Corporate GHG reporting and Transparency framework

Legal assistance paper

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Date produced: 03/04/2017

Can you suggest technical approaches to integrate the reporting on GHG emissions by companies into the transparency framework for action and support envisaged under Article 13 of the Paris Agreement? 

Advice:

I.      Introduction

Article 13 of the Paris Agreement established an enhanced transparency framework for action and support (“Transparency Framework”) to “build mutual trust and confidence and to promote effective implementation”. Historically, transparency and reporting were contentious points in global climate negotiations, as some Parties’ negotiating position was that full transparency on national greenhouse gas (“GHG”) emissions represents an unacceptable intrusion on national sovereignty and is disproportionately burdensome for developing countries. An intrinsic feature of the Transparency Framework is the “built-in flexibility which takes into account Parties’ different capacities and builds upon collective experience”. This “built-in flexibility” is one of the reasons why the Parties were able to overcome historic issues to reach consensus on the inclusion of the Transparency Framework in the Paris Agreement. Thus, any approach to the integration of reporting by companies into the Transparency Framework must be flexible.

The scope and nature of corporate GHG reporting by companies varies across jurisdictions. Some companies must report their GHG emissions under domestic legislation, while others do so voluntarily, either as part of their corporate social responsibility programs or to gain certification of certain environmental activities.

We have considered whether it is feasible to integrate reporting by companies on GHG emissions into the Transparency Framework. The note is divided into the following parts: Part II describes the key elements of the Transparency Framework; Part III sets out developments in negotiations of the Transparency Framework; Part IV sets out some of the key International Environmental Reporting Standards used by companies to report on their GHG emissions; Part V sets out the frameworks in the EU, UK and Australia for corporate reporting on GHG emissions; and Part VI describes the elements from our reviews in Part IV and V of corporate reporting which could be incorporated into the Transparency Framework.

II.     Key elements of the Transparency Framework

The Transparency Framework for action and support, builds on and enhances the transparency arrangements under the United Nations Framework Convention on Climate Change (the “Convention”) and the Kyoto Protocol. Under the Transparency Framework, each Party to the Paris Agreement must provide, inter alia: (i) a national inventory report on GHG emissions using “good practice methodologies” accepted by the IPCC and the Conference of the Parties; and (ii) information to track progress on implementing national determined contributions (“NDCs”).

Developed countries must also provide information on financial, technology transfer and capacity building support provided to developing countries (pursuant to Articles 9, 10 and 11 Paris Agreement). This information will undergo a technical expert review.  The Parties wish to make use of the existing reporting frameworks established under the Convention and to ensure that, to the extent possible, there is no duplication of efforts.

The Transparency Framework (and the Preamble to the Paris Agreement) provides flexibility especially for developing countries taking into account their differing capacities (including in the scope, frequency and level of detail of reporting and scope of review) and calls for support to be provided to developing countries for the implementation of the transparency obligations and for the building of transparency-related capacity.

It is not yet clear how different types of data (qualitative and quantitative) will be reported by the Transparency Framework.

III.   Developments to date in Transparency Framework negotiations

In-depth technical work on the modalities, procedures and guidelines (“MPGs”) necessary to operationalise the Transparency Framework has begun, but is in its early stages. The Parties to the Paris Agreement aim to reach consensus on the MPGs to generate consistent and comparable data, while also providing the flexibility to adapt to the diversity of that information and countries’ different capacities and circumstances.

The Ad Hoc Working Group on the Paris Agreement (“APA”) established in December 2015, was mandated to prepare draft decisions to be recommended through the COP to the Conference of the Parties serving as the meeting of the Parties to the Paris Agreement (“CMA”) for consideration and adoption at its first session. Discussions of how to implement the rules and modalities of the transparency mechanism have taken place primarily in the APA, but also in the Subsidiary Body for Implementation (“SBI”), with parties exchanging views on facilitating implementation and compliance with the Paris Agreement.  Discussions at COP 22/CMA 1 on the Transparency Framework was at a conceptual level. The possibility of incorporating corporate reporting was not addressed in this round of discussions as they did not get down to that level of detail. Key issues discussed were flexibility and financial support for reporting. It was also discussed whether developing countries may have less onerous obligations to begin with, with the reporting to be improved and refined over time. The Parties noted that there are near-term and far-term issues to be settled in respect of the Transparency Framework that will require guidance, with potential interim measures to be implemented on reporting.

