New anti-greenwashing laws mean that the screws are tightening on the quality of corporate carbon reporting, says Hugo Kimber of Carbon Responsible.
Science Based Targets initiative (SBTi), Task Force on Climate related Financial Disclosures (TCFD) and Green House Gas Protocol Corporate Standard (GHG Protocol) are just three approaches in an alphabetti-spaghetti of emissions standards and frameworks that companies are being asked to navigate. And now, ladies and gentlemen, we will soon have the EU’s Corporate Sustainability Reporting Directive (CSRD) – which will not only vastly increase the number of companies that need to comply, but also raise the bar on stringency and accuracy of reported data. Put simply, no more greenwashing.
If there is little consensus on regulations – and no gold standard – then the accuracy of the data being produced in companies’ emissions reports is even more varied. Sadly, far too much of it is simply wrong. Without the correct information corporate emissions can’t be managed, or effectively reduced. This isn’t a petty corporate oversight: failing to adhere to the new rules will inevitably lead to higher taxes, economic sanctions and lost business. There is also the risk of reputational damage or legal action due to inaccurate or misleading emissions reporting.
What gets measured – accurately – gets managed
Pre-Covid much of the western world made a host of bold carbon reduction commitments – almost always without knowing what their current emissions situation was. This governmental feel-good factor has subsided, to be replaced by the corporate realization that to achieve these goals accurate carbon data is required. With the thinking that: ‘What gets measured gets managed’ the first stage of the process is generating accurate reports on the current situation. While the largest companies have armies of carbon accountants and sustainability teams to collect the data and manage the process, many SMEs – albeit willing – are resource poor and looking for simple inexpensive ways to comply.
This has led to the rapid emergence of an industry of Software as a Service (SaaS) providers that generate numbers in an easy fashion. But these are seldom accurate – or particularly robustly developed – and some show an incomplete understanding of what is a wholly new type of reporting. ‘Rubbish-in, rubbish-out’ collection of data serves no purpose. While there is a place for SaaS platforms, companies need additional support, and help in knowing what numbers to collect, and how they should be accounted for. Only then can a plan emerge on how to reduce these emissions over time.
Scope for improvement
There is no easy way to record emissions, but it’s a little more manageable if you lump them into three categories, or Scopes, of increasing difficulty to manage. Scope 1 equals onsite heat, building refrigerants etc. Scope 2 is basically the energy you consume. Scope 3 is where it gets tricky – and includes everything upstream and downstream related to the manufacture, use and end-of-life of your product. Capturing this information is one challenge, but others include making sure there is no omissions, or double counting – and then ensuring each is placed in the right category.
The world is moving on from carbon neutrality, and the associated purchase of carbon offsets etc. The direction of travel is now net zero, and about actual reductions in emissions. To do that you need accurate, actionable data. And when these numbers are audited, they need to stack up.
It’s not just regulators who are set to increase scrutiny of companies’ emissions data. Not having robust numbers could well mean that companies are ousted from approved supplier procurement lists and lose business. These are the sticks, but there are plenty of carrot inducements for companies to have accurate emissions data. Cutting carbon can often mean lower operating costs and increased profitability. Companies with good ESG credentials find it easier to attract investment, and a study by the Carbon Disclosure Project (CDP) found that companies that disclose their carbon emissions data see an 18% higher return on investment (ROI) compared to non-disclosing peers.
Responsible carbon accounting
Our approach at Carbon Responsible is to support clients in getting hold of quality data and helping guide them up the maturity curve. This expert advice leads to understanding what good data looks like, where it sits in the company, how to automate that and report on a regular basis over time. This does not mean an army of people with clipboards crawling over offices and factories; most of the data needed already exists in company’s accounting departments. The skill is interrogating the information in an intelligent way, optimizing it, formatting it and creating a hierarchy of useable information.
Only once accurate data has been gathered does a well thought through SaaS platform become useful. It can digest the information and be able to produce a meaningful report, one that is verifiable, with a clearly defined audit trail. And data capture discipline needs to be maintained year after year, to ensure that progress is properly understood.
In recent years it’s been the Wild West for making wild carbon reduction targets. But you can’t make credible targets until you’ve properly measured and understood the status quo. As legislation will inevitably tighten, to make meaningful carbon reductions, the time has come to become more professional and build a solid reporting platform upon which carbon reduction strategies can be based.