Access to accurate, granular GHG emissions data is essential for organizations looking to identify where to focus emissions reduction efforts, develop a strategy and track the impact of emissions reduction initiatives.

Organizations often follow an emissions reduction journey that aims to improve efficiency, introduce renewables and purchase offsets to achieve their net zero targets.

Granular data on where emissions are coming from helps direct the organization’s emissions reduction efforts. In addition, ongoing tracking of GHG emissions provides a quantified feedback loop to track if initiatives are achieving the wanted outcome.

Disclosure for ESG reporting

GHG emissions data are essential for organizations wanting to track and disclose their performance against net zero goals.

Carbon accounting informs the “E” in environmental, social and governance (ESG) reporting, which has surged in prominence amid a growing realization among investors and financial institutions that sustainability risk is investment risk, as BlackRock CEO Larry Fink highlighted in his 2020 letter to CEOs (link resides outside ibm.com).

ESG reporting frameworks require quantitative or qualitative information to be provided to receive a score or other peer-comparison benchmark. This information is primarily used by investors, shareholders and boards.

Reporting frameworks indicate how a company’s operations are likely to impact the environment as well as the likely impact of climate change on the company’s ability to generate value, financial or otherwise. Namely, this information is relevant to financial stakeholders, investors, insurers and creditors, but can also be relevant to the public.

Without exception, ESG reporting frameworks call for the disclosure of an organization’s environmental impact, which most often includes GHG emissions. Given the rise of investor interest in ESG performance, the way an organization accounts for its emissions must have as much rigor as financial accounting.

Carbon accounting is a complex process that requires access to accurate, real-time and historical energy data and factor sets. Energy data must reflect the complexity and hierarchy of the organization so that emissions can be traced back to their source for reporting and compliance.

Data must be regularly updated to allow comparisons across reporting periods so that organizations can benchmark their performance against targets. In addition, the approach to data collection and emission calculations should be rooted in internationally accepted standards.

Many organizations run their annual carbon accounting and ESG ratings calculation process by using manual data collection and spreadsheets. This leads to enhanced risk and productivity loss, especially for complex, global organizations that report to multiple frameworks. These organizations often face the following challenges:

Data stranded in silos or kept in spreadsheets: Metrics for carbon, energy, waste, water and social indicators are captured from different sources across the business, making them difficult to access in a consolidated way for reporting and decision-making.

Data quality is inconsistent and unreliable: Data captured manually increases the likelihood of inaccurate or incomplete data due to errors. Producing finance-grade reports requires confidence in the data and auditability at every step in the process, from the collection of the source data to the production of reports.

Time and cost to report on sustainability are high: The process of capturing the activity data and managing and allocating the factors required for calculating emissions is time and labor-intensive when managed manually with spreadsheets.

Ongoing sustainability performance is poorly understood: Without access to consolidated, accurate data, it can be difficult to monitor and manage sustainability performance on an ongoing basis, while tracking the effectiveness of sustainability projects.

Organizations that use dedicated ESG reporting software can address many of the challenges associated with data capture, storage and analysis. It allows them to automate the collection of their data for reporting on the organization’s performance and consolidate it into a single system of record. Also, it aids in generating important insights and delivering more impactful results.

Streamline data capture: ESG reporting software can help automate the collection of a broad range of data types throughout the year. This includes pre-defining data allocation and reporting rules, and providing a rich suite of tools to verify data completeness and quality ahead of reporting season.

Report with confidence: ESG reporting software can help produce finance-grade reports by ensuring confidence in the data and auditability at every step in the process, from the collection of the source data to the production of reports.

Drive enterprise-wide engagement: With access to a shared, trusted source of information, ESG reporting software helps make sustainability relevant across diverse stakeholder groups by providing targeted insights and empowering people to deliver sustainability results in their business area.

Focus on strategy: ESG reporting software gives organizations access to a library of compliance and management reporting templates, freeing up time to focus efforts on delivering strategic outcomes.

Simplify audit and assurance: ESG reporting software can enable an organization’s data to be easily shared with auditors via a single system that contains all supporting data, documentation and audit trails in one place.

Manage and track KPIs: ESG reporting software allows organizations to measure and track sustainability performance over time against predetermined benchmarks or key performance indicators.

Investors are increasingly scrutinizing sustainability performance alongside financial performance to inform investment decisions. In the same way that standard processes are used to capture and disclose financial data, sustainability reporting requires establishing a system and approach that delivers finance-grade GHG emissions data.

