As more organizations commit to decarbonizing their business through pledge platforms such as net-zero initiatives, the Climate Group’s RE100 program or science-based targets, the scrutiny of progress towards these goals is also increasing. These public commitments combined with increasing pressure from investors are intensifying the demand for financial-grade GHG accounting to underpin sustainability reporting and disclosure.
To facilitate accurate GHG accounting, the World Resources Institute and World Business Council for Sustainable Development have developed a number of accounting standards under the umbrella of the Greenhouse Gas Protocol to help organizations track and measure their progress towards decarbonization. But as ESG reporting becomes increasingly complex, so too have GHG accounting methodologies and practices.
Today, we highlight three key areas for attention to demystify and strengthen GHG accounting for reporting and disclosure.
1. Establish the technical criteria and baseline for reporting
Be clear on your baseline. All reporting frameworks require organizations to draw a clear line in the sand against which to measure progress. This baseline, or existing carbon footprint, is the marker which all future improvements will be measured against, so ensuring your baseline is accurate and appropriate is essential. When setting your baseline, consider:
- how you will define your scope of activities
- if your organization has access to the data required for the reporting framework
- how you can structure your data so it can be easily compared to future activity
- what date is the most appropriate to use (you will want to ensure your historical work on carbon reduction initiatives is not discounted)
Understand the technical requirements and considerations of the commitments you are making. Be really clear on your objectives, and take the time to ensure you understand the varying technical criteria associated with each pledge platform, commitment or reporting framework and how they may conflict with each other; for instance, does the pledge platform allow for the use of green energy already on the grid?
Can I source the data required? Before any commitments are made, it’s important to understand what data types you will need, and the level of granularity required. Signing up to a commitment when you have no way of accessing the data required to measure progress toward your goal happens more often than you’d think and can be the source of many headaches.
2. Be diligent in selecting and applying emission factors
Emissions factors form the basis for GHG calculation. Using the correct emissions factors is essential for GHG calculation, but the selection, sourcing, allocation and management of factors presents a range of challenges.
How do we select the most appropriate factors for our organization? Here are three primary considerations.
- Region: Consider location factors that are as granular as possible. Assuming you have presence in multiple locations, consider setting state-level regions over a full country-based region. This will allow for more nuanced accounting relative to state policies, guidelines, private utility companies, etc.
- Reporting period and factor period: Use the most recent period with granular detail to ensure the most relevant data.
- Emission source: Make sure to follow GHG accounting principles closely as choosing incorrect factors can cause significant errors. For example, for ground travel emissions, are vehicles running on diesel or gasoline? If gasoline, is there a biofuel content?
How do we stay organized? Certification processes typically command the use of the most recent factors, as even subtle updates can result in material differences. This may seem a logical requirement, but adhering to this practice can present a challenge when working with factor publication schedules that do not line up with reporting schedules. Address this by setting schedules for when to source and update factors. A schedule prevents confusion and maintains consistency between reporting periods and versions, even in years that the commitments are shifting. This routine process can be supported by your sustainability reporting platform to ensure timing is consistent each year.
What resources are available to help? Every business is different, so it’s important to either build internal knowledge or engage a consultant for support. Once a strategic approach is in place, ensure that your sustainability platform can capture renewable energy certificate allocation decisions, store and manage your emission factors and calculate your emissions inventory, including your market-based emissions. Our next article will provide a deeper explanation of the market-based emissions calculation method.
3. Establish consistency and reliability in data and processes
Certification is typically a multi-year process increasingly subject to third-party audit. Your GHG accounting practices must support reliable, consistent reporting that eases the audit process and allows for year-on-year repeatability and comparison.
Keep detailed records. Keeping an up-to-the-minute record of calculations and their inputs will save headaches at audit time. It’s imperative that you keep track of decisions and the reasons for them, store supporting paperwork and maintain a clear record of any changes made to the data used for certification.
Maintain data records.Effective data maintenance requires dedicated focus, regular attention and clear lines of responsibility. Use reporting tools to keep track of data gaps and regularly interrogate data records to assess data quality.
Secure ongoing stakeholder engagement. While commitments, targets, strategy and GHG accounting may stem from one team within your organization, the data needs to be sourced from a much larger pool of internal stakeholders. Ideally, a diverse group will be engaged in and accountable for collecting and sharing data from their representative business units and can help flag potential gaps in the ability to collect data. Getting everyone’s buy-in can be difficult so it’s important to be mindful of the challenges and to not underestimate the effort required to address this issue up front. Sustainability leaders we work with tend to:
- Have senior level staff visibly engaged in sustainability performance
- Have an engagement plan in place that maps the vision and criteria for stakeholder communication efforts
- Use internal reporting tools to inform and engage stakeholders
Stay up to date on changes in reporting frameworks. The rules associated with emissions reductions frameworks, guidelines and pledge platforms are maturing and remain subject to regular change. Keeping abreast of updates and modifications is essential. Signing up to update alerts from the relevant reporting authority and keeping in regular contact with your data management and reporting platform provider and your specialist consultant can help support your decarbonization efforts.
Delivering financial-grade GHG accounting is the foundation of accurate reporting on emissions reduction efforts. The process is not without its challenges. Based on over a decade supporting organizations with GHG accounting and reporting, we have identified three key areas that successful organizations focus on to support their efforts in this part of the decarbonization journey:
- Understand and ensure you can meet the technical criteria and requirements for reporting.
- Adopt a diligent, transparent approach to factor selection, sourcing, allocation and management.
- Set up processes and systems to support consistency and reliability of data.
Sustainability and energy teams willing to adopt these best practices will reap the benefits of a robust, auditable GHG accounting system that accurately measures the outcomes of their emissions-reduction efforts and underpins their reporting commitments.
If you’d like to learn more about using data and technology to streamline and accelerate decarbonization, download our recent ebook: Optimizing the low carbon pathway.