Parties and negotiating groups have already made submissions in respect of the MPGs for the Transparency Framework. A number of the following themes have arisen from such submissions which will need to be reflected in the Transparency Framework rules and modalities:

·       Parties are starting from different places in terms of existing reporting arrangements and capacity-building requirements, so it is important that there is flexibility in the reporting rules under the Transparency Framework;

·       GHG inventories will be a key part of Paris Agreement reporting to feed into the comparison of compliance with NDCs.

·       It will also be necessary to capture qualitative data on progress in implementing NDC objectives; and

·       Qualitative data should be captured in such a way as to permit common categories and themes to be identified.

IV.   International guidelines on environmental reporting by companies

Several international guidelines have been developed for companies to report on the environmental impacts of their activities or, more broadly, corporate social responsibility matters including environmental matters. In particular, guidance for the establishment of an environmental management system (EMS) at the company level and standards for evaluating and reporting on environmental impacts is provided. Where national laws require companies to fulfil certain environmental governance standards, these laws often require the application of these international standards. Those standards which are often referred to in national laws are described at Appendix 1. The ISO Standards and the GRI G4/GRI Standards are the most thorough Standards which are also often used by companies in practice.

The Parties could aim to provide guidance on the international standards such as those identified in Appendix 1 which could be adopted by Parties without well-established environmental reporting systems for corporates in place. This would complement the IPCC approved methodologies for collecting quantitative data for national GHG inventories and provide a framework for the collection of qualitative data on the progress of NDCs.

V.    Existing reporting obligations for Companies in the EU, UK and Australia

We have set out below a sample of corporate reporting obligations across three jurisdictions: the EU, UK and Australia. Common features to these reporting regimes could be selected and replicated in the MPGs to the Transparency Framework. It could be that certain countries with similar corporate reporting regimes elect to be classified together in the Transparency Framework, to aid comparison of data in the early stages of reporting where there may be a more heterogeneous data set.

European Union
In 2014, the European Parliament and the Council adopted a directive (the “Directive”) regarding disclosure of non-financial and diversity information by certain large undertakings and groups. The Directive requires EU Member States to implement a system where certain large companies must include a so-called “non-financial statement” in their yearly management report. This statement must contain information on Corporate Social Responsibility matters including environmental, social and employment matters, respect for human rights and anti-corruption and bribery matters.

The disclosure obligation applies to large undertakings which are ‘public-interest entities’ and which, on their balance sheet dates, exceed an average number of 500 employees during the financial year. ‘Public-interest entities’ are undertakings whose transferable securities are admitted to trading on a regulated market of any Member State, certain credit institutions, certain insurance undertakings and undertakings that are of significant public relevance, because of the nature of their business, their size or the number of their employees.

The Directive establishes a mechanism to report on, inter alia, environmental matters. However, as the Directive pursues a broader approach on non-financial information, it does not specify which environmental matters should be covered. In contrast to the UK reporting standards the Directive is rather vague on content and the level of detail of the reporting. Recital 7 of the Directive states that the non-financial statement should contain “details of the current and foreseeable impacts of the undertaking’s operations on the environment, and, as appropriate, on health and safety, the use of renewable and/or non-renewable energy, greenhouse gas emissions, water use and air pollution”.

The non-financial statement must include a description of the company’s policies in relation to, inter alia, environmental matters and the outcome of such policies. If a company does not pursue such policies, it shall provide a clear and reasonable explanation for not doing so. Thus the reporting requirement does not require companies to pursue policies in relation to environmental matters, but where a company does not pursue a policy, it has to give reasons for not doing so. Some commentators in legal literature refer to this mechanism as a “comply or explain” mechanism. However, unlike the comply or explain mechanism in UK law, the directive does not allow companies to omit certain information. Rather, it specifies the content of all the information which must be reported; the obligation to “explain” is in relation to their failure to comply with company environmental policies. The company’s auditor must check whether the non-financial statement has been provided.

In determining the details of the reporting, Companies may rely on national, Union-based or international frameworks in providing this information. Recital 9 refers to, inter alia, the Eco-Management and Audit Scheme (EMAS), the UN Global Compact, the OECD Guidelines for Multinational Enterprises, the International Organisation for Standardisation’s (ISO) standards (recital 9 quotes the ISO 26000 standard, however, the ISO 14000 standard is more specific on environmental matters) and the Global Reporting Initiative (the GRI G4 Guidelines on Sustainability Reporting appear to be relevant here). These are described in more detail in Appendix 1.

