For years, industries such as oil and gas have used emissions monitoring systems to measure emissions for carbon and methane to report to the Environmental Protection Agency (EPA). However, in the last few years, environment, social and governance (ESG) frameworks that consider the material impact of emissions on both organizations and community stakeholders have moved beyond emissions-heavy industries to include all organizations that touch the supply chain. Proposed rule changes from the Securities and Exchange Commission (SEC) will mean that many organizations will soon be responsible for reporting Scope 1 (emissions resulting from direct operations), Scope 2 (emissions created indirectly as a result of purchased energy) and Scope 3 emissions (emissions further down the supply chain, such as those generated by suppliers or from use and disposal of the organization’s products).
As ESG obligations move from voluntary to mandatory, a lack of standardization in reporting frameworks can make data collection, analysis and reporting a difficult task for many organizations. Some organizations disclose carbon emissions using frameworks like GRI (Global Reporting Initiative), CDP (previously known as the Carbon Disclosure Project) and TCFD (Task Force on Climate Related Financial Disclosures). There are also several environmental ratings agencies, including Sustainalytics, Bloomberg and MSCI. To meet this challenge, some jurisdictions are making efforts to find opportunities for consolidation among the many frameworks available. The European Financial Reporting Advisory Group (EFRAG) is developing the Corporate Sustainability Reporting Directive (CSRD), while other agencies responsible for frameworks such as GRI and WICI are working towards standardization.
Compliance is not the only motivator for creating an effective approach to ESG. Companies with strong ESG programs get access to capital at cheaper rates, attract and retain talent based on their reputation for environmental integrity and benefit from increased market share as eco-conscious consumers factor environmental credentials into their purchasing decisions. On the negative side, there can be significant financial penalties for companies that report inaccurate data, as regulators start to pursue organizations that greenwash their reputation without meeting their commitments.
Before organizations can think about reporting, however, they need to think about data. Accessing and analyzing data is the key to an effective approach to ESG. This is easier said than done. Many organizations still track critical processes using spreadsheets, while others have multiple digital systems that are siloed and make it almost impossible to access quality data according to any standardized approach.
Our report 5 Steps to Effective Carbon Data Management helps organizations find a starting point for understanding how their data can contribute to an effective ESG program. It addresses elements like understanding and capturing data, driving business value and understanding how workers are critical components for ESG success. With ESG quickly becoming a mandatory obligation for organizations throughout the world, the importance of understanding how to manage ESG data has never been so important for compliance and driving business value.