On 31st January 2022, the Climate Disclosure Standards Board (CDSB) was consolidated into the IFRS Foundation to support the work of the newly established International Sustainability Standards Board (ISSB). While this site and its resources remain relevant for preparers looking to improve sustainability disclosure until such time as the ISSB issues its IFRS Sustainability Disclosure Standards on such topics, no further work or guidance will be produced or published by CDSB. For further information please visit the IFRS website.

Proposed UK GHG Emissions Regulations Q&A

Are you a company listed on the LSE Main Market affected by the proposed greenhouse gas reporting mandate? CDSB is here to answer your questions.

Shortly after the release of the draft Greenhouse Gas Emissions (Director’s Reports) Regulations 2013, the CDP and its special project, the Climate Disclosure Standards Board (CDSB) held a webinar for organizations likely to be affected by the regulations.


Q1.  If a Company’s financial year ends 31 March, when will they be required to first report emissions and for what year?
A1. The Government is proposing that the regulations will come into force for reporting years ending after 6 April 2013 (or after October 2013 if the regulations are introduced to coincide with expected regulations on narrative reporting) so that annual reports published after this time must include GHG information. Therefore, whether the law takes effect from 6 April 2013 or from October 2013, the first GHG emissions information should be included in the directors’ report for the year ended 31 March 2014. That is because 31 March 2014 will be the first financial year ending after 6 April 2013 or October 2013. 

Q2.  If a Company’s financial year ends on 12 April 2013 and the new rules come into effect from 6 April 2013, what period should the first directors’ report cover?
A2.  The financial year ending on 12 April 2013 because that is the first financial year ending after 6 April 2013.

CDSB comment on timing – As question 2 illustrates, by introducing the law for reporting years ending after April or October 2013, some companies, depending on their accounting year, could have very little time to prepare for the implementation of the regulations.  Effectively, the regulations could apply retrospectively to periods when companies were not anticipating the introduction of GHG emissions reporting requirements.  

We recommend that the commencement date be delayed to allow consideration of the implications of any announcements made by BIS or the European Commission on narrative reporting requirements that might have a bearing on greenhouse gas emissions disclosure. 

CDSB will therefore recommend that the new regulations should take effect from years beginning after October 2013 (or such time as associated narrative requirements are clear) so that companies have an adequate lead in time for implementation of the regulations and have access to any relevant narrative requirements that might emerge from announcements by BIS or the European Commission

Financial and sustainability reporting periods sometimes differ and also have different sign off and verification processes. Proposed regulation 7(4) caters for this by allowing companies to report GHG emissions information for a period of 12 months that differs from the year to which the directors’ report relates, provided that this is disclosed. We welcome the flexibility afforded by the regulations, which recognizes the different reporting deadlines to which companies are working for financial and sustainability disclosure purposes respectively.
However, differences in the period for which GHG emissions information and the period for which other information required under the Companies Act is prepared might present challenges when it comes to compliance with requirements under regulation 6 to include an intensity ratio in the director’s report.  This is because the numerator and denominator used to construct the intensity ratio should ideally be based on data from the same period. Whilst we believe that the period for which financial and sustainability information is reported should eventually align, at this stage in the development of reporting we support the flexibility afforded by regulation 7(4) to treat a different period of 12 months as being coterminous with the period covered by the directors’ report.


Q3. What is the sanction for non-compliance with this new regulation?
A3. As stated in the consultation documents, the Conduct Committee of the Financial Reporting Council monitors annual reports and accounts of public and large private companies for compliance with the requirements of the Companies Act 2006, including applicable accounting standards. Information about how the Conduct Committee reviews reports and accounts can be found on the Financial Reporting Council’s website, www.frc.org.uk.

Q4.(a) As the GHG reporting is to become a mandatory part of the directors’ report, will there be a legal requirement for the GHG emissions to be formally independently verified alongside the financial elements in the wider annual report & accounts? (b) Is there any expectation or requirement to have the GHG emissions information independently verified?
A4. No. We do not think that there is any statutory requirement for the GHG emissions information in the director’s report to be independently verified.  However, where information accompanies financial statements (which must be audited), the auditor must read it to check that there are no material discrepancies between the financial statements and accompanying disclosures.  

CDSB comments on verification/assurance – Although we do not think that there is any statutory requirement for GHG emissions to be independently verified, CDP statistics suggest that an increasing number of companies want their GHG emissions results to be verified and we anticipate that this will increase further once the information is required by law. For the avoidance of doubt, we recommend that guidance accompanying the regulations should encourage verification and point to standards that can be used for verification or assurance of GHG emissions, such as ISO 14064 and ISAE 3410.  


Q5. Can we compile our GHG emissions for the director’s report using ISO 14064-1?
A5. Yes. Regulation 4 of the draft Greenhouse Gas Emissions (Directors’ Reports) Regulation 2013 provides that the methodology used to calculate GHG emissions included in the directors’ report must be disclosed. However, no particular methodology is prescribed for compliance with the draft regulation. The consultation document that accompanies the draft regulation states that a company may use guidance produced by DEFRA/DECC or other approaches including the GHG Protocol, ISO 14064 and the CDSB Climate Change Reporting Framework.

Reporting boundaries

Q6. Can you say more about compiling GHG emissions inventories and whether the approach should be based on GAAP, including for boundaries and base year?
A6. The duties to prepare accounts and a directors report both fall within Part 15 (encompassing sections 380 – 474) of the Companies Act 2006. 

Section 399 says that, except where they are subject to the small companies regime or exempt from the requirement, a parent company must prepare group accounts (as well as individual accounts). 

Section 403 provides that for certain companies (which we believe to include quoted companies), the group accounts must be prepared in accordance with International Accounting Standards, that is International Financial Reporting Standards following their adoption by the EU for periods commencing on or after 1 January 2005. 