The non-financial statement does not necessarily have to be included in the management report. Companies may prepare a yearly separate report, to which the above mentioned rules and standards apply accordingly. The Strategic Report that requires UK companies to report on GHG emissions can be considered as a separate report.

The Directive was required to be implemented into national laws by 6 December 2016. Germany, for example, will only implement this Directive as far as necessary, with no further details on content and level of detail of the report. Interestingly, the German bill proposes to explicitly include GHG emissions in the report, where the Directive only refers to GHG emissions in the recitals. The German proposal has been approved by German Parliament, but has not yet entered into force.

United Kingdom
The Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013 introduced a duty on quoted companies to report their GHG emissions as part of their yearly directors’ reports, which is a narrative component of the company’s accounts. This obligation applies to medium-sized and large quoted companies. These are companies that fulfil certain thresholds as regards annual turnover (£ 10.2 million for medium-sized and £ 36 million for large companies), balance sheet total (£ 5.1 million for medium-sized and £ 18 million for large companies) and average number of employees (50 for medium-sized and 250 for large companies) and which are listed on the London Stock Exchange or in another EEA state or on the New York Stock Exchange or NASDAQ.

Such companies have to state the annual quantity of GHG emissions arising from the activities for which the company is responsible (“Scope 1” or “direct emissions”) and resulting from the purchase of electricity, heat, steam and cooling by the company for its own use (“Scope 2” or “indirect emissions”), and include the methodologies used to calculate the emissions. Companies also have to state at least one intensity ratio, i.e. an expression of that company’s emissions to an appropriate indicator, such as sales revenue or square metres of floor space. Subsequent reports have to include the information disclosed in the report for the preceding financial year, to enable a comparison. However, this obligation applies only to the extent it is practical for the company to obtain the relevant information. Where it is not practical, the company must state what information is not included and why (sometimes referred to as “comply or explain”).

In addition and to the extent it is necessary for an understanding of the company’s business within their yearly strategic report (which is a stand-alone document intended to inform the shareholders and help them assess how the directors have performed their duty to promote the success of the company), quoted companies have to report on environmental matters (including the impact of the company’s business on the environment), the company’s employees, and social, community and human rights issues, including information about any policies of the company in relation to those matters and the effectiveness of those policies. If such information is omitted, the strategic report must state which of those kinds of information it does not contain.

In June 2013, the Department for Environment, Food and Rural Affairs (Defra) published Environmental Reporting Guidelines which provide guidance for companies on how to report on the above mentioned environmental matters, including reporting on GHG emissions. The Companies Act 2006 reporting requirements only sets out the requirement that companies must state the methodologies they used to calculate their emissions. The Environmental Reporting Guidelines goes further to recommend the use of recognised environmental reporting standards, namely, inter alia, the ISO-14000 standards, the Eco-Management and Audit Scheme (EMAS), the Global Reporting Initiative Sustainability Reporting Guidelines or national guidelines.

Australia
The National Greenhouse and Energy Reporting Act 2007 (Cth) (NGER Act) establishes the uniform national framework for the reporting and publication of information on the greenhouse gas emissions, energy production and energy consumption of corporate groups. The NGER Act is administered by the Clean Energy Regulator. Corporations which meet specified emissions thresholds have been required to register and report greenhouse and energy information under the NGERS since the 2008-09 financial year.

Corporations are only required to register and report under the National Greenhouse and Energy Reporting Scheme (“NGERS”) if their emissions in a given financial year reach certain defined thresholds. As at 7 December 2016, the current facility thresholds are 25 kt or more of greenhouse gases (CO2-e) (scope 1 and scope 2 emissions); production of 100 TJ or more of energy; or consumption of 100 TJ or more of energy.

The data from multiple facilities within a corporate group can be aggregated for this purpose under some circumstances, provided that certain criteria are met. These include that the emissions produced by individual facilities do not exceed given thresholds; the facilities are located in the same State or Territory and operate in the same sector; and the facilities are under the operational control of the same group member.

Such registered corporations must report all greenhouse gas emissions, energy production and energy consumption from facilities under the operational control of either the registered controlling corporation, or members of its corporate group. Greenhouse gases which companies must report under the NGERS (covered emissions) include carbon dioxide, methane, nitrous oxide, and certain types of hydrofluorocarbons and perfluorocarbons. All emissions are measured by reference to their carbon dioxide equivalence.

