Acting Consul General Karen Bell spoke about the UK experience of mandatory carbon reporting at ESG Management: From Niche to Mainstream.
Delighted to be here to share a UK perspective on carbon disclosure and to provide an update on the transition we have made from voluntary to mandatory reporting. Really pleased to note the growing interest in this issue here in Hong Kong.
But before I start to explain developments in the UK, I’d like to congratulate the Business Environment Council on the launch of your Environmental and Social Governance handbook which I know will be a huge help to businesses as they starting thinking and planning their own reporting.
I also want to say how much we appreciate the continued leadership and commitment of HKEx to promoting Environmental and Social Governance disclosure. We are following with interest their plan to consider stepping up the requirements.
To turn to the UK approach…
UK Consul General Caroline Wilson spoke on carbon disclosure last September, just before the mandatory requirements took effect on 1 October.
As some of you will know, all UK incorporated companies listed on the Main Market of London Stock Exchange are required by law to report on their GHG emissions as part of their annual Director’s Report.
The British government will review in 2015 whether to extend the scope of the regulation to all large companies, involving as many as 24,000 businesses.
So why are we doing this?
Well to start with, it’s because we think it’s good for business.
Carbon disclosure can help manage business risk.
It’s also about cost saving – a cost and benefits analysis of GHG emissions reporting indicated that carbon disclosure could save listed companies approximately £460million over ten years, through savings on energy and fuel costs. By contrast, we estimate that the cost of mandatory reporting is a relatively modest £3.4 million per year.
And disclosure is not seen as a burden by UK business and professional groups. In fact, they have been asking for it.
The Confederation of British Industry, the UK’s leading business lobbying organisation, has been calling for mandatory carbon reporting for some time. Their Director for Business Environment policy has said, “It is an important way to help businesses save money and emissions.” “Mandatory carbon reporting is a great way of making boardrooms aware of the savings possible through energy efficiency.”
It’s also about supporting business competitiveness.
To quote the UK’s Carbon Trust:
‘By making reporting mandatory, the UK government is pushing businesses to get ahead of the global curve. Climate change and resources scarcity are threats to the way that we do business and the way we live. A new economic world order is asserting itself, where only the sustainable will survive.’
It’s great to see that Hong Kong businesses are also voicing their demands for climate change actions and transparency – last year’s Annual Business Survey conducted by the Climate Change Business Forum indicated that businesses wanted publication of building energy and carbon audit data. About 90% of the 300 companies polled said they were acting on climate change, including setting energy or carbon targets and introducing altering business practices to reduce energy consumption.
We think carbon disclosure is also good for investment.
Investors tell us they are now looking hard at the green credentials of businesses as they decide where to invest.
As an example, just this week S&P issued a report stating that demand for climate bonds is posed to double this year. So carbon reporting is part of a wider trend responding to the demand of investors.
It’s worth noting that Exchanges themselves are among the businesses which see strong self interest in promoting environmental and social governance.
For example, the London Stock Exchange hosts a range of FTSE4Good indices, and is proud to be recognised as one of the Global 100 Most Sustainable Corporations.
Exchanges like the LSE have recognised that ESG disclosure, strong carbon credentials and an ability to attract energy and clean tech companies can be an important differentiator in an increasingly competitive global listings market.
So how did the UK achieve the transition from voluntary to mandatory reporting?
UK action on carbon reporting stemmed from a strong policy commitment to tackling climate change. That, in turn, drove the introduction of an effective legal framework.
The UK is committed to reducing 80% of its GHG emission by 2050 which led to the enactment of the Climate Change Act 2008. The Climate Change Act laid a solid foundation for a series of actions plan one of which is carbon auditing and reporting. By working across the government, we introduced amendments to the Companies Act 2006 (Directors’ Report Regulation 2013), making the UK the first country to set carbon disclosure as a legal requirement.
So the UK went from voluntary environmental reporting guidelines to mandatory carbon reporting.
Throughout the journey, the government has worked with businesses, consulting on legislation and working with them on awareness raising, education and capacity building.
As a result, in a consultation on measuring and reporting GHG emissions in 2011, 73% of companies surveyed said they supported mandatory reporting
The Government has since produced detailed guidance to help companies fulfil their obligations from technical guidelines issued by Defra and DECC; to advice for company directors and auditors, which we produced in partnership with the Institute of Chartered Accountants
On the process of reporting, businesses told the government that they wanted a simple and flexible reporting approach.
And that was what the government delivered: companies are free to choose a reporting methodology that is suitable for them. Options include using ISO standards or the Carbon Disclosure Standards Board framework. Or they can use domestic or international regulatory reporting process such as the EU Emissions Trading Scheme. This flexibility helps avoid duplication of paperwork and compliance processes.
We’re convinced that carbon disclosure is a global trend and that there is a business case for a mandatory approach for both companies and exchanges. There is a lot to work on advancing carbon disclosure agenda globally and in Asia. However, we are encouraged by the progress being made in Hong Kong
As we have found in the UK, key to success is to ensure government, exchanges and business work together to develop win-win-win solutions which deliver business efficiencies, create value for shareholders and secure environmental benefits.
I hope the UK’s positive experience will encourage further and quicker progress in Hong Kong and the region. If the team at the Consulate can help in any way, please let us know.