Knowledge management and reporting

If a company is in any way serious about reducing its carbon footprint, it needs to develop sound metrics for measuring and reporting progress on its carbon reduction strategy and emissions. As Lord Turner, chairman of the UK's Financial Services Authority (and briefly chairman of the UK's Committee on Climate Change), has said: 'The first step towards managing carbon emissions is to measure them because in business what gets measured gets managed' (Carbon Disclosure Project, 2009).

The reality is that carbon emissions are now a financially material commodity and will become more so. They have an economic and financial value to business, investors and suppliers. They need to be properly defined, measured, accounted for, audited and reported in the same way as other physical commodities and financial instruments (Aldersgate Group, 2007).

The Global Reporting Initiative, the World Business Council on Sustainable Development (WBCSD), the UK government's UK Department for Environment, Food and Rural Affairs (Defra) and the Carbon Trust, to name but a few, have all produced guidelines and definitions for reporting on carbon emissions. The absence of comparable standardized measures means, however, that companies that reduce their carbon emissions are unable to demonstrate their success in relation to their competitors. Where individual companies have changed their carbon reporting methodologies over time, it also means that comparisons cannot be made year on year.

In my view, it is only a matter of time (and probably not long) before governments introduce a common and legally binding methodology for how companies should report their carbon emissions. The companies that are best placed to implement will be those that have already gained experience by participating in one of the voluntary schemes.

Investors and other stakeholders are increasingly interested in the broader management context of carbon emissions, however, and not just the hard data. The Carbon Disclosure Project (CDP) is an independent not-for-profit organization that holds the largest database of corporate climate change information in the world. The data is obtained from responses to CDP's annual information requests, issued on behalf of institutional investors, purchasing organizations and government bodies to more than 3700 corporations across the globe (Carbon Disclosure Project, 2009).

Its information requests cover four main areas:

1 management's views on the risks and opportunities that climate change presents to the business;

2 greenhouse gas emissions accounting;

3 management's strategy to reduce emissions/minimize risk and capitalize on opportunity; and

4 corporate governance with regards to climate change.

Companies that are unable to provide comprehensive and credible answers to questions in these areas will increasingly be seen as lacking in key management competencies and strategic analysis.

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