Companies need to come clean on carbon neutrality

The need for carbon management has been accepted by many business leaders and 28 out of 557 companies in the FTSE all-share index have sought to demonstrate that they are managing carbon risk by becoming carbon neutral or offering carbon offsetting mechanisms to their customers. Although this is an increase from 15 in 2004 it still represents only 5% of the FTSE All-Share.

This is one of the key findings from a report “Carbon Neutrality and Carbon Offsetting in the FTSE All-Share 2007” written by Trucost, the environmental research agency, for Standard Life Investments in association with the Environment Agency Pension Fund, which was published today.

The report also highlights that;

The scope of carbon neutrality and offsetting varies significantly with only 11 out of the 28 companies aiming to be carbon neutral for their entire operations. The remainder have only investigated carbon neutrality for part of their operations or offered offsets to their customers.

Offsetting is predominantly pursued by companies that are not particularly carbon intensive - like banks - only 1% of the emissions of the FTSE All-Share were offset last year.

The majority of carbon offset by FTSE All-Share companies occurs via the voluntary offset market, with only 5 of the 12 companies currently offsetting using regulated schemes. The shortage and costs of verified credits to offset carbon emissions are leading companies to choose voluntary schemes which are more easily located often at lower cost.

Some voluntary carbon offsetting schemes claims have been subject to scrutiny, including by the Advertising Standards Authority, as to their efficacy and credibility.

Offsetting standards are developing but there is no universally recognised standard as yet.

Julie McDowell, Head of SRI at Standard Life Investments, said; “Following on from our July 2006 report, this report looks at developments in the use of carbon neutral strategies by FTSE listed companies and the role of carbon offsetting to achieve carbon neutrality. While the number of companies seeking carbon neutrality has increased, it remains small. Negative media scrutiny of offsetting mechanisms may have slowed the adoption of carbon neutrality. On the plus side it has also spurred efforts by Government and others to develop credible standards for voluntary carbon offset programmes which are urgently needed.”

Howard Pearce, Head of Environmental Finance and Pension Fund Management, Environment Agency, said; “As the financial materiality of climate change is becoming more evident to everyone and the need for carbon management is becoming increasingly urgent, it is hoped this report will stimulate further action by businesses to establish credible carbon management programmes and to provide improved disclosure on these in their annual reports and accounts to help the investment community reduce their carbon risks”