Climate Change Bill [HL]

My Lords, if my memory serves me correctly, when this matter was raised in Committee we had an incredibly truncated discussion. I cannot remember the cause of that but I remember telling my noble friend Lord Whitty that we had to finish at a certain time for various reasons. It may have been a Wednesday but the debate was truncated. I apologised to my noble friend and to others because the amendment was discussed at a late hour and I think the whole thing took about 10 minutes. Therefore, my response will be a bit longer than the speeches we have heard although it will not be too long. The noble Lord, Lord Teverson, and the noble Baroness, Lady Northover, are right—these are incredibly important issues. Like them, the Government are very keen to promote transparency of carbon reporting by companies. I want to discuss the activity that is already going on in this area. It is not as though we start from a clean sheet. At present a large number of companies are in fact already required to report on their carbon emissions. There are mandatory reporting requirements for approximately 1,000 UK companies included in the EU Emissions Trading Scheme, and about another 5,000 additional companies will also be subject to mandatory reporting requirements when the carbon reduction commitment comes into force in 2010. This amendment would make additional blanket mandatory requirements for companies to disclose their greenhouse gas emissions in their annual reports. As I mentioned in Committee, albeit briefly, the Government see the main objective of narrative reporting within business reviews as providing shareholders and investors with the information they need to assess how directors have performed in their duty to promote the success of a company. Clause 417 of the Companies Act 2006 requires directors of quoted companies to include information on environmental matters, including the impact of the company’s business on the environment. In my 27 years in the other place the only time I was ever successful in the ballot for Private Members’ Bills was when I came twelfth. I thought that I was not going to get anywhere but I introduced a Bill on environmental disclosure in company reports, which we later added to the freedom of information process. Needless to say, that Bill was blocked by the Tory Government of the time, but that was the subject I chose as there was a gap in companies reporting on that area. The fact that the relevant information may be included in company reports to shareholders is neither here nor there; these are public documents and it is very important that this information should be included. I hope that I have given this issue a bit of a push. I am not all bad as a Minister. I had another life when I was a ““goodie””. This is a matter of judgment for directors, according to what they think is necessary to understand the company’s business. Although I anticipate that many directors will include information about climate change and other environmental issues in their reports, there is not yet a robust picture of what reporting is actually taking place, as the requirement came into force only on 1 October last year, as I said in Committee. The Government understand that and have committed to monitor how the narrative reporting requirements are implemented in practice. During the passage of the then Companies Bill in another place, Margaret Hodge, the then Minister of State for Industry and the Regions, committed to review implementation of the statutory business review provisions of the Companies Act 2006. This review is expected to take place in 2010. The detail of the review is yet to be determined but we envisage that it will provide an opportunity to look at whether information is being provided to shareholders and investors on climate change and other environmental issues in the context of the development, performance or position of a company’s business. Under the Companies Act 2006, the Secretary of State may also vary the reporting requirements on business—although, as I have made clear, we should not use these powers to impose unnecessary burdens on business. We also think that it is important to recognise that many companies in addition to those involved in trading schemes which are obliged to do so already voluntarily report these data. For example, in 2007, 92 per cent of the UK FTSE 100 companies provided information on their climate change strategies and emissions to the voluntary investor-driven Carbon Disclosure Project. In terms of guidance on reporting, company law has recently been through a radical reform. The House will recall the debates during the passage of the Companies Act in 2006. Those debates concluded that the introduction of mandatory standards were not in the best interests of shareholders as directors would be best placed to judge what is relevant to report on in the context of their particular business. Mandatory guidance risks companies producing standardised responses designed to comply with guidance rather than proper consideration of environmental and other issues relevant to their business. However, wider support and guidance is available for companies; for example, best practice guidance prepared by the Accounting Standards Board— a body of the Financial Reporting Council—in the form of a reporting statement. This guidance covers environmental issues including emissions management. Defra has also produced environmental reporting key indicators which help companies through the process of reporting on greenhouse gas emissions data. The Government have also responded to calls from investors and business to make emissions data more comparable, and we support the work of the Climate Disclosure Standards Board to develop an acceptable international framework for corporations to report on climate change issues. Given those arguments, and with all that is going on, we could not at present support a mandatory requirement for companies to report on their CO2 emissions or for the Government to issue statutory guidance. The noble Lord, Lord Teverson, asked what the Government were doing on common international reporting. I have touched on the issue. There is no determined and agreed international standard. As I said, we support the work being done by the Climate Disclosure Standards Board. We have also done the work. Defra is supporting the secretariat to the Climate Disclosure Standards Board launched at the World Economic Forum in 2007, which David Miliband attended. That was in response to increased calls for action from corporations and the markets to address global warming. The objectives of the member organisations of the board is to align their core requests for information from companies in order to ensure that they report climate change-related information in a standardised format and in a way that facilitates easier comparative analysis by investors, managers, above all the public, and, I imagine, the parliaments. We are not starting from a clean sheet: an enormous amount of work is going on. We do not think at present that it would be right to support this extra mandatory requirements on companies. Nevertheless, we entirely share the desire for transparency put forward by the noble Baroness, Lady Northover.