The industry regulator says companies need to do more to make disclosures relating to carbon emissions and energy consumption both understandable and relevant to users, according to a review of reporting on emissions, energy consumption across a sample of 27 entities, with a bias towards those expected to generate significant emissions.
While the sample of reports largely complied with the minimum statutory disclosure requirements for emissions and energy consumption, the review highlighted the need to better integrate these disclosures with narrative reporting on climate change especially any emission-reduction targets.
The FRC also called for clearer explanations of how information is calculated, which operations and emissions are included in their reported numbers and the level of third-party assurance obtained over the information. In particular, it was not always clear which entities were included in groups’ Streamlined Energy and Carbon Reporting (SECR) disclosures.
Although all entities in their sample disclosed their emissions and the majority disclosed their energy use, more needs to be done to make these disclosures understandable such as information about the methodologies used.
The FRC’s Executive Director of Regulatory Standards Mark Babington said addressing the urgent impact of climate change requires clear and transparent reporting so that investors and users of accounts can make informed decisions. “While it is encouraging that examples of good practice have emerged, companies need to do more to make disclosures understandable and relevant for users.
“Looking ahead, companies should carefully consider the findings of our review with a view to providing high-quality information about current emissions, in the context of increasing focus on emission-reduction commitments and strategies,” Babington said.
However, the FRC said it was pleased to see examples of emerging good practice with several reports going above and beyond the mandatory disclosure requirements. These included disclosure of Scope 3 emissions, information about the use of renewable energy and reporting of both location-based and market-based emissions.
Although many of the reports disclosed emissions reduction targets or an intention to set targets, the FRC said it was encouraged to see that some had explained ‘net zero’ or other emission-reduction commitments and strategies and included more specific details on pathways and interim targets.
“We were also encouraged to see progress in entities’ broader disclosures on climate-related matters, in the context of a developing regulatory environment. All quoted entities, and several others, either reported disclosures in a format consistent with the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD) or stated an intention to adopt the framework in future.”
Marianne Mau, Financial Reporting Technical Lead in ICAEW’s Financial Reporting Faculty, said: “We’re aware that companies have found ESG reporting a challenge so the fact that there is room for improvement is not a surprise. The early years of implementation can be a steep learning curve.
We commend the FRC for the work they’re doing in highlighting good practice and giving clear direction on how to make improvements.”
ICAEW’s Carbon and Energy reporting page provides an overview of reporting requirements and links to relevant resources
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