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Carbon reporting reforms could impact thousands of UK businesses

| Duncan & Toplis | 10 June 2024

5,000 companies could lose out if they are not careful to continue carbon reporting after the regulatory changes come into effect.

Upcoming regulatory changes

In March, the UK government proposed adjustments to company size limits which could impact 131,000 businesses across the country. If implemented, these changes will affect auditing thresholds and reporting requirements, including those for carbon emissions. The proposed reforms could see 5,000 large companies reclassified as medium-sized, 13,000 medium-sized companies reclassified as small, and 113,000 small companies reclassified as micro-entities.

While these changes aim to reduce non-financial reporting obligations, businesses should take heed before abandoning their sustainability reporting practices.

The risks of reduced reporting

Stuart Brown, Director and Head of Technical and Compliance at Duncan & Toplis, cautions that the government’s changes might seem beneficial at first glance, but they carry hidden risks. “The reclassification would allow many currently 'large' companies to cut down on administrative costs by easing reporting requirements, however, it also means these businesses may no longer need to report their carbon emissions to the government, potentially impacting their access to loans and financial support.”

The move is projected to save UK companies £150 million annually, reducing regulatory burdens. However, businesses might face unintended consequences. Companies that stop reporting carbon emissions could appear less committed to environmental sustainability, a concern for lenders, customers, suppliers, and potential employees.

Impact on finance and recruitment

A study by the Journal of Banking & Finance found that banks in 30 countries offer lower loan rates to companies with clear environmental and sustainability practices. Conversely, rates increase for companies that do not prioritise these areas. Sally-Anne Hurn, Sustainability Champion at Duncan & Toplis, warns of further risks:

“Almost two-thirds of businesses are already struggling to recruit staff and secure tender agreements due to poor environmental, social, and governance (ESG) performance. Loosening current requirements could exacerbate these issues, impacting profitability.”

“Environmental and social responsibility are crucial for jobseekers, with many prioritising sustainable employment opportunities. Businesses should remain transparent about their emissions, even if not legally required. Failing to do so might affect their ability to secure loans and compete for tenders against more socially responsible companies. Larger suppliers may also continue to demand emission calculations to consider their Scope 3 emissions, making ongoing carbon reporting vital.”

Proactive steps for businesses

Although the proposed changes are not yet confirmed, their implications could affect thousands of companies nationwide. Duncan & Toplis urges businesses to stay ahead by maintaining rigorous carbon reporting practices to avoid potential setbacks in finance and recruitment.

Businesses in the East Midlands seeking advice on staying competitive and managing supply chain challenges can get in touch with us.

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