Lack of reporting subtlety is starting to cost the earthDecember 2009
Craig Mackenzie argues that for comparable climate change data we need more detail, not less
Over the last 15 years the CSR community has built a large international sustainability reporting infrastructure. And very useful it is too – I’ve been a professional report user since 1991, mostly as an SRI investor, and wouldn’t have been able to function without CSR reports. But there is at least one vital area where the infrastructure fails to deliver. It does not allow full-blooded performance comparison between companies on the most important sustainability issue of all – climate change.
You can certainly use corporate carbon data to see who’s reducing their emissions and who isn’t, but when it comes to identifying the most carbon efficient company in a sector, comparisons become pretty invidious. The key problem is that carbon intensity varies very significantly between business activities within each sector – food retail is more carbon intensive than non-food retail; oil refining is more carbon intensive than oil exploration. So, as I’ve found working on FTSE4Good and the recent Brand Emissions exercise, aggregate carbon data often says more about companies’ mix of activities than it does about their carbon performance. Despite the wonderful reporting infrastructure, businesses still can’t reliably tell whether they are more carbon efficient than their peers; investors can’t make relative assessments of climate risk; and customers (including large corporate buyers) are in the dark about supplier performance.
To fix this we need more detailed reporting. This includes ‘segmental reporting’ of emissions by line of business – for example, by listing oil refinery emissions separately from oil exploration emissions. We also need reporting against sector-specific performance indicators. Take the recent supermarket sector carbon benchmark using indicators for refrigeration gas-leakage rates, fuel consumption in distribution, and various kinds of energy efficiency data. The level of detail may dismay the ‘it’s all getting too complicated’ camp (those who think 60 GRI indicators is way too many). But requiring more detail will not impose substantial new burdens on most companies, many of whom already collect this data internally.
More importantly, it promises big benefits for report users and companies themselves. The Stern Report argues that many companies are not very sensitive to carbon price because their energy costs are a small proportion of their overall cost base (a detail apparently missed by the designers of the UK’s Carbon Reduction Commitment). This means that carbon pricing alone will not be a silver bullet for reducing emissions. Stern mentions carbon performance benchmarking as an additional tool to drive emissions reductions by enabling company managers, investors and customers to compare companies’ carbon performance and drive increased carbon efficiency through the adoption of best practices. The great advantage of this approach is that carbon benchmarking can reduce emissions whatever happens in Copenhagen. Given the time sensitivity of carbon reductions, this is quite an advantage.
Craig Mackenzie is director of the Carbon Benchmarking Project at Edinburgh University
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