With more sustainability reporting standards set to take effect in the coming year, signs point to large UK companies making some progress related to reporting of greenhouse gas (GHG) metrics.
Smaller companies, however, have barely gotten out of the starting gate.
The proportion of material prior-year adjustments that related to GHG metrics remained high but did decrease among FTSE 100 companies in the most recent round of annual and sustainability reports, according to a Deloitte UK report. However, another report found that nearly 60% of small- and medium-size entities (SMEs) haven’t even heard of Scope 1, 2, and 3 GHG emissions reporting.
Typically, SMEs are given more time to begin reporting sustainability disclosures than larger companies, but many large companies are beginning to seek GHG data from SMEs in their supply chain as mandatory reporting responsibilities grow.
Where large companies stand
According to the Deloitte UK study, 46 FTSE 100 companies made material prior-year adjustments (PYAs) to their climate and sustainability metrics in published reports as of 31 December 2024. That number was unchanged from the previous year.
“Our analysis shows that these adjustments are now a regular feature of FTSE 100 climate reporting,” Steve Farrell, partner and head of sustainability assurance at Deloitte UK, said in a news release. “Whilst the number of companies with material adjustments is the same as last year, this remains a significantly high amount, with continued challenges in getting sustainability reporting right.”
More than three-fourths (77%) of those adjustments were related to GHG metrics, but that was down from 89% the prior year.
Said Farrell: “This is reflective of the continued focus on improving reported GHG information, whilst at the same time, companies are considering the quality of a broader set of key sustainability information outside of GHGs.”
Farrell said that the volume of adjustments made due to data improvements (35%) — the most common reason for PYAs — was a positive sign that better quality reporting is emerging as major mandatory reporting requirements fast approach. The portion of PYAs attributed to errors ticked down year over year, from 29% to 26%.
Where SMEs stand
Recent government guidance on approaching UK sustainability reporting standards states that entities will be required to report on Scope 3 emissions “if they deem the information material for primary users,” while acknowledging that Scope 3 data “often lacks the quality needed for robust decision-making.”
Many large companies required to report will turn to the SMEs along their supply chain for assistance with Scope 3, but a survey by financial services company Aldermore found that help might be hard to come by.
More than half (58%) of senior decision-makers at SMEs said they had not heard of Scope 1, 2, and 3 emissions (Scopes 1 and 2 cover emissions under the control of reporting organisations; Scope 3 covers the emissions of business partners). Eighty-two per cent said sustainability requirements feel like an active barrier to business.
That said, the SMEs on average estimated they could generate £52,198 in additional annual income by becoming more sustainable, yet they’ve spent an average of just £5,566 investigating more sustainable approaches and £23,715 implementing them.
“Our research shows genuine ambition among SMEs to decarbonise, but a lack of knowledge, resource, and access to capital is holding many back,” Lauren Pamma, Aldermore head of energy and infrastructure, said in a news release. “With reporting deadlines approaching, now is the time for government, industry, and finance partners to step up their support.”
Resources
The AICPA and CIMA’s ESG and Sustainable Finance Strategy Course and Oxford Sustainability Reporting and ESG Data Management Programme begin their next cohorts within the month. Developed in partnership with Oxford’s Saïd Business School, the courses focus on sustainability principles and priorities and their crucial relationship to business strategy.
— To comment on this article or to suggest an idea for another article, contact Bryan Strickland at Bryan.Strickland@aicpa-cima.com.