Emissions are classified into three categories under NGERS: Scope 1 emissions – emissions released as a direct result of activity at a facility level; Scope 2 emissions – released through the indirect consumption of an energy commodity; and Scope 3 emissions – indirect greenhouses gas emissions other than those in Scope 2 and which occur as a consequence of a facility’s actions. Only Scope 1 and Scope 2 emissions must be reported under the NGERS.

Civil penalties may apply for a failure to comply with registration and reporting obligations, including failure to report by specified due dates or submission of non-compliant reports.

The Emissions Reduction Fund (ERF) safeguard mechanism, which commenced on 1 July 2016, aims to prevent significant increases in greenhouse gas emissions by ensuring that emissions reductions purchased by the Australian Government through the ERF are not offset by increases elsewhere in the economy.

The ERF safeguard mechanism sets emissions baselines and requires liable entities to manage greenhouse gas emissions so that they do not exceed baseline levels. Together, the ERF and its safeguard mechanism are intended to drive emissions reduction in line with Australia’s international commitments.

The safeguard mechanism is administered through the NGERS framework. The compliance rules and procedures are contained within the National Greenhouse and Energy Reporting (Safeguard Mechanism) Rule 2015, which commenced on 1 July 2016.

VI.   Possible approaches to the integration of company reporting into the transparency framework

1.     Direct Incorporation of Corporate Reporting Data

Parties wishing to use domestic corporate GHG reporting data for the purposes of the Transparency Framework reporting must aggregate this company level data to a national level.  Parties could discuss whether a common electronic reporting platform could be designed to allow input from Corporates that would function both as a registry for domestic reporting as well as international reporting. However, a universal system would be costly to establish and administer, and may not necessarily be the most efficient method to collate all the information required for the Transparency Framework to provide useful information on progress of Parties’ implementation of NDCs. It may also require a level of standardisation of data that could defeat the flexibility objective.

It may be possible that certain Parties club together and report data in a similar manner, in particular where they have a similar form of NDC. However, while there is obvious overlap between both mandatory and voluntary corporate GHG reporting and the reporting which must take place under the Transparency Framework, it seems more likely that certain principles and best practice features of corporate GHG reporting will be incorporated into the Transparency Framework, rather than direct integration of the data itself. Over time, as reporting is improved and with data collection advancements it may be more feasible to directly integrate domestic corporate data reporting into the Transparency Framework. However, Parties may not wish that data be freely accessible to other Parties. A balance must therefore be struck between complete transparency and the objective of not duplicating data collection processes.

2.     Parties to implement company reporting into their national laws

One of the biggest challenges of implementing the Transparency Framework is to create a monitoring and reporting system that generates comparable data so that the Parties are able to monitor their progress, but to also afford developing countries flexibility so as to not impose an overly burdensome administrative task. A top-down obligation on the Parties to establish a national law that would bind companies incorporated in that country to report on GHG emissions in a specific way and make the reports publicly available would create a single homogenous reporting system (as the Directive has imposed on EU Member States). However, an immediate blanket implementation of this obligation is likely to be overly burdensome to Parties starting from the position of no reporting currently and would fall foul of the guiding principle of flexibility based on respective capabilities.

On the other hand, a certain degree of harmonisation of the data generated is also desirable under the Paris Agreement. For example, the MPGs could state that as and when it is collected, the quantitative data should be collected in the same format as it is used for the purposes of the Transparency Framework. Qualitative data (such as data on technology transfer and capacity building support provided to developing countries) could also be aggregated through the use of common descriptive categories to describe certain actions or policies. The use of common terms would make comparison and analysis of the overall impact of certain policies easier.

The use of newly developed technologies such as Blockchain may make it easier to track and report emissions related to products and activities of companies in the future.

3.     Flexible Phase-in for developing countries.

Corporate GHG reporting obligations exist in some but not all countries who are Parties to the Paris Agreement. The obligation to implement a reporting requirement on GHG emissions for companies as described above should, in principle, apply to all Parties to the Paris Agreement. However, such an obligation would need to be implemented flexibly, as stipulated in Article 13. Both developing countries and companies located therein can face obstacles to the implementation and application of the proposed reporting standards. The UK and EU reporting requirement for companies listed on a stock exchange or for those which are otherwise of public interest works well with existing reporting requirements in the UK or EU, especially yearly financial reporting. However, this may not be the case for companies located in developing countries who may not have established capacity and expertise, for example, as regards the filing and publication of companies’ reports. Although company reporting requirements and annual financial statements are common in most of the countries which are Parties to the Paris Agreement, at least for quoted companies, GHG emissions may be unfamiliar areas.

