Step 5: Taking Action

THE FIFTH IN A FIVE-STEP BLOG SERIES

Around the same time that the Deloitte 2022 CxO Sustainability Report came out in January of this year, Larry Fink, CEO of BlackRock, published his annual letter to CEOs. In his letter, Larry included two points that are directly on point with this blog series. He says, “most stakeholders – from shareholders, to employees, to customers, to communities, and regulators – now expect companies to play a role in decarbonizing the global economy. Few things will impact capital allocation decisions – and thereby the long-term value of your company – more than how effectively you navigate the global energy transition in the years ahead.” He goes on to pose a question: “Every company and every industry will be transformed by the transition to a net zero world. The question is, will you lead, or will you be led?”

Bloomberg New Energy Finance publishes a Sustainability Indicators report monthly. The April 2022 report includes some clear trends that many companies are trying to evaluate and capitalize on before mandates go into effect. Already this year, 787 companies have either set or committed to set a science-based target in 2022. This number far outpaces the 123 companies that had made the same commitment in the first four months of 2021, and is more than all company commitments between 2017 and 2019 combined. Similarly, 345 companies made commitments to support the Task Force on Climate-related Financial Disclosures (TCFD) in the same year-to-date period.

These voluntary action examples may soon be joined by new mandatory reporting requirements. The Securities and Exchange Commission (SEC) has proposed a series of new rules, including The Enhancement and Standardization of Climate-Related Disclosures for Investors based on TCFD disclosures and the GHG Protocol reporting framework. A second SEC proposal entitled Environment, Social, and Governance Disclosures for Investment Advisors and Investment Companies would require fund managers to disclose details about GHG emissions from the companies included in their ESG-focused funds. With a reported flow of $130 billion into ESG funds already in 2022, the reporting impact could be significant.

Understanding your emissions

In the first step of this blog series, we reflected on the Deloitte CxO Survey finding that nearly a third of CxOs said difficulties in measuring the impact of their organization was a top barrier to defining sustainability priorities. While that can be a challenge, we hope our experts in this series have demonstrated that there are several proven and effective pathways to getting a better handle on these impacts. Perhaps more fluid are the issues we have raised with emissions data quality. There is a long history of relying on general emission factors to calculate emission footprints and even report emissions to regulatory agencies. These can provide valuable insight when everyone is aware that these are just estimates and represent average values. But as expectations rise that reported emissions are an accurate representation of a company’s GHG impact and can be used to drive a reduction strategy, the value of using general emission factors should be called into question.

In our experience, there can be significant differences in reported GHG emissions when using emission factors versus direct measurement. Some of our clients are now reporting emissions in multiple ways in their sustainability reports to account for required reporting methods using emission factors. They also provide alternate calculations that incorporate direct measurements they have determined to be more accurate. The environmental NGO, Environmental Defense Fund, has gone so far as to suggest that actual emissions of methane, a potent GHG, are 60% higher than what the oil & gas industry reports to the US EPA.  That reporting is based almost exclusively on the use of emission factors. The requirements of the Oil and Gas Methane Partnership, which we discuss in the second-step blog in this series, are a direct response to this discrepancy.

We believe that there will be an increasing focus on the accuracy and quality of GHG emissions data from all stakeholders. Bottom-up inventories will provide better actionable insights as to where reduction activities should be targeted, and top-down monitoring strategies will be used to monitor performance. Data management tools will continue to improve to provide near real-time insights, allow for effective trending, and support the modeling of GHG reduction strategies.

Where do we go from here?

We hope that our five-step blog series has provided you with clear actions to take towards improving and fast-tracking your emissions monitoring strategy, whether you are at the beginning of your journey or well along the path. Do you have any more questions, or just want to chat with our co-authors about best practices? Click the Contact Us button below. We’ll get right back to you. We look forward to the continued conversation on this important topic, and we stand ready to assist you and your organization get on the path toward achieving your GHG reduction goals.