A couple of years ago, the chairman of the International Accounting Standards Board, Sir David Tweedie, is reported to have said “the future of financials is non-financials”. But I would like to suggest that in fact, the future of financials is feet. Or at least that’s the way it seems here in the U.K. as we prepare for corporate footprint reporting in July 2011.
The Carbon Reduction Commitment (CRC) is a mandatory emissions trading scheme administered by the Environment Agency. In its current form, the scheme is expected to impact between 5,000 – 20,000 businesses in the U.K. CRC also introduces a new reporting term: Along with ‘calendar’ year and ‘fiscal’ year, we now have a ‘footprint’ year. In each footprint year, businesses must monitor their emissions footprint and disclose it in the form of a footprint report.
A league table will be be created to publicise the relative footprints of participating organizations and their progress up or down the table. I don’t expect it to be as popular as the U.K. football Premier League or even the U.S. Major League Soccer for that matter but the CRC League table is clearly another pane in the window of organizational transparency.
As a rough guide, a footprint report is a kind of balance sheet, defined (in outline) as something like:
Emissions Footprint = Total Energy Use – (Exclusions + Exempt Subsidiaries + Electricity Credits)
Participants will have to purchase allowances, sold by the Government, for each tonne of CO2 they emit. At the end of a compliance year, participants must surrender allowances equivalent to their emissions during the year. If they haven’t bought enough allowances, they must top-up their allowances by buying them from the Government or other participants who are ‘in credit’ with the scheme.
It’s a self-regulating scheme but each participant must create an ‘evidence pack’ to backup their footprint results so their results can be audited by the regulator. The whole thing reminds me somewhat of the trigger for the Reformation in Europe – the sale of indulgences by the Catholic church – but I’m not expecting to see footprint reports being nailed to any church doors anytime soon.
Naturally footprint reports are not truly ‘non-financials’. They do have their their own financial implications. It costs money to register and participate in this mandatory scheme; it will cost money to compile and publish these reports and there are fines for lying about the size of your feet (i.e. non-compliance). Rather like Sarbanes-Oxley, if you don’t practice compliance with good energy governance you risk penalties or at worst imprisonment.
Surprisingly there is no XBRL taxonomy for footprints – probably due to the fact that XBRL advocates are mostly accountants rather than cobblers – but there may well be if the AICPA sustainability initiative gets its way. And when there is we will no doubt see the emergence of a new financial reporting software category: Treadware.
Tags: CRC
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