Review data accessibility and seek automation

The data required to calculate GHG emissions is often scattered across various internal systems throughout the organization, many of which can be incompatible. In addition, the data might be held by suppliers that don’t have systems and processes in place to share data. To help ensure a complete and accurate data foundation, it’s key to determine how data will be sourced on an ongoing basis.

Tips:

Consider outsourcing the data capture process to a specialist service provider.

Get as close to the original data source as possible.

Aim for automated data transfer wherever possible. Files touched by people before data collection are more prone to failure to load, precision loss and metric confusion.

Consider how you will store and manage data on an ongoing basis. A cloud-based enterprise software platform is infinitely superior to spreadsheets for this task.

Work directly with utility providers

Energy consumption data informs decarbonization strategies, so sourcing this data from utility providers through utility meters is the gold standard. This seems straightforward until you consider that there are thousands of utility providers with different rules and processes for data provision.

The resulting variability in each utility’s willingness and ability to provide data creates difficulties, particularly for organizations with multiple facilities in different geographic locations.

Tips:

Contact your utility provider and explore data-sharing options—ideally automated data provision through either an online portal or application programming interface (API) that allows data exchange.

Consider working with a specialist partner to automate the data capture process.

Include a data-provision clause in all new energy procurement contracts.

Create a robust and flexible data structure

Data must be organized in a structured way that best supports the identified decarbonization target. It’s important to consider which types of data need to be captured and how the data should be tagged and aggregated to support reporting requirements. ESG reporting software should support tagging of data at the account or meter level, which can be aggregated to both locations and reporting groups.

Once a target is in place, the first challenge is to determine how the high-level organizational target translates down to individual assets. Targets can be broken down by many dimensions, including reporting group structure, asset type, geography and emissions source. Whichever approach is used, the data structure must be configured to match.

Each asset can have absolute targets applied that roll up to the high-level organizational target. An organization might also consider intensity targets for some assets, as these can help with benchmarking emissions reductions across the organization.

Meters and accounts: The most granular data point in a data structure is usually an account or meter. Account data is utility cost data delivered on a monthly or quarterly basis. Meter data is consumption data delivered daily, typically in 15- to 30-minute intervals.

Locations: Locations are where account and meter data can both be tracked and reported for electricity, water and gas. Locations can have multiple accounts or meters of the same utility type.

Organization: Data reported at the whole-of-organization level is an aggregate of all locations and underlying data.

Reporting groups: Groups are used to aggregate data from multiple locations to assist with setting boundaries for sustainability reporting.

It’s important to help ensure a good data foundation in a flexible format to meet reporting requirements now and in the future. Central to this principle is that the data collection and storage process is auditable with traceability back to the data source.

Equally important is that it allows for flexible boundary setting globally. Specifically, easily configuring and changing reporting groups and the locations, accounts and meters that underlie them.

Baseline emissions need to be recalculated when structural changes occur in the organization that changes the inventory boundary, such as acquisitions or divestments. Structuring data into a flexible organization hierarchy can simplify the process of recalculating baselines to enable more agility in ESG reporting.

Also, important is that the data required for implementing decarbonization strategies is often scattered across various internal systems throughout an organization, many of which might be incompatible. It’s also possible that the data might be held by suppliers who don’t have systems and processes in place to share it.

Tips:

Review the detailed reporting requirements of pledges or commitments that you’ve made and help ensure that your team understands what data is needed to support them.

Regularly check and maintain metadata (tags, labels, opening/closing dates, etc.).

Set minimum KPIs for the data management process to define thresholds such as data completeness and be sure to document these decisions.

Develop processes for data management and assign ownership

Data-driven decision-making is only valuable if the data is accurate, complete and up to date. Effective data management requires dedicated attention to detail, ownership and diligence.

Tips:

Create an accountability matrix for data management and assign responsibilities to staff. This matrix should set out a regular schedule to review data completeness to catch errors with enough time to address them.

Keep a close eye on the data flowing in. Set up inactivity alerts against each data source to identify data gaps early on.

Institute a process to reconfigure formatting updates from utility supplier updates. A small change such as the column containing data within a bill can prevent your data from loading properly.

Follow up promptly with parties that have not fulfilled data provision commitments.

Create a single, trusted source to store and share your data

Data is an increasingly valuable resource for guiding business decisions, so it should be made accessible to both internal and external stakeholders. If the process is outsourced, remember that sharing finance-grade sustainability data poses as much of a business risk as financial data. Therefore, the governance structure to protect it must be similar.

Tips:

Use cloud-based storage to provide password-protected access for all stakeholders.

Use appropriate wording in supplier contracts to help ensure that data ownership rests with your organization.