Thus, any obligation or guidance in the MPGs requiring the implementation of reporting requirements on companies should reflect the flexibility and support stipulated by the Paris Agreement.  Developing countries could be granted a longer period before they have fuller reporting obligations, to allow time to establish and refine data collection, potentially drawing on the best practices from corporate reporting.

Under the Paris Agreement, support shall be granted to developing countries for the implementation of the Transparency Framework and for the building of transparency-related capacity building. Developed countries could provide support to developing countries in establishing appropriate standards, for example training and guidance in respect of filing and publication of the companies’ reports and the evaluation of their GHG emissions.

Each of the jurisdictions we analysed adopted certain thresholds for determining whether reporting is mandated. The Parties could set the threshold as is appropriate for their country or submit approved thresholds to the COP for approval. This would allow Parties to focus on priority areas for the initial phases of reporting. Not all companies of a country would fall within the scope of a reporting obligation, only companies of a certain size, industry or other specified characteristic. The reporting requirements stipulated by UK law and the Directive apply to quoted companies of a certain size or, according to the Directive, which are otherwise of public interest. This already reflects the differing capabilities of companies to assess and evaluate their emissions. In addition, the reporting on GHG emissions by small companies does not appear to be of urgent public interest, as such emissions are typically very low.

4.     Establish Key Reporting Priorities

If countries with little existing reporting infrastructure are permitted to establish key reporting priorities in an agreed ‘phase-in period’ of reporting obligations, this will ease the initial burden and allow them to improve their reporting over time. Several mechanisms could be used to help establish reporting priorities:

i.         The Parties could agree that the scope of reporting may be limited by GHG gas type, Scope 1, Scope 2 as it is in Corporate GHG Reporting. Guidance could also stipulate if and when reporting should encompass Scope 3 emissions.

ii.         The reporting requirement could be restricted to quoted companies or companies which are otherwise of public interest (or are public entities);

iii.         The period of time for developing countries to implement the reporting requirement could be longer (e.g. 10 years) than for developed countries (e.g. 2 years). This would allow developing countries to prepare for the necessary administrative measures to be implemented including capacity building (with the support of developed countries); and

iv.         The obligation to implement a reporting standard can be omitted for certain developing countries, e.g. countries that have not yet established a certain standard of company reporting in general.

v.         The MPGs could stipulate which countries shall be exempted from the obligation to implement such standards. Or it could leave it to the meeting of the Parties (or any other body under the Paris Agreement) to decide on a case-by-case basis whether a Party should be exempted from this obligation.

vi.         Companies located in developing countries may be committed to report on their GHG emissions on a less frequent basis (e.g. only every 3 years).

It is important that the scope of reporting would become successively better over time, and to the extent that reporting by developing countries did not cover all emissions initially, this would need to become all-inclusive. The corporate reporting in Australia has developed in this way and the principle has worked well to improve the quality of GHG reporting.

5.     Guidelines for reporting on GHG emissions

The integration of disparate corporate reporting into the transparency mechanism would bring together heterogeneous reporting systems. However, this is similar to the ‘integration’ of different styles of NDCs which have been submitted to the NDC registry. This poses an issue for collecting comparable data. However, it may be possible for countries to club together in their GHG reporting, potentially grouped in accordance with the type of NDC which has been submitted to at least allow for comparison within the group.

As regards form and content of the report, both UK law and the Directive require yearly reports, either integrated in the management report of a company, which is part of its financial statement, or in a separate report or, according to UK law, both. Where the Directive pursues a broader approach in reporting on different corporate social responsibility matters and is rather vague in how to report on environmental matters, UK law is far more detailed and explicitly requires companies to report on their GHG emissions. Neither UK law, nor the Directive state how companies should evaluate their GHG emissions. Both the Defra guidelines and the Directive refer to international standards that can be applied by companies.

Like the reporting standards set out in the UK and EU, a reporting framework could be established that only applies to quoted companies or companies of a certain size, who have to report on their GHG emissions on a yearly (or other regular) basis, allowing companies to integrate their report in their financial statements or to set up a separate report. As regards content, companies should be able to rely on international standards, especially the ISO 14000 standards or the GRI G4/GRI Standards (both include the assessment of GHG emissions as well as reporting standards).