Section 415 says that for the financial year for which a parent company is required to prepare group accounts, the director’s report must be a consolidated report relating to the undertakings included in the consolidation.

This suggests that the basis used for preparing a director’s report must be the same as the basis used for preparing group accounts either under existing IAS 27 or the revised IFRS standards on consolidation, IFRSs 10, 11 and 12, effective for periods beginning on or after 1 January 2013.  This is also supported by section 416(b). 

Whilst Part 15 suggests that boundaries for GHG emissions reporting must be drawn in the same way as for financial reporting, draft Regulation 3(1)(a) and (b) states that the directors’ report should include GHG emissions from stationary and mobile combustion “operated, owned or controlled” by the company. This wording suggests some leeway in the approach to boundary setting.

CDSB comments on reporting boundaries – Despite the wording in Regulations 3(1)(a) and (b) which suggests that the reporting boundary can be drawn according to operational or financial control or equity share, we doubt that this level of leeway was intended. We do not think that the regulations can override the requirements of sections 399, 403 and 415 of the Companies Act. Therefore, we believe that reporting boundaries for GHG emissions reporting must be the same as for the financial statements and director’s report.

This could present some practical challenges for companies in the first instance if it:

  1. (a) involves a change in boundary setting from their existing practices. According to CDP statistics (see for example paragraph 45 of the CDSB Consistency Project Working Paper), operational control is the most commonly used boundary for preparing GHG emissions information; and/or
  2. (b) would exclude GHG emissions sources that might present the company with risk or opportunity or over which the company has some influence through operational control.  For example, if the majority of a company’s GHG emissions arise from activities that take place on premises leased from or operated on behalf of a third party, the regulations suggest that those emissions do not have to be disclosed. Arguably, this gives stakeholders a limited or misleading view of the extent to which the company is exposed to risk or able to influence GHG emissions. 

By incorporating the proposed new regulations into the Companies Act, the requirements adopt organizational reporting boundaries based on financial responsibility. Therefore, GHG emissions reporting responsibilities ostensibly arise for properties that are recognized as assets on a company’s balance sheet even where those properties are leased on a long-term basis to a third party that arguably has more control over and responsibility for the GHG emissions relating to the use of the building. One possible alternative DEFRA could consider, if the structure of the law allows, is to apply the wording of section 87 of the Climate Change Act 2008 for the purposes of setting organizational boundaries for GHG emissions reporting. Section 87 of the Climate Change Act refers to the measurement or calculation of GHG emissions from “activities for which companies are responsible”. Adopting this form of wording might offer ways around the challenges outlined above. 

If organizational boundaries for GHG emissions reporting are to be defined by reference to the Companies Act, to align with financial reporting boundaries, CDSB believes that guidance accompanying the regulations should make it clear that the law sets out minimum requirements only (ie.:- to report GHG emissions for entities consolidated for financial and director’s reporting purposes).  Where it is necessary for an understanding of the company’s business and its risks and opportunities, guidance should encourage the provision of information above and beyond minimum requirements although such information should be separately itemized in the director’s report to distinguish it from data required to satisfy minimum requirements. 

Reporting practices

Q7. Will there be a requirement to breakdown total emissions for example by subsidiary or geographical region?
A7. There is no specific requirement on segmentation of information in the new draft Regulations. However, as noted above, the segmentation requirements applicable under International Financial Reporting Standards might influence the way in which GHG emissions information is reported in practice. Also, from CDP’s experience, we know that breaking down GHG emissions results by division, country or gas type is very helpful for investors. 

Q8. GHG emissions information only makes sense when explained in accompanying narrative. Should we include narrative information with our GHG emissions information even though it is not required by the regulation?
A8. As stated above, we believe that the regulation represents a minimum requirement and that there is nothing to prevent a company from disclosing additional information, including narrative, where it is necessary for an understanding of the business and its risks and opportunities.

CDSB comments on reporting – We think that questions 7 and 8 above would be most usefully answered by BIS as part of their work on narrative reporting.  Through CDP’s experience and research about investor/stakeholder needs from corporate reporting, we are strongly of the view that accompanying narrative information is essential to understanding GHG emissions results. 


Q9. Do you think that the new reporting requirements will replace the reporting requirements under the CRC Energy Efficiency Scheme?
A9. We do not know although we doubt that CRC Energy Efficiency Scheme requirements will be changed or replace in the short term as a result of the new GHG emissions reporting regulations – mainly because the respective reporting requirements are designed to serve different policy objectives. However, CDSB is working to encourage consistency of approach to climate change-related reporting within and between territories (see http://cdsb.test/priorities/the-consistency-project/. We anticipate that in the same way that financial reporting rules converged over time, the same process will eventually apply to climate change-related reporting. 

Geographical limits

Q10. Please explain the geographic scope of activities to be reported – is it global or UK only?
A10. Assuming that the basis for the preparation of financial statements specified in the Companies Act applies equally to the preparation of GHG emissions results, our assumption is that parent companies caught by the new rules must report GHG emissions from any undertakings included in their consolidated reports, whether based in the UK or overseas. However, we are hoping that DEFRA will clarify this.

CDSB comment on geographical limits – We know from CDP’s experience that for many reasons UK parent companies have difficulty in obtaining GHG emissions information from their overseas-based operations. Even where the information is available, it is sometimes not prepared in the same format or according to the same systems as for the parent company. We will therefore encourage DEFRA to put in place transitional arrangements whereby a suitable period (say twenty four months) is allowed for UK parent companies to work with their overseas operations on delivery of GHG emissions information.

Have more questions? Get in touch using the form below or email us at info@cdsb.net.