Align your data capture and management plan with audit requirements.

Prepare up front for an audit and future-proof your data

The audit process is a critical step to validating reported decarbonization progress. The outcome is important to the organization’s governance, but the steps to achieve audit-ready, traceable data can be challenging.

Tips:

Consult with your auditor up front to understand their requirements and confirm that your policies for data retention and tagging are compatible.

Use a cloud-based, single system of record that includes change tracking and document storage and can easily be configured to provide access to external parties as required.

Help ensure that your data management system has the capability to store reference documents and meets core audit requirements such as change tracking, time stamping and trace-to-source capability.

Engage teams early in the process

The responsibility for energy and sustainability data management cannot fall solely on the sustainability team. There is much to be learned from organizations that have successfully tackled this challenge. These organizations have embedded policies and procedures to drive companywide engagement in data capture and management.

Tips:

Elevate the importance of GHG data capture and storage within the organization to senior-level management to encourage participation and support.

Consider internal reporting tools to provide transparency and drive accountability for data capture and storage.

After finance-grade systems and processes are in place to capture and manage sustainability data, the organization is ready to precisely calculate GHG emissions for reporting and disclosure.

The Greenhouse Gas Protocol (link resides outside ibm.com), developed by the World Resources Institute and World Business Council for Sustainable Development, has developed several accounting standards that help organizations track and measure decarbonization progress.

These guidelines inform the “E” in ESG reporting across many frameworks, including the Carbon Disclosure Project (CDP), Global Real Estate Sustainability Benchmark (GRESB), Sustainability Accounting Standards Board (SASB) and Dow Jones Sustainability Indices (DJSI).

Establish technical criteria and baseline

All reporting frameworks require organizations to draw a clear line in the sand by which to measure progress. This baseline, or existing carbon footprint, is the marker against which all future improvements will be measured. It must be accurate and appropriate.

Tips:

When setting a baseline, consider how will you define the boundaries of your activities.

Think about how to structure your data so it can be easily compared to future activity.

Determine what date is most appropriate to use. You’ll want to help ensure that your historical work on carbon reduction initiatives is not discounted.

Understand the technical requirements and considerations of the commitments that you are making. Be clear on your objectives and take the time to understand the varying technical criteria associated with each pledge platform, commitment or reporting framework, and any conflicts among them. For instance, does the pledge platform allow for the use of green energy already on the grid?

Help ensure that the required data can be sourced

Before making any commitments, it’s important to understand what data types are needed and the level of granularity required. Signing up for a commitment when you have no way of accessing the data required to measure progress toward your goal happens more often than you’d think and can be the source of many headaches.

Use resources to simplify GHG accounting

Every business is different, so it’s important to either build internal knowledge or engage a consultant for support. Once a strategic approach is in place, make sure that your ESG reporting software can capture renewable energy certificate allocation decisions, store and manage your emissions factors and calculate your emissions inventory, including market-based emissions.

Be diligent in selecting and applying emission factors

Emissions factors form the basis of GHG calculations, so using the correct ones is essential for the accuracy required. That said, the selection, sourcing, allocation and management of factors present a range of challenges.

When selecting emission factors, pay close attention to the following three considerations:

1. Region: Consider location factors that are as granular as possible. Assuming you have a presence in multiple locations, consider setting state-level regions over a full country-based region. This allows for more nuanced accounting relative to state policies, guidelines, private utility companies and so on.

2. Reporting and factor period: Emission factor updates don’t always line up with reporting timelines. Address this by setting schedules for when to source and update factors. Scheduling prevents confusion and maintains consistency between reporting periods and versions, even in years when the commitments are shifting.

3. Emissions source: Be sure to closely follow GHG accounting principles, because choosing incorrect factors can cause significant errors. For example, for ground travel emissions, are vehicles running on diesel or gasoline? If gasoline, is there a biofuel content?

Stay organized when calculating GHG emissions

Many organizations run their annual GHG accounting process by using spreadsheets, which leads to enhanced risk and productivity loss, especially for complex, global organizations that report to multiple frameworks. ESG reporting software can help you stay organized by automating data capture directly from the source and maintaining an emissions factor engine for nationally recognized carbon emissions factors. These include:

The US EPA Climate Leaders Program

Emissions and Generation Resource Integrated Database (eGRID)

Intergovernmental Panel on Climate Change (IPCC)

International Energy Agency (IEA) National Electricity Factors

Australian National Greenhouse Accounts (NGA)

Ministry for the Environment in New Zealand

Department for Environment, Food and Rural Affairs (Defra) in the United Kingdom

Establish consistency and reliability in data and processes

Certification is typically a multiyear process that is increasingly subject to third-party audits. Your GHG accounting practices must support reliable, consistent reporting that eases the audit process and allows for year-on-year repeatability and comparison.

