It's often said that knowledge is power, so it is easy to understand why data…
While most businesses publish at least some information about their emissions, the Boston Consulting Group estimates that by 2022, just one in ten will have completely quantified Greenhouse Gas (GHG) emissions reporting. But why is this so?
There are multiple answers to this question, so we go on to explore the 5 overarching challenges in GHG reporting, alongside a few indications on how to tackle them:
Excluding Material Activities or Locations From Reporting
A recent report by Climate Trace revealed that 25 of the world’s 50 largest greenhouse gas sources are oil and gas fields and production sites. Many of these facilities underreport their emissions, with limited mechanisms to hold them accountable.
Yet, the SEC requires companies to account for all operations and locations in their consolidated financials. Overlooking any of these components may compromise regulatory compliance and understate a company’s environmental impact.
Maintaining an up-to-date inventory of operational locales becomes more important as companies scale, expand, or contract. In a world where consumers are increasingly conscious of the environmental actions of the brands they support, a slip in emissions reporting can translate to a dent in brand reputation.
For complete transparency and accountability, enterprises must implement a centralized emissions database. No aspect of the business, whether a task or a location, can be overlooked with such a system in place. Also, adopting a culture of quarterly or biannual inspections for compliance could help firms remain in accordance with required reporting requirements. Instead of focusing just on data collection, launching an educational campaign that acquaints all relevant parties with the subtle needs of thorough reporting is important.
Confusion between RECs vs. Carbon Offsets
A common misconception has proven a pitfall for many: the interchangeable use of renewable energy credits (RECs) and carbon offsets. At first glance, they might seem like two sides of the same coin, but delve a little deeper, and their distinct differences emerge.
So, what’s the real story behind them? RECs are instruments that offset your Scope 2 emissions, predominantly related to electricity consumption. Each REC relates to one megawatt-hour (MWh) of electricity being generated from a renewable source and supplied to the grid. They are specific markers of renewable energy contribution.
Carbon offsets, on the other hand, offer a broader scope. These tokens represent the avoidance or removal of one tonne of CO2 equivalent from our atmosphere. Their flexibility is what sets them apart. Unlike RECs, which are strictly tied to electricity, carbon offsets can be deployed to balance emissions across a spectrum of activities.
Seeking third-party validation through partnerships with external parties to validate the legitimacy and appropriate usage of RECs and offsets can strengthen the credibility of the reported data. To institutionalize this knowledge, companies should establish a detailed internal guideline – this manual can serve as a reference point, ensuring that RECs and offsets are used correctly and efficiently. Other misconceptions between RECs and carbon offsets can be mitigated through robust education and training initiatives. Hosting seminars and workshops that elucidate the differences between the two can help stakeholders make informed decisions.
Inadequate Monitoring & Reporting Tools
There is a lot of room for mistakes and ambiguity in carbon accounting assessments, especially when it is conducted manually. Multiple companies grapple with collecting and organizing decentralized, diverse ESG data from varied sources. Without standardized data handling procedures, stakeholders and investors find it challenging to evaluate sustainability performance.
Spreadsheets make it easy for human error to creep into the accounting process, and many companies utilize models that don’t accurately reflect their emissions inventory. Valuable time and effort are wasted because of this.
UN’s Statistics Division indicates that GHG emissions reports have a disclaimer of 10-20% uncertainty, however, the number is likely to be much higher than that. Businesses should strongly consider using third-party software and data solutions when collecting and dynamically calculating intricate carbon accounting parameters. Data management solutions also provide auditing and verification of data when calculations are performed there.
Errors caused by humans may be reduced by switching from rudimentary spreadsheets to dedicated carbon accounting software. Automated verification procedures may be included in these systems so that companies may identify and rectify problems before they become severe.
Unclear Boundaries for defining GHG Accounting
If GHG auditing is a complex puzzle, determining the boundaries for greenhouse gas accounting is one of its trickiest pieces. Deciphering which emissions to factor in and which to omit is no mean feat. With emissions spanning various points in the supply chain, pinpointing responsibility becomes a daunting task.
The chasm between definitions of organizational boundaries laid out by US GAAP and the GHG Protocol further muddies the waters. Should firms focus on financial control, operational control, or equity share?
The solution lies in meticulously examining standardized methods and instruments, the GHG Protocol is a prime example. A deep dive into these resources can guide companies in demarcating their emissions scope and boundaries. Yet, in these intricate matters, external expertise could prove invaluable. Companies should tap into specialized talent pools, ensuring their emissions accounting is accurate and beyond reproach.
Adopting a standard framework, such as the GHG Protocol, and tailoring it to a company’s specific requirements is one way to reduce the complexity of GHG accounting. Given the difficulty in pinpointing precise boundaries, the advice of an objective third party may be essential. With their aid, firms may define their limits in an obvious and legal way. In addition, interdisciplinary workshops might help to see the big picture. The financial, operational, and sustainability departments may work together to set reasonable and legally acceptable limits for the business.
Issues with Scope 3 Emissions Reporting
The CDP reports that, on average, Scope 3 emissions make up about 75% of a company’s total emissions. However, this percentage can differ by industry, reaching nearly 100% for sectors like financial services. Yet, the journey towards effective management and reporting of this data proves more challenging than many corporate leaders anticipated.
But one of the underlying challenges is the internal tension many enterprises face. On the one hand, there is an escalating push from internal stakeholders and external pressures to enhance reporting processes.
On the flip side of this ambition is the practical hurdle of data quality. Reporting must be based on accurate, consistent, and comprehensive data to be meaningful, insightful, and actionable. The integrity of this data is crucial, not only for compliance but for strategic decision-making at the company’s highest echelons.
Scope 3 emissions reporting requires close collaboration with the supply chain due to its complexity. Companies may improve the quality of the information they collect by establishing solid relationships with their suppliers and other business partners. Data integrity tests should be standard practice to further confirm the accuracy of this information. We can better track, predict, and report on these emissions by deploying state-of-art AI and analytics capabilities.
With the right tools, education, and partnerships, businesses can navigate these challenges in greenhouse gas reporting and contribute to a more sustainable future. Let us look at these challenges as opportunities to improve our monitoring and reporting processes.
If you are looking for help with emissions reporting, contact us at Verdafero today for a demo on our software. We can also take care of the reporting for you. We are here to help.