Sustainability reporting

It is mandatory for many UK businesses with over 500 employees to include climate considerations in their annual reporting.

These companies are required to align with the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD). In brief, the TCFD requires businesses to report on the risks and opportunities they face in relation to climate change along with their greenhouse gas emissions and reduction targets.

The UK government expects that around 1,300 organisations are currently covered by the current mandate, with failure to comply resulting in fines of between £2,500 and £50,000. However, it is important for all businesses to begin thinking about the climate, particularly as climate disclosures are expected to become mandatory for most businesses by 2025. The UK Government is then likely to encourage companies to reduce emissions where possible (and offset the remaining emissions) as part of its strategy to reach net-zero by 2050.

What is sustainability reporting?

Sustainability reporting enables a business s to be transparent about its commitment to ESG by reporting publicly on its approach to environmental, social and economic/governance matters. In this way it gives stakeholders insight into the business, beyond the numbers.

With people wanting to work for sustainable businesses, suppliers wanting to align with sustainable businesses and clients wanting to purchase from sustainable businesses, reporting enables a company to build its reputation as a purpose led business and trust with all its stakeholders.

Further information on the benefits of embracing sustainability can be found here.

How to get started

It is easy to become overwhelmed by the concept of disclosing greenhouse gas emissions, let alone climate risks and the other recommendations outlined by the TCFD.

The first step must be the establishment of thorough, reliable and centralised processes to measure greenhouse gas emissions.

Greenhouse gas emissions are typically broken down into three categories:

• Scope 1 (direct emissions largely from gas burners and company cars),
• Scope 2 (indirect emissions from electricity)
• Scope 3 (all other emissions a company is indirectly responsible for in its value chain).

Scope 1 and 2 emissions are relatively easy to measure and can be estimated through energy bills and annual fuel use for company cars (or electricity consumption for electric vehicles). However, Scope 3 emissions are much harder to measure and need the engagement of all suppliers in a company’s value chain. For this reason, data on these emissions are not yet required by the UK Government.

Once you have identified your carbon footprint and where the business is now, you can introduce a strategy and goals for improvement. There are many businesses that can help companies identify and report on their carbon footprint. At Gerald Edelman, we work with Green Element.

What should be included in a sustainability report?

Once a business has insight into its greenhouse gas emissions, the next steps are to report and reduce them, identifying the risks and opportunities.

The report should be transparent and show the company’s carbon footprint as it is now (see above for the information that should be included).

The business can then use the report to:

• Clearly show its objectives/goals and commitment to sustainability
• Show how sustainability is embedded throughout the whole organisation via a company Vision statement or a statement from the CEO
• Acknowledge the risks/weaknesses and what the business can do to address them
• Identify the opportunities/areas of the business where it is doing well
• Outline KPIs and report regularly on these
• Show commitments beyond the environment, such as towards its people, the community and governance
• Have a clear timeline

Getting ahead of the game may not only be a good idea from a regulatory standpoint, but also from a long-term strategic point of view. Electricity from renewable and other low carbon sources (such as nuclear) is likely to become much cheaper over the next decade while the cost of electric vehicles is also expected to decrease.

To learn more about the new climate reporting rules for businesses, read our recent article by the Chair of our Sustainability Committee, Hiten Patel.