Keep detailed records: Keeping an up-to-the-minute record of calculations and their inputs saves headaches at audit time. It’s imperative that you keep track of decisions and the reasons for them, store supporting paperwork and maintain a clear record of any changes made to the data used for certification.

Maintain data quality: Effective data maintenance requires dedicated focus, regular attention and clear lines of responsibility. Use reporting tools to keep track of data gaps and regularly interrogate data records to assess data quality.

Secure ongoing stakeholder engagement: Although commitments, targets, strategy and GHG accounting might stem from one team within your organization, the data must be sourced from a larger pool of internal stakeholders.

Ideally, a diverse group will be engaged and accountable for collecting and sharing data from the representative business units. These stakeholders can help flag potential gaps in the ability to collect data. Getting everyone’s buy-in can be difficult, so it’s important to be mindful of the challenges and address the level of effort required up front.

Tips:

Visibly engage senior-level staff in sustainability performance.

Follow an engagement plan that maps the vision and criteria for stakeholder communication efforts.

Use internal reporting tools to inform and engage stakeholders.

Stay up to date on changes in reporting frameworks. The rules associated with emissions reduction frameworks, guidelines and pledge platforms are maturing and remain subject to regular change. Keeping abreast of updates and modifications is essential.

Subscribing to update alerts from the relevant reporting authority and keeping in regular contact with your data management and reporting platform provider and your specialist consultant can help support your decarbonization efforts.

As ESG reporting becomes increasingly complex, so too have GHG accounting methodologies and practices. While GHG accounting continues to evolve and attract more scrutiny, complexities are emerging that can trip up even experienced reporters.

Under the GHG Protocol Corporate Standard, GHG emissions are divided into scopes for calculation and reporting. Scope 1 encompasses all direct emissions from an organization, including company vehicles, fugitive emissions from manufacturing processes and fuel combustion onsite, such as burning gas to produce heat.

Scope 2 encompasses indirect emissions from the consumption of purchased electricity, heat or steam.

Scope 3 requires organizations to look for implications of carbon emissions outside of their direct physical footprint, quantifying emissions through the supply chain outside the organization’s direct control.

This includes embodied emissions within resources consumed by the organization, such as paper used, waste produced, coffee consumed, and the emissions of any suppliers, which are especially important to organizations that produce physical products.

Scopes 1, 2 are the most controllable scopes for GHG accounting and reduction and the focal point of any decarbonization journey. For leading organizations under investor pressure and looking to expand their impact, Scope 3 emissions provide this opportunity.

Scope 3 accounting allows them to reach other emitters in their value chain, such as suppliers and customers, and influence them to reduce their emissions.

Accounting for renewable energy purchases with the market-based method

Several years ago, the GHG protocol updated its reporting standard to require two methods of Scope 2 emission calculations: location-based and a new, market-based method.

Traditionally, organizations were required to report their Scope 2 emissions by using a standard set of grid-average emissions factors. Following this approach, known as the location-based method, all emissions-reduction efforts are excluded from the GHG inventory.

Initially, this made sense because it enabled organizations to be compared fairly. However, it did prevent some organizations from showcasing their efforts or taking credit for their green power purchases in their emissions totals. The Scope 2 market-based approach addressed this issue.

The market-based approach instructs organizations to apply Energy Attribute Certificates (EACs), such as renewable energy certificates (RECs) or guarantees of origin, to their consumption and then source emission factors from contracts or suppliers where available.

In instances where consumption is not covered by EACs or other factors, residual mix factors are applied to consumption. Residual mix factors are similar to grid-average factors but are calculated based on electricity generated from non-renewable sources, for example, oil, gas, coal or other sources not backed by EACs. If residual mix factors are not available for a region, then standard grid-average factors should be used, because they are in the standard location-based method.

Using the market-based method can prove helpful for organizations in pursuit of intentional procurement of clean and renewable energy.

The first step of this accounting process is understanding the organization’s electricity purchases. There can be a mix of sources, especially if the organization works across various regions. When tallied, each supplier is contacted to collect their emissions factors as comprehensively as possible.

If the organization purchases renewable electricity directly, the EACs should already exist and are known as bundled certificates. These certificates can also be purchased separately from electricity and are known as unbundled certificates.

