Carbon reporting regulations are policies implemented by governments or regulatory bodies to require organizations to measure, track, and disclose their greenhouse gas (GHG) emissions. These regulations aim to promote transparency and accountability in carbon emissions management, enabling better understanding and management of climate change impacts.
Under carbon reporting regulations, organizations are typically required to report their emissions data, usually expressed in metric tons of carbon dioxide equivalent (CO2e), through standardized frameworks or protocols. These frameworks often include guidelines on:
The regulations may apply to various sectors, including industrial, commercial, and public entities, depending on the region that the reporting entity is in. The specific requirements and mechanisms may vary, but the underlying goal remains consistent across these initiatives.
Sustainability disclosure requirements refer to regulations, guidelines, or frameworks that mandate or encourage organizations to disclose information about their environmental, social, and governance (ESG) practices and performance.
Sustainability disclosure requirements can be established at various levels, including international, national, and industry-specific standards. Here we explore a few of the mandatory ones in the UK, US and EU.
Carbon reporting in the UK has evolved over time as part of the government's efforts to address climate change and promote sustainability - and has implemented several carbon regulations and reporting requirements. It started in 2001 with the Climate Change Levy, and has since expanded to include other key guidance and regulations, some of which include:
In 2012, the UK government launched the Carbon Reduction Commitment (CRC) Energy Efficiency Scheme - a mandatory emissions trading scheme aimed at improving energy efficiency and reducing emissions from large public and private sector organizations. It has since been replaced by Streamlined Energy and Carbon Reporting - more on that below. The CRC applied to large non-energy-intensive organizations in the UK, such as:
The CRC required organizations such as these to measure and report their carbon emissions from energy use. The scheme also included a financial incentive mechanism based on performance, with participants purchasing and surrendering allowances for their emissions.
When the CRC scheme above was closed in April 2023, Streamlined Energy and Carbon Reporting - or SECR - was introduced in its place. SECR aims to simplify reporting requirements by consolidating existing reporting obligations, including the mandatory reporting of greenhouse gasses, for companies falling within the scope such as quoted and unquoted companies, LLPs and public sector organizations.
If a company meets two or more of the following criteria in a financial year, they are also required to report under SECR:
Learn more about Streamlined Energy and Carbon Reporting (SECR)
Mandatory Greenhouse Gas (GHG) Reporting in the UK refers to the requirement for certain companies to report their annual greenhouse gas emissions. The reporting obligations are outlined under the Companies Act 2006 (Strategic Report and Directors' Report) and the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008.
Under these regulations, UK companies that meet certain criteria are obligated to include information about their GHG emissions in their annual directors' report - this can include scope 1, scope 2 and scope 3 emissions.
Those criteria are based on the size and type of the company. Generally, companies that are listed on the London Stock Exchange's main market, or meet specific thresholds related to turnover, balance sheet total, or employee numbers (as with SECR).
Administered by the Environmental Protection Agency (EPA), the GHGRP requires certain industrial facilities and fuel suppliers in the USA to report their annual GHG emissions. Covered sectors include:
The reporting data helps inform policy decisions, track emissions trends, and assess progress toward emission reduction goals.
California's cap-and-trade program establishes a market-based mechanism to limit and reduce GHG emissions in the state. The program operates under a cap-and-trade system, which sets a statewide limit, or cap, on greenhouse gas emissions from covered sectors. Covered sectors include:
Under the California cap-and-trade program must report and surrender emission allowances or purchase them in the market. The program encourages emission reductions through trading and innovation.
The Securities and Exchange Commission (SEC) in the United States plays a significant role in regulating financial markets and protecting investors. In recent years, the SEC has increasingly focused on the integration of climate-related risks and opportunities into its regulatory framework.
The SEC is developing a new regulation that will require public companies in the USA to disclose climate-related information. The upcoming SEC regulation aims to provide investors with consistent, comparable, and decision-useful climate-related disclosures.
The EU ETS covers various industries and sectors that are responsible for a significant portion of the EU's greenhouse gas emissions. Under the EU ETS, a cap, or limit, is set on the total amount of greenhouse gas emissions that covered entities can emit. These entities include power plants, energy-intensive industries (such as cement, steel, and chemicals), and commercial airlines.
Companies must monitor, report, and verify their emissions annually and surrender allowances equal to their emissions. Failure to comply with the requirements results in penalties.
The Non-Financial Reporting Directive (NFRD) is an EU directive that requires certain companies to disclose non-financial information related to their environmental, social, and governance (ESG) performance. Under the NFRD, large public-interest companies, including listed companies and financial institutions, are obligated to disclose information on their policies, risks, and outcomes.
In 2021, the European Commission proposed a revision of the NFRD to strengthen sustainability reporting requirements and align them with international standards, such as the Global Reporting Initiative (GRI) and the Task Force on Climate-related Financial Disclosures (TCFD).
The Corporate Sustainability Reporting Directive - or CSRD - is intended to ensure that sustainability reporting becomes an integral part of companies' mainstream reporting, providing stakeholders with a clearer understanding of companies' environmental, social, and governance (ESG) performance and impacts.
It’s an upcoming regulation in the EU that aims to enhance sustainability reporting, including climate-related disclosures. The CSRD builds upon the existing Non-Financial Reporting Directive (NFRD) and expands the scope of reporting requirements. It aims to enhance the quality, comparability, and reliability of sustainability information disclosed by companies.
Learn more about Corporate Sustainability Reporting Directive
The Sustainable Finance Disclosure Regulation (SFDR) is a European Union (EU) regulation that aims to promote transparency and sustainability in financial markets.
The SFDR establishes specific disclosure obligations related to sustainability risks, adverse sustainability impacts, and the consideration of ESG factors in investment decision-making. It introduces mandatory disclosure of ESG-related information in pre-contractual documents, websites, and regular reports.
Learn more about Sustainable Finance Disclosure Regulation
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