissions is another. Reporting has become more commonplace, but the question is how much is being revealed. According to a 2007 Environment Agency study, 42% of FTSE companies surveyed supplied environmental statistics in their annual reports and accounts, though many omitted energy use/climate change data.

Good performers included energy company Scottish & Southern and bank note producer De La Rue. Companies that ignored environmental issues ­ a small minority ­ included toy producer Hornby and road rescue company Accident Exchange Group. HSBC and Cadbury Schweppes are two other companies leading on this issue and they too are beginning to communicate that to investors. But the problem is that it is difficult to know what their beancounters are counting.

As Angela Eagle, an energy strategist at AWG Group, parent company of Anglian Water, puts it, “The whole reporting issue is full of ambiguities.” Operating in the flatlands of eastern England and experiencing lower rainfall than neighbouring areas, the company’s emissions figures may be higher than those of other water companies because it needs to extract more water from underground than, say, a company in the Lake District.

A reader looking at Tesco’s corporate social responsibility report might assume the company is much more environmentally-friendly than one of its rivals, Marks and Spencer. In a review of emissions reporting entitled Coming Clean, charity Christian Aid points out that despite Tesco’s far greater number of retail outlets, it declares 2.25 million tonnes of CO2 equivalent emissions for its UK business, compared with six million tonnes disclosed by M&S. However, rather than being a dirtier company, M&S in fact includes ‘indirect’ (supply chain) emissions that Tesco does not report on.

Mind the gaps
Unexpected gaps frequently appear in corporate data. In 2006, BP appeared to slash its emissions compared with the previous year. In fact, it had changed the way it counted its emissions, excluding indirect emissions previously used. In the same year, Cable & Wireless said in its annual report that environmenta l issues were not significant operational issues. Yet the previous year it had provided detailed information on energy and transport. Around this time, the company had been successfully prosecuted for spilling eight tonnes of diesel into three Wiltshire rivers.

Across the corporate sector, other discrepancies are evident. For instance, AWG differs from many in the FTSE-350 in that it externally verifies its report and includes business travel in emissions data. In the UK, many companies convert the energy used into emissions using different methodologies than those used by, for instance, North American companies. All companies know how much energy they use and this usually appears in their profit and loss account as an operating cost. What they have yet to do is express emissions in satisfactory monetary terms.

“At the moment, this can’t be translated into money and put into the financial accounts because there are differing prices for CO2 in different places,” says Bob Binney, a director at minerals company Johnson Matthey, alluding to the fragmented international carbon market. “Different reporting protocols are being used by companies in order that their carbon dioxide emissions aren’t compared,” is the wry comment of one accounting expert.

Lord Whitty and his supporters are clear about what they want from this jumble of data: not only mandatory reporting on emissions, but the use of a single international reporting standard akin to the IFRS that sets the boundaries for corporate emissions responsibility, and the financial quantification of emissions costs. Until that happens, companies will continue to play pass the parcel around the globe.

Useful links
See the report Carbon Costs at www.aldersgategroup.org.uk/reports

For the Environment Agency report see http://publications.environment-agency.gov.uk then search for Environmental Disclosures