Use the GHG Protocol’s Scope 2 Quality Criteria to help ensure that these certificates can be used. Unbundled certificates must be allocated across the organization according to the Quality Criteria, with careful attention to points 4 and 5.

Point 4 requires that certificates be issued and redeemed as close as possible to the period of energy consumption to which the instrument is applied. This means it would be incorrect to allocate certificates issued in 2018 to electricity consumption from 2021.

Point 5 requires that certificates be sourced from the same market in which the reporting entity’s electricity-consuming operations are located and to which the instrument is applied. This means that it would be incorrect to allocate certificates issued in the US to consumption in the UK.

If the organization has power purchase agreements, the certificates might not exist. Accordingly, in this scenario, the emissions factor tied to the contract must be determined and documented. Only use the publicly available residual mix emissions factors that are within the region that is being accounted for if the supplier’s direct information is not accessible.

This calculation method can prove complex, which is why it’s essential that your ESG reporting platform is designed to support both location- and market-based calculation methods.

Approaching Scope 3 supply chain emissions

Scope 3 emissions present a significant opportunity for organizations to engage their suppliers to accelerate decarbonization globally. Supply chain measures put in place by relatively few end-consumer companies can yield a significant flow-on effect by reducing emissions for numerous organizations in the supply chain.

That said, this is not easy. Significant barriers exist to report and reduce Scope 3 emissions. The biggest challenges include:

Establishing boundaries between scopes.

Capturing reliable data in a systematic and auditable way across numerous suppliers and locations.

Selecting emission factors to derive accurate calculations.

Engaging with suppliers to both report and reduce emissions.

Reporting and reducing Scope 3 emissions are of most immediate relevance to organizations that report to CDP or have committed to the Science Based Targets initiative (SBTi).

They also have the most impact on organizations that operate in one of the eight supply chains that account for over 50% of global emissions, namely food, construction, fashion, fast-moving consumer goods, electronics, automotive, professional services and freight.

Tips:

Take advantage of ESG reporting software to automate what would otherwise be a painstaking manual data collection process.

Be prepared to rely on manual surveys and conversations with individuals who represent your organization’s supply chain for some of the data collection.

Maintain flexibility in the data structure between various factors. Data files provided by various supply chain members will be formatted in different ways, and your data framework must be flexible enough to ingest, process and analyze this data.

During each step, keep a detailed, thorough audit trail to explain the approach and document decisions.

Use project management and engagement tools such as Kanban boards to keep the group of stakeholders informed of the process.

Consider seeking advice from a specialist or consultant who can help resolve the challenges related to geographic spread and data management confusion.

With ESG reporting software, the data needed to report on an organization’s performance is automatically collected and consolidated into a single system of record. This allows the organization to generate important insights and deliver results. When assessing ESG reporting software, look for:

Automated data capture: ESG reporting software should automate data capture from the source to significantly reduce the time, cost and effort of reporting.

Audit trails and data health checks: ESG reporting software should help ensure that all data captured is linked back to the transaction, including an audit trail for any changes later made to that data.

Hierarchy management tools: To make meaningful comparisons of emissions over time, a GHG inventory boundary must be established between data sets. ESG reporting software should apply built-in tools that help set and manage boundaries over time.

Global coverage: ESG reporting software should support multi-country, multi-currency and multi-metric reporting. Also, it should allow for data capture in local units of measure and currencies and convert them to standard units.

Support for emission factors and carbon accounting methodologies: ESG reporting software should maintain an emission factor engine for nationally recognized carbon emissions factor data tables. In addition, it should allow system administrators to define custom time-varying factors.

Ability to set and recalculate baselines: Baseline emissions need to be recalculated when structural changes occur in the organization that change the inventory boundary, such as acquisitions or divestments. ESG reporting software should simplify the process of recalculating baselines.

Target tracking capability: Carbon accounting software should enable you to set targets to match your goal-setting and performance management practices, and to meet voluntary or compliance reporting needs.

Support for reporting schemes and industry standards: Carbon accounting software should help organize your data so it’s easy to get the outputs required for reporting to various ESG frameworks.

Investors are evaluating sustainability performance alongside financial performance when making investment decisions. Organizations are making public commitments to deliver on these outcomes.

Therefore, the processes and tools to capture and manage emissions reduction performance must meet the same robust requirements that are already in place for financial data.

Data must lie at the heart of any effective decarbonization strategy, to inform strategy and tactics and to deliver robust and verifiable reporting. Organizations that engage teams, establish robust governance processes for sustainability and energy data and use technology to derive insights will accelerate progress toward decarbonization goals and reap the rewards of a low-carbon future.