Carbon verification – Taking a leaf out of the accountant’s book

Erica Ward - Senior Consultant

Would you invest in a company based on unaudited accounts? When a company publishes its financial accounts we expect these accounts to have been fully audited and assured for accuracy. We need to have the confidence in that company and its performance. We are accordingly shocked when companies and their financial auditors get it wrong, and investments take a tumble, as recently happened when with a major UK retailer.

So why is environmental data any different? According to research commissioned by the Global Reporting Initiative and Accounting for Sustainability the majority of investors and analysts (77%) rate external assurance of ‘extra-financial’ reporting as very important or important[1].

Verification of environmental data, however, is still very much a minority activity. In 2013, fewer than 40% of UK FTSE 350 companies independently verified their organisational carbon footprint[2]. This is startling given that this group of companies should be leading the environmental disclosure agenda.

When comparing the risks of investment in otherwise similar companies, having verified data may make all the difference to an investor, and in time could have an effect on stock prices. Greater disclosure and particularly verified disclosure by environmental professionals only goes to help investors make the decision to invest. Whilst environmental reporting is still evolving, it is no longer an excuse when it comes to carbon; the general consensus on approach to undertaking a carbon footprint coupled with international standards (e.g. ISO 14064) enable us to compare organisations directly if their reporting mechanisms comply and are verified. In a similar way, waste and water reporting have also become more standardised.

Now that carbon and other environmental reporting have grown up as it were, the benefits of verification are clear. It means internal decisions-makers can take long term environmental risks into account and be confident that they are responding to the most important risks for their business. Today’s increasingly sceptical investors will also have the assurance that disclosures of environmental data can be confidently relied on when they analyse the impact on value creation and risk. Verification of emissions reductions and other improvements help create certainty regarding progress against targets, whether they are for an organisation or an individual project.

We’d be interested to hear your views and experiences of non-financial verification; if you’d like to get in touch please contact Martin Gibson on 0207 394 3700.

[1] Radley Yeldar (commissioned by Global Reporting Initiative & Accounting for Sustainability), 2012, The value of extra-financial disclosure: What investors and analysts said.

[2] Figure based on 52% of the 260 FTSE 350 companies that disclosed under CDP, from: Carbon Disclosure Project, 2013, Are UK companies prepared for the international impacts of climate change?