8 Steps to Enhance Emissions Reporting

The European Commission’s European Sustainability Reporting Standards developed as part of the EU’s Corporate Sustainability Reporting Directive will also come into play in 2024. In this case, it is worth emphasizing that enhancing emissions reporting is an important step in sustainability reporting.

Sustainability reporting can function as an extension of existing financial reporting especially when it comes to GHG emissions accounting. Robust GHG reporting can be incorporated cost-effectively into existing systems and processes, with collaboration between finance and sustainability professionals.

Any company can follow an eight-step roadmap — building on existing systems and processes. As long as their sustainability and operational colleagues, finance and accounting professionals within are working in tandem to enhance investor-grade GHG reporting.

• Ensure the CFO/controller works with sustainability leaders and drives collaboration.

Because they oversee all parts of the business, CFOs are uniquely positioned to eliminate data silos and establish collaboration among teams, ensuring material information is collected and made available to leadership. Cross-functional collaboration involves:

Working closely with the Head of Sustainability or Environmental, Social, & Governance, or in a smaller organization, relevant operational colleagues, or external advisors

Collaborating with operations, procurement, risk, and business units to secure relevant and reliable data collection and provide integrated financial (and other) information to inform business planning, set KPIs and incentives to meet business and climate targets, and manage variances and trade-offs.

• Undertake a risk and materiality assessment together.

Risk and materiality assessments are crucial for GHG emissions accounting and reporting given they determine which issues to address, measure, and track across GHG emissions Scope 1, Scope 2, and Scope 3 and inform assessments of climate risk and opportunity. It’s important for financial and sustainability professionals to share a common understanding and application of the different requirements set by different sustainability disclosure standards to ensure the application of the GHG Protocol enables consistent reporting with financial reporting. 

Accountants play a crucial role in the materiality assessment by identifying, quantifying, and valuing risks and documenting the process including methods and assumptions used in data collection, thereby providing a robust basis for assurance procedures.

• Report to the audit committee and receive approval.

Integrating GHG emissions data into existing financial accounting processes, systems, and rules is one of the most efficient ways to ensure effective GHG reporting. Approval of the material GHG emissions sources is critical because the outcome of these assessments will determine future activities and investments to change and decarbonize the business model and will be the basis of reporting GHG emissions information to investors and others.

• Develop a new internal manual with definitions of roles, KPIs, units, and evidence.

Written policies and procedures help keep the GHG reporting process uniform across the organization. This is essential to obtain homogenous and repeatable GHG emissions data on the same cycle as financial data, which the organization at the group and entity level — as well as external stakeholders — can use, trust, and understand. 

• Expand the chart of accounts in financial/ERP and consolidation systems.

Extending existing financial systems to collect sustainability data can be more efficient than adding new standalone systems. Collecting the GHG emissions data together with the financial data, and incorporating automated controls, provides the most efficient way to ensure good quality data in organizations of all sizes. 

Accountants also have an important role in consolidating consumption data in the financial consolidation system, helping to ensure the necessary controls are in place and ensure comparability to financial information. In relation to the consolidation of Scope 3 data, avoiding double counting within the group also requires special attention.

• Train financial and sustainability colleagues in data collection methods and evidence requirements.

Finance and accounting professionals’ knowledge of systems and processes can help sustainability experts determine the best framework to apply for collecting GHG emissions data. This will ensure that coordination between sustainability colleagues and finance and accounting colleagues can appreciate each corporate’s reporting processes and how tools such as COSO’s Internal Control-Integrated Framework can be applied to GHG emissions data.

• Expand the existing internal control environment to cover emissions data.

Extending financial reporting processes helps enhance the robustness and reliability of data, giving management greater confidence in using data to inform decisions and making it easier to engage with external auditors. Group level controls also help to ensure complete data is received from individual legal entities in the group.

• Share knowledge and experiences for continual improvement in data collection and reporting.

Extending the existing framework and processes all companies have for financial reporting can make the development of a robust GHG reporting structure easier and more efficient. With finance and sustainability professionals working in tandem, organizations will be better able to set effective targets and develop credible decarbonization plans. 

In turn, those efforts can advance broader societal decarbonization efforts while also attracting investment from capital providers increasingly seeking out the most sustainable companies.

Source: 

https://hbr.org/2023/08/demystifying-emissions-reporting