Carbon reporting victory promises boost for green businesses

The government has passed an important test of its environmental credentials – the green wing of the coalition deserves some praise

20 Jun 2012, 11:34

Hats off to Nick Clegg, Caroline Spelman and the green wing of the coalition. They have obviously won the argument over whether mandatory carbon reporting will deliver net benefits to the UK economy and, after a slightly frustrating delay, will today announce that listed companies will from next April be required to report on their carbon emissions.

Be in no doubt, this is a significant and hard-fought victory for green businesses and their supporters.

It would have been easy for ministers tasked with cutting red tape to listen to the siren voices arguing that the voluntary approach for reporting emissions was working, to believe the flawed impact assessment suggesting carbon reporting rules would cost businesses millions, and sign up to the laissez faire philosophy espoused by many of their backbenchers.

But they didn't. They listened instead to the CBI (no dyed-in-the-wool environmentalists to be found there), the Aldersgate Group, Green Alliance, and many others, all of whom argued eloquently and consistently that standardised reporting of carbon emissions is the most important and effective first step towards the reduction of those self-same emissions.

Inevitably these new rules are not perfect. It might be slightly churlish to respond to one of the most significant victories for the green economy in the past few years by criticising the new requirements. But it is disappointing that they are limited to only the largest listed firms. If standardised carbon reporting is good for companies listed on the LSE, why is it not good for companies listed on AIM? Why is it not necessary for large private companies? Similarly, if we need mandatory reporting for greenhouse gas emissions, what about water and waste, to name but two important environmental metrics?

Moreover, the introduction of new reporting rules will again throw the spotlight on the increasingly complex legislative framework that companies face when it comes to carbon emissions. There are undoubtedly too many overlapping and overly complex carbon rules and taxes in place and the case for simplifying them (without weakening them) grows stronger by the day. Sustainability managers across the UK will now be watching the Department of Energy and Climate Change's review of the Carbon Reduction Commitment with intense interest.

But, caveats aside, these new reporting rules represent a significant boon to green businesses and investors across the UK.

For too long those progressive businesses that report openly and honestly on their sustainability performance have not been able to maximise the benefits that should accrue from this practice, because their rivals have been able to avoid disclosing comparable information. As a result, green investors have struggled to compare like with like, while mainstream investors, who Jonathan Porritt memorably described this week as "lazy" and "ill-informed" on sustainability issues, have found it remarkably easy to avoid the environmental implications of their investments.

Mandatory reporting requirements will inevitably push environmental issues a couple of places up the list of concerns for the investment community, while those businesses that have not to date reported on their carbon emissions will discover what those who have already embraced carbon accounting have known for years – tracking your emissions allows you to quickly identify areas where you can cut them, revealing significant cost savings in the process. Mandatory carbon reporting will give more power to the elbow of sustainability executives across the UK, and that has to be a good thing for both businesses and the wider green economy.

Then there is the knock-on impact on providers of green technologies and services. Developers of carbon software and consultancy services obviously stand to gain from these new rules, but, more broadly, so do providers of energy-efficient technologies, onsite renewable energy systems, and green tariffs. It is much easier to make the case for LED lights or biomass boilers that can save a business money, if providers can also demonstrate how they will help a business improve a publicly disclosed metric that investors and stakeholders are paying close attention to.

There are also important political implications. At various events over the past year Caroline Spelman has argued that she supports "good regulation", while providing scant evidence that she is willing to put this belief in effective regulation into practice. Under the coalition, Defra has adopted a light-touch approach to legislation on everything from waste to wildlife, but now Spelman has made good on her rhetoric, rubber-stamping progressive environmental rules that are the very definition of "good regulation".

Along with the decision on the fourth carbon budget and the on-going resistance to calls for deep cuts to renewable energy subsidies, this crucial decision proves those ministers (often from different parties) who support the concept of the green economy can work together to advance its cause. It also demonstrates that these ministers find it much easier to deliver progressive green policies when policies are endorsed by a broad base of business groups and green NGOs willing to repeatedly make their case in a polite but firm manner. Make no mistake, mandatory carbon reporting was under threat from those who would like to see the rules scrapped and it did represent a hugely important litmus test of the government's green commitment. It is a test ministers have passed.

Of course, celebrations at this victory should be short-lived. The announcement comes on the same day as the Rio +20 Earth Summit looks set to descend into a parody of itself, responding to the greatest environmental crises of this or any other generation with a series of meaningless commitments to "recognise" the problems we face.

Moreover, in and of itself, carbon reporting rules do not stop one tonne of carbon being emitted. They need to be backed up by business models and policy frameworks that enable organisations to actually decouple their continued growth and their carbon footprint. From businesses' perspective that means tapping into some of their cash piles to invest in the energy-efficient and clean technologies that promise to slash long-term costs, while from the government's perspective that means following these reporting rules with additional technology standards that force companies to cut emissions and tax breaks and other incentives that make it easier for them to invest in greener approaches.

Embrace these investments and policies and mandatory carbon reporting rules might just turn out to be a crucial early step towards the creation of the kind of genuinely sustainable economy leaders in Rio will make a commitment towards. And for that at least, Clegg, Spelman and co deserve the plaudits of green businesses everywhere.

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Previously known as the BusinessGreen Blog, James' Blog features musings, observations and occasional rants from BusinessGreen editor James Murray

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