The Government’s current appetite for relaxing the reporting requirements for health and safety incidents doesn’t appear to be matched in the environmental sphere. Martin Baxter explains the current regulatory scene on green issues, the changes in reporting on the horizon, and the opportunities opening up for both health and safety and environmental practitioners.
This year, the UK Government introduced a mandatory requirement on companies to report their greenhouse gas (GHG) emissions – a measure that is part of a broader set of proposed legislation and guidance aimed at ensuring greater corporate accountability and transparency on environmental matters. The rule also comes at a time when changes to the whole legislative stock in relation to the environment is gathering pace, as part of the Government’s Red Tape Challenge.1
These drivers – together with growing impacts on the environment, constraints on resources, and opportunities for businesses to benefit through resource savings – mean that increasing numbers of organisations are placing environmental issues at the heart of their decision-making.
Consequently, organisations are now investing in the skills and people to deliver and maximise these business efficiency and growth opportunities. While there’s an increase in the number of health, safety and environment “combined” roles, the changing dynamic between business value and the environment is being matched by enhanced expectations among organisations of what value an environmental role should deliver.
Out with the old and in with the new
Environment was one of the first themes to be covered by the Red Tape Challenge, a process designed to cut the regulatory burdens on business. Of the 255 regulations falling within the Department for Environment, Food and Rural Affairs’ (Defra) remit, 132 are to be “improved”, mainly through simplification or consolidation; 70 will be kept as they are, to uphold important environmental protections; and 53 obsolete regulations will be removed.1
The reforms will coincide with efforts to introduce smarter implementation and compliance on the ground, including piloting the use of third-party audits and ‘earned autonomy’ as the basis for businesses demonstrating environmental responsibility, thereby releasing regulators to focus more of their resources on targeting poorer performing companies. The simplification programme is scheduled to run until 2016, and while the vast majority of the changes will not alter the environmental outcomes that need to be achieved, as always the devil is in the detail.
However, the Government isn’t just removing or consolidating regulations; new regulations are being introduced where they can add business benefits, or correct market failure where other policy instruments won’t succeed. As the Defra consultation period on the draft GHG reporting regulations closed in October,2 the Department for Business, Innovation and Skills launched its own consultation on proposed changes to reporting provisions under the Companies Act – including a requirement for organisations to publish a strategic report.3
Along with a further consultation by Defra on environmental reporting key performance indicators (KPIs),4 these are signs of a more concerted effort to strengthen the legal reporting framework in the UK for companies to demonstrate environmental responsibility and realise the business benefits of reporting.
Compulsory emissions reporting
The Government announced in June that mandatory GHG reporting will apply to all UK-listed companies (approximately 1100), implementing an important provision of the Climate Change Act. Organisations that already report their emissions typically save both carbon and money – for example, more than 90 per cent of respondents to a survey by the Institute of Environmental Management and Assessment (IEMA) on GHG management and reporting identified cost savings as a benefit of reporting.
GHG reporting, which is expected to come into force in April next year, demands that UK-listed companies report on their emissions of the six primary gases identified by the Kyoto Protocol – namely: carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs) and sulphur hexafluoride (SF6) for all their direct (Scope 1) emissions and indirect emissions from electricity consumption (Scope 2). The regulations will also require listed companies to report on their Scope 1 and
Scope 2 emissions from activities outside the UK.
The new GHG-emissions reporting requirements are important, but they will offer only an historical perspective of a company’s performance, i.e. the previous year’s GHG emissions and previous years for comparison, where available. In itself, GHG-emissions reporting won’t directly address the strategic issues about how companies are responding to the wider problem of climate change and the associated risks that might impact significantly on organisations’ ability to operate effectively.
Other environmental constraints that could impact on a company’s future success, such as water and material availability, are also absent from the requirements. These areas are, however, beginning to be addressed by two further proposed changes to legislation and guidance, on which the Government is currently consulting:
Company reporting requirements
Recently-launched proposals by the Department for Business, Innovation and Skills to amend company reporting requirements (i.e. the information they are obliged to include in their annual reports) will compel directors to publish a strategic report every year setting out the principal risks and uncertainties facing their company. For listed companies, the strategic report must – to the extent necessary for an understanding of the development, performance, or position of the company’s business – include information about green issues, (as well as social, community and human-rights issues), including use of key performance indicators (KPIs).