The mechanism described above still binds certain companies to report on their GHG emissions. To provide even greater flexibility for companies, the Paris Agreement could recommend reporting on environmental matters, including GHG emissions, by companies, in a manner similar to the international guidelines outlined in Part IV. Such recommendation could be supplemented by guidelines on the form and content of such company reports. These could be independent guidelines consolidating the existing international standards described above and in Appendix 1 or simply refer to one or more of these guidelines. Companies could apply these guidelines on a voluntary basis or, as the case may be, in fulfilling national reporting requirements.

However, several reporting guidelines already exist. Especially the ISO 14000 standards and the GRI G4/GRI Standards contain details of environmental reporting, including the evaluation and reporting of GHG emissions. It is doubtful that more companies would apply these guidelines simply because they are included in the Paris Agreement in the form of a recommendation. Voluntary environmental reporting by companies would thus not be a significant step forward. Existing standards in the UK and the EU already go beyond recommendations and bind companies to report on environmental matters or at least give reasons for not doing so.

Such a recommendation should at least be supplemented by an obligation of the Parties to facilitate company reporting on GHG emissions or a declaration of intent to implement a reporting requirement in due time. The Paris Agreement contains several similar commitments of the Parties, e.g. where the Parties have to communicate nationally determined contributions (cf. Art. 3 Paris Agreement). The Paris Agreement could require each Party, or at least developed country Parties, to communicate as their nationally determined contribution a commitment to establish a reporting mechanism for their companies and/or the time period in which they will do so. Once a Party has done so, it is obliged to establish such a reporting mechanism within the determined time frame. However, in case the implementation will be effected by way of nationally determined contributions, it should be clear that, once the reporting requirement has been implemented by a Party, this contribution will not be intensified with subsequent nationally determined contributions.

6.     “Comply or explain”

Another mechanism that would provide flexibility to companies is to report on a “comply or explain” basis. Similar to the reporting standards in the UK, certain companies which do not reach a certain threshold could omit reporting on GHG emissions or other environmental matters, with the qualification that instead they have to state what information they have omitted and why. “Comply or explain” standards are already acknowledged in company reporting. For example, certain corporate governance standards are set out in Corporate Governance Codes, and companies may decide whether they apply these standards or not. If they do not apply these standards, they have to give reasons for this in a yearly compliance statement. A similar mechanism already exists within the UK reporting regime. In the UK, a company may omit information on GHG emissions, where it is not practicable to report on this, but it must state what information is omitted and why. The Directive does not allow relevant information on environmental matters to be omitted, and only permits the omission of information on policies (not) pursued, regarding relevant matters.

Likewise, the Paris Agreement could establish a reporting mechanism that allows companies to decide whether or not to report on its GHG emissions. Where a company decides not to report, it would be required to give reasons for not doing so; if the Parties were to adopt this principle from corporate reporting, there would be no limit to the reasons for why a company (or Party) may omit their reporting, nor do these reasons have to be good ones. The theory of comply or explain in corporate governance matters is that investors or other stakeholders can assess whether the reasons for not fulfilling a certain standard are good enough to decide whether they invest in or contract with that company anyway. Where companies do not fulfil certain standards, investors or other stakeholders would rather not do so. Thus, comply or explain is a market mechanism that may force companies to comply with certain standards.

However, reporting on GHG emissions may be of limited significance for investors, but is rather a matter of public interest. The requirement to explain for not reporting can nevertheless stigmatise a company in the public and thus create pressure on that company to change its policies in the future. This still provides greater flexibility for all companies that potentially fall into the scope of the reporting requirement.  The “comply or explain” principle may also draw criticism as being too weak a mechanism to encourage compliance. However, in the absence of penalties for compliance with NDCs, this may still be the most likely principle to be approved by consensus anyway.

Conclusion

The Transparency Framework is a key feature of the Paris Agreement and its effective implementation will be vital to the overall success of the Agreement. The need to create reporting requirements which are flexible but also comparable will be a constraint on integrating corporate reporting directly. However, corporate reporting can be a useful guide for Parties seeking to implement new reporting obligations on corporates.
Appendix 1 – International Environmental Reporting Standards

1.     ISO 14000/14001/14064

The ISO 14000 is a series of environmental management standards established by the International Organization for Standardization that provides a framework for companies and other organisations to improve their environmental management efforts. The ISO 14001 is the most important standard within the ISO 14000 series and sets out the criteria for creating an environmental management system. It provides a systematic approach for evaluating and improving environmental performance by companies.

