ESG and Carbon Reduction Plans

‘ESG’ refers to a framework that businesses use to report their performance on key environmental, social and governance factors. As the new form of CSR, ESG builds on the notion that corporations are obliged to reduce their negative impacts on society.

Governments and regulators are now looking to standardize this reporting and counter the increasing levels of ‘greenwash’.

They believe it can become a trusted, powerful tool for driving more progressive finance and investment, with a big focus on driving the net zero transition.

E = How does this organization treat the environment?

S = How does organization treat employees, consumers and the community?

G = How is this organization being run?

Here are some of the key ESG frameworks and standards that governments and regulators are working on in a bid to standardise reporting requirements for business.

International Sustainability Standards Board (ISSB)

The International Financial Reporting Standards Board (IFRS), which sets the standards for disclosing financial information, has created the ISSB to develop a similar set of standards to help firms report on their sustainability. It is initially focussing on climate and general sustainability-focussed disclosures but will look to cover the wider remit of ESG eventually. The UK has endorsed this process. The ISSB has produced draft climate related requirements for the car rental and leasing industry.

UK Green Taxonomy

The UK is working on common language that should be used when reporting on activity related to six key environmental objectives: climate change adaptation, climate change mitigation, water use and marine resources, circular economy, pollution, and biodiversity.

Task force on climate related financial disclosures (TCFD)

The TCFD has also set out a framework to help companies report on their climate related risks and opportunities, focused on governance, strategy, risk management and metrics and targets. The UK government has adopted this framework.

Sustainability Disclosure Requirements (SDR)

Led by the FCA, SDRs are being introduced for the UK’s largest organisations (over 500 staff), but their scope will gradually expand.  The SDR will be based upon the 11 key TCFD disclosures, but also include reporting on Scope 3 emissions and a number of other non-climate related ESG metrics.

Carbon reduction plans

Since October 2021, suppliers bidding on most UK central Government contracts worth over £5m have had to produce a Carbon Reduction Plan (CRP) that sets out their commitment to reducing their carbon emissions. Although this is now a requirement, the Government is not yet using CRPs to compare bidders.

Scope 1, 2 and 3 are ways of categorising the different kinds of carbon emissions a company creates in its own operations, and in its wider value chain. These should be used when reporting emissions or setting out any carbon reduction plans.

Scope 1

Emissions from sources that are owned or controlled by an organisation. e.g. vehicles or boilers.

Scope 2

Indirect emissions associated with purchased energy, including electricity, steam, heat and cooling.

Scope 3

This includes purchased goods and services, business travel, employee commuting, waste disposal, transportation and distribution, investments, leased assets and franchises.

Even if you don’t have to report on climate, sustainability or other ESG metrics yet, BVRLA members will face increasing requests for data from investors, banks, insurers, customers and suppliers.

It can be confusing, time-consuming and expensive to gather, consolidate and share this information – which needs to be as robust and as accurate as financial accounts.

As well as gathering this information, members may also need to audit their data or track key ESG KPIs and set plans for improving them.

To avoid ‘greenwash’ you need sustainability credentials and reporting that supply chains, investors, lenders and customers can trust. These credentials will vary from sector to sector, but the standards must be consistent and provide clarity and purpose. The current barrage of regulation - voluntary and mandatory – is leaving firms, especially SMEs, confused.

There is big risk of duplication of effort, misselling of consultancy services & smaller firms being left out of supply chains.

For this new regulation to work we need:

Clarity: we need a vision from Government across sectors and the supply chain for every element of business 

Uniformity: more effort needs to be made to bring international standards and standard making bodies together

Simplification: the current miasma of regulation and requirements needs to linked together and the processes simplified

Engagement: there is a lack of understanding across many firms around just how fundamental the challenge will be. More communications and engagement by regulators is urgently required

Government issued, Procurement Policy Note (PPN) 06/21 and the linked guidance on 5 June 2021, it sets out how to take account of Carbon Reduction Plans in the procurement of major central government contracts. Members who are tendering for Government contracts (over £5 million per annum) for the provision of vehicle rental or leasing will need to have a carbon reduction plan as part of their tender submission. 

PPN 06/21 covers procuring goods and/or services and/or works with an anticipated contract value above £5 million per annum (excluding VAT) which are subject to the Public Contracts Regulations 2015 by Central Government Departments, their Executive Agencies and Non Departmental Public Bodies (in-scope organisations).

Timing

The PPN 06/21 applies to procurements advertised on or after 30 September 2021.

Requirement

PPN 06/21 requires suppliers of in-scope organisations to provide a Carbon Reduction Plan (using the template and technical guidelines provided in the guidance) confirming the supplier’s commitment to achieving Net Zero by 2050 in the UK. It must also set out the environmental management measures that they have in place and which will be in effect and utilised during the performance of the contract.

Carbon Reduction Plans must meet the required standard as set out by the supporting guidance to PPN 06/21. This includes, but is not limited to:

•  Confirming the bidding supplier’s commitment to achieving Net Zero by 2050 for their UK operations.
• Providing the supplier's baseline emissions footprint (for the sources included in Scope 1 and 2 of the GHG Protocol, and a defined subset of Scope 3 emissions) - this is the initial year against which all future plans will be compared
• Providing the supplier’s current emissions (for the sources included in Scope 1 and 2 of the GHG Protocol, and a defined subset of Scope 3 emissions) - this covers the most recent year calculated
• Providing the supplier’s carbon reduction targets (for the sources included in Scope 1 and 2 of the GHG Protocol, and a defined subset of Scope 3 emissions) - e.g. We project that carbon emissions will decrease over the next five years to XX tCO2e by 20XX. This is a reduction of XX%
• Emissions reporting must be in CO2e (Carbon Dioxide Equivalent) for the six greenhouse gases covered by the Kyoto Protocol.
• Setting out the environmental management measures in effect, including certification schemes or specific carbon reduction measures you have adopted, and that you will be able to apply when performing the contract and that support achieving Net Zero by 2050.
• Declaration and sign-off by board of directors (or equivalent management body).
• Publication of the Carbon Reduction Plan on the company's website.

Additional considerations

While Carbon Reduction Plans will initially only be introduced for specific contract sizes and in-scope organisations it remains to be seen whether it is adopted for smaller contracts and by local authorities for their procurement projects.

The BVRLA has approached two companies who are able to support members who need assistance producing carbon reduction plans.  Costs are reasonable but will depend on the scope of work and your business size.