Regulatory changes at the SEC and demands from large enterprise customers are requiring many small and midsized businesses (SMBs) to report the volume of their greenhouse gas emissions. Some customers are also requiring that these reports are then verified by independent third parties. The following are matters to consider during the process of greenhouse gas emissions (GHG) reporting and verification.
Selecting a GHG Reporting Framework
Similar to the decision a company makes on whether to report their finances on a cash or accrual basis or a US GAAP or IFRS basis, companies need to choose a framework for GHG reporting. The framework may be set by the regulator or enterprise customer requiring the reporting. Where a framework mandate does not exist, a company can choose its method.
The GHG Protocol, developed in the early 2000s by the World Resources Institute and the World Business Council for Sustainable Development, has become the prevalent reporting framework. ISO 14064 builds on the GHG Protocol and provides additional standards related to measuring and reporting emissions reductions, along with establishing a process for verification of GHG reporting.
Identifying a GHG Disclosure System
Also established in the early 2000s, CDP is a not-for-profit operating a global GHG disclosure system. Here, companies can post their GHG results, which investors, customers, and other stakeholders can then view. This system provides a convenient and well-known method for posting results. CDP also shares a host of resources to better understand the reported data and other aspects of sustainability.
Analyzing Your Company
Once the framework and disclosure systems have been identified, a company needs to analyze its organizational structure and determine which entities to include in its reporting. Generally, this analysis can follow a similar approach to deciding which subsidiaries to include in a company’s financial statements – via voting rights or by receiving a majority of the subsidiary’s financial benefits. By using this approach there is consistency in GHG and financial reporting, and the company is reporting for entities where it can also drive positive change in GHG emissions.
Determining Which Elements of the Framework to Analyze
Analyzed elements are often driven by customer-specific requirements. Some typical examples may include:
- Scope 1: company generated emissions. For example, through use of natural gas, heating fuel oil, company-owned fleets and planes, and refrigerants
- Scope 2: electricity used by the company
- Scope 3 Category 1: purchased goods and services
- Scope 3 Category 6: business travel
- Scope 3 Category 7: employee commuting
Once this process has been followed, the company will be ready to start gathering appropriate data and factors to calculate their GHG emissions. We will cover more information about these data and factors in an upcoming release.
Clark Nuber can help your company meet the third-party verification requirements requested by larger enterprise companies. Contact us to start a conversation about your GHG needs.
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