The ISO 14064 specifies principles and requirements for companies for quantification and reporting of greenhouse gas (GHG) emissions and removals. It consists of three different parts. Part 1 details principles and requirements for designing, developing, managing and reporting company-level GHG inventories. Part 2 focuses on GHG projects or project-based activities specifically designed to reduce GHG emissions or increase GHG removals. Part 3 details principles and requirements for verifying GHG inventories and validating or verifying GHG projects.

2.     European Eco-Management and Audit Scheme (EMAS)

EMAS is an environmental management system developed by the European Union for companies and other organisations to evaluate, report, and improve their environmental performance. ISO 14001 is an integral part of EMAS, which means that EMAS registered organisations automatically fulfil the ISO 14001 requirements. However, EMAS registered companies must fulfil additional requirements that go beyond the scope of ISO 14001. One crucial difference is that EMAS requires companies to provide an annual environmental statement, in which they have to describe their environmental management system and summarise their environmental performance with particular attention to, inter alia, emissions. Furthermore, the environmental management system including the environmental statement is audited by qualified and independent environmental verifiers. Once a company has run through this audit, it becomes an EMAS certified company.

3.     Global Reporting Initiative’s G4 Sustainability Reporting Guidelines (GRI G4)

The GRI G4 contain the most extensive and detailed reporting standards regarding economic, environmental and social impacts, including reporting on GHG emissions.

With regard to GHG emissions, the GRI G4 builds on the Greenhouse Gas Protocol (GHG Protocol), developed by the World Resources Institute (WRI) and the World Business Council on Sustainable Development (WBCSD), which sets the global standard for how to measure, manage, and report greenhouse gas emissions. The GHG Protocol includes a classification of GHG emissions into three different “Scopes”. Scope 1 covers direct emissions from operations that are owned or controlled by the organisation. Scope 2 deals with energy indirect emissions resulting from the generation of purchased or acquired electricity, heating, cooling and steam consumed within the organisation. Scope 3 covers other indirect emissions that occur outside of the organisation, for example emissions by suppliers.

The G4 Guidelines have recently been superseded by the GRI Standards, released on 19 October 2016, which contain all of the main content and disclosures from the G4 Guidelines. The GRI G4 remain applicable for existing reporters until 1 July 2018 and will then be replaced by the GRI Standards. New reporters may already apply the GRI Standards.

4.     OECD Guidelines for Multinational Enterprises

The OECD Guidelines contain recommendations for responsible business conduct to be applied by multinational companies on a voluntary basis. These recommendations include that companies take into account the environmental impacts of their activities. These guidelines broadly reflect the principles and objectives contained in the Rio Declaration on Environment and Development which were adopted in 1992. Following these guidelines, companies should, inter alia, establish an environmental management system and provide the public and its employees with adequate and timely information on environmental impacts, including reporting on progress in improving their environmental performance. The guidelines neither explicitly stipulate reporting on GHG emissions, nor set out the form of the reports. However, in the brochure “Environment and the OECD Guidelines for Multinational Enterprises: Corporate Tools and Approaches” published by the OECD in 2005, the OECD explains the guidelines regarding environmental matters in more details and states that environmental reporting could be incorporated into a company’s annual reports, but that separate reporting becomes increasingly more common. As regards content of the environmental reporting, the guidelines refer to other international standards, e.g. the GRI G4 and the ISO 14000 standards mentioned above.

5.     UN Global Compact

The United Nations Global Compact consists of ten fundamental principles in the areas of human rights, labour, environment and anti-corruption. As far as environmental matters are concerned, the principles – which have also been derived from the Rio Declaration on Environment and Development – state that businesses should support a precautionary approach to environmental challenges, undertake initiatives to promote greater environmental responsibility, and encourage the development and diffusion of environmentally friendly technologies. Thus, reporting on environmental aspects is not included in the ten principles. The ten principles are nevertheless supplemented by several guidelines, which encourage companies to report on their commitments in adopting the principles, the actions taken to implement the principles and the outcomes of such actions. The Global Compact refers to other international standards, e.g. the ISO standards and the Global Reporting Initiative.