Understanding the limits of voluntary carbon reporting and the potential of mandatory reporting

Produced as part of the Governments, markets and climate change mitigation CCCEP research programme theme

Abstract of Working Paper 104

Information can play a hugely important role in the governance of corporate behaviour. The provision of reliable information on the financial performance of firms underpins the operation of financial markets, and the provision of information on the environmental performance of firms has enabled both ‘governance from the inside’ (through corporations better understanding and managing their own activities), and ‘governance from the outside’ (through opening up areas of private activity to wider public scrutiny).

This briefing considers the extent to which the voluntary provision of information on corporate greenhouse gas emissions enables the emergence of new forms of governance. Using the case of the UK supermarket sector, this briefing argues that, while voluntary reporting has provided important benefits, current disclosures limit stakeholders’ ability to assess corporate climate change performance, to compare companies and, in turn, to effectively influence corporate performance.

The recent announcement by the UK government that it intends to introduce mandatory reporting requirements for large companies signals a step change in the debate. If well designed and effectively implemented, mandatory carbon reporting has a potentially valuable role to play in facilitating information-based governance through, at least partially, addressing the limitations in the information being provided by companies, and at a relatively modest cost to companies and government.

However, as this briefing explains, mandatory reporting is not a panacea and will not address all of the issues around data consistency and comparability. The consequence is that stakeholders will need to continue to invest time and resources in understanding and interpreting data as an essential part of delivering effective governance from the outside.