Having more data is great, but can we trust the figures?June 2010
Esther Rodriguez argues that carbon reporting is seriously undermined by a lack of assurance
There’s no denying that carbon reporting is now an important element of sustainability reporting. In its most recent report, the Carbon Disclosure Project (CDP) documented a dramatic increase in the number of large companies disclosing their carbon emissions – response rates were up ten per cent to 82 per cent in 2009 compared to 2008. Disclosure is arguably even more important during volatile financial conditions, as, for many investors, carbon performance is now synonymous with a company’s ability to set the conditions for sustainable future growth.
However, an increase in carbon reporting doesn’t necessarily lead to an increase in the quality of data. Accenture recently showed that sustainability data gathering methods are nowhere near as rigorous as those used for measuring financial performance. There is no wonder, then, that companies are still reluctant to expose themselves to the scrutiny of third parties.
Calls from investors and asset managers for greater disclosure of emissions data has succeeded in raising the importance of reporting, but a lack of independent verification hinders the usefulness of reports. The Carbon Smart report Just off the starting blocks reveals that in most cases there is often no way of telling whether carbon data is accurately reported or how complete and comparable such data is. Independent third-party assurance is the only viable mechanism to assure readers that reported information is reliable. While we should not assume that the absence of an assurance statement means the data is unreliable, stakeholders may conclude that emissions disclosure is simply an exercise in greenwashing, resulting in a loss of trust from customers and investors who perceive low levels of management commitment to sustainability.
This is simply unacceptable; investors would not put up with a financial report that had not been audited by an independent third party, so why should they accept sustainability data at face value? The scale of the problem is huge. The Carbon Smart report, supported by the UK government, revealed that only ten per cent of FTSE350 companies assure the carbon data in their sustainability reports, and only two companies mention a recognised carbon standard as their preferred form of assurance. Many corporations are in fact desperate for an internationally accepted and consistent emissions reporting process that includes assurance procedures. However, the future success of internationally accepted assurance standards will depend on government regulation and investor demand.
As a starting point, this summer we are launching an investor/business-led initiative, ‘A Call for Greater Credibility’, to leverage interest in this issue from the investment and corporate community. Investors, companies and other stakeholders need to work together to devise consistent assurance procedures that include independent third-party verification of data. This way, fair and meaningful comparisons can be made between companies on their ability to manage climate-related risks in the short-, medium- and long-term.
Esther Rodriguez is associate director of Carbon Smart
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