Unveiling the Mysteries Behind Emission Reporting
World Leaders Urge Action to Combat Climate Change as Businesses Face New Sustainability Reporting Obligations
Former UN Secretary-General Ban Ki-moon has emphasized the need for action against climate change, stating that sustainable development is the best chance for the world to adjust its course. The call for action comes as businesses are increasingly being forced to track their greenhouse gas (GHG) emissions due to regulatory pressures from the International Sustainability Standards Board and the European Commission.
New Non-Financial Regulatory Requirements
Under these regulatory mandates, businesses must disclose their GHG emissions to achieve sustainability objectives. Opting out of GHG emission reporting is no longer an option, thanks to financial standards like IFRS1 and IFRS2 related to capital market accessibility requirements.
Structuring Sustainability Reporting
Sustainability reporting is divided into three key parts: Scope 1, 2, and 3 emissions. Scope 1 refers to emissions produced by sources directly owned and controlled by the organization, such as vehicle fuel burning. Scope 2 takes into account emissions from purchased energy, like electricity used in company buildings. Scope 3, the most impactful, consists of emissions from sources outside the organization's control, such as those generated by purchased products from suppliers.
Emissions Account for Major Portion of Companies' Carbon Footprint
Scope 3 emissions, while voluntary in many cases, are increasingly being prioritized due to their considerable impact on companies' overall carbon footprints, accounting for up to 95% of emissions. Companies face challenges in reporting Scope 3 emissions due to insufficient data access and weak internal reporting within supplier networks, particularly among small and medium-sized enterprises.
Budgeting for Greenhouse Gas Reporting
While the implementation of evolving GHG emission standards may not be as costly as feared, companies need to integrate these reporting requirements into their existing financial reporting systems. Finance and sustainability professionals are encouraged to collaborate to ensure accurate GHG emissions reporting, streamline the process, and improve overall carbon reduction strategies.
Recommended Steps for Accurate Greenhouse Gas Emissions Reporting
Below are the eight essential steps recommended to ensure accurate GHG emissions reporting:
- Collaboration between CFOs and sustainability heads or operational heads in small companies
- Joint risk and relevance assessment of emissions data
- Integration of GHG emissions data into the audit committee's report
- Establishment of new internal roles and KPIs related to sustainability reporting
- Extension and expansion of accounts reporting requirements to encompass GHG reporting
- Joint training of financial and sustainability teams in GHG data collection methods and evidence requirements
- Integration of emissions reporting data into internal control systems
- Internal sharing of information to refine data collection and reporting processes.
In conclusion, by adopting best practices such as clear and comprehensive disclosure, integration of emissions software, collaboration with suppliers, and the use of high-quality carbon credits, companies can report Scope 3 emissions more accurately, tackle data access challenges, and foster holistic sustainability efforts across their value chain.
Artificial intelligence and machine learning could play a crucial role in streamlining the process of greenhouse gas emissions reporting, particularly for Scope 3 emissions, by automating data collection and analysis from numerous suppliers within a company's value chain.
Incorporating environmental-science principles in the development of such AI solutions could further enhance their accuracy and efficiency, while reducing the burden on businesses with limited resources.
Furthermore, leveraging artificial intelligence not only improves the overall transparency of businesses' carbon footprints but also allows them to make informed decisions towards reducing their environmental impact and contributing to the fight against climate change, ultimately aligning with the goals of science, finance, and business sectors.