Key Performance Indicators
The focus of draft guidance from Defra on reporting corporate KPIs is mainly linked to environmental burdens, such as absolute emissions. While the most common measurement of corporations’ environmental impact, it can be argued that this is not the most appropriate method for achieving the principal benefits of reporting. Instead, companies need to be encouraged to report on how the key environmental risks and opportunities of their business are managed, e.g. efficiency savings, and what this means in the longer term. Greater clarity on what’s expected will help ensure that the full benefits to business and the environment are realised.
Benefits of reporting
Environmental reporting has two overarching benefits. Firstly, it stimulates active management of environmental performance and helps catalyse improvements. Secondly, it acts as a basis for directors to be held to account for corporate environmental performance by shareholders, investors, partners and broader stakeholders.
At a time when many companies face economic difficulty, no business can afford to relinquish the potential for competitive advantage from resource efficiency. According to research by Defra, savings to be made by UK plc could reach at least £23bn a year from low-cost/no-cost resource efficiency measures. This figure increases to £55bn of annual savings when paybacks of longer than 12 months are considered. This is reinforced by IEMA members, who report they have delivered savings on a significant scale for their employers. Indeed, comments such as “saving over £2m through the reduction of thousands of tonnes of carbon”; “up to £85,000 on water costs”; and “£650,000 on waste charges” are evidence of environmental professionals delivering tangible business value.
While initiatives like GHG reporting still require organisations to manage and reduce their impact on the environment through their operations, the new reporting regulations create a focus on generating future value in the face of environmental challenges. It is the organisations that recognise and respond to these opportunities, by investing in the right skills, that will not only survive but thrive.
Environmental knowledge and skills – opportunities for practitioners
For a growing number of organisations, ‘heath and safety’ and ‘environment’ are paired together – particularly at the operational level, where there is a focus on legal compliance and use of internationally-recognised management systems, such as ISO 14001. It’s a combination that, for the many organisations that have created such roles, makes complete operational sense. In a survey IEMA carried out earlier this year, almost 10 per cent of members said that, over the last 12 months, new HSE management roles had been created and recruited for in their organisations. Given that the UK was officially in recession until the most recent quarter, this figure is particularly encouraging.
However, companies are also starting to consider a broader range of environmental risks than simply: “How does our organisation impact on the environment?” A changing climate, flooding and water scarcity, resource issues and materials security mean that, increasingly, companies are asking: “How will the environment impact on our business and what do we need to do about it?” These issues, coupled with a greater accountability framework, which includes GHG reporting, is moving the environment from being solely operational to being strategic as well. Consequently, the skills sets of health and safety and environment are actually seeing further divergence.
A model to help address this change is available in the form of an Environmental Skills Map.5 This tool is designed to help environmental practitioners – from entry level to business leader – map their knowledge, skills and general experience, in order to plan their professional development against the demands of the role, both now and in the future. It can also help support organisations in developing an understanding of the environmental knowledge and skills they need in their businesses, regardless of how individual practitioners have come to be in an environmental, or combined role.
The new reporting regulations and guidance demonstrate that there are important ways in which practitioners with environmental responsibilities can work with their Board to maximise the business opportunities that the growing environmental and legislative changes present – giving such roles enhanced business relevance. In short, environment roles are no longer a “nice to have” or a bolt-on but an absolute necessity for businesses to succeed in the long term.
References
1 www.defra.gov.uk/publications/2012/03/19/pb13728-red-tape-environment/
2 www.defra.gov.uk/consult/2012/07/25/ghg-reporting-draft-regs/
3 www.bis.gov.uk/Consultations/future-of-narrative-reporting-further-consultation
4 www.defra.gov.uk/environment/economy/business-efficiency/reporting/
5 www.iema.net/skills
Martin Baxter is executive director – policy at the Institute of Environmental Management and Assessment (IEMA).
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