The carbon footprint of companies is coming under increasing scrutiny, with worldwide pressure accelerating for transparent, standardised and comparable sustainability data. Global standards setters like the Global Reporting Initiative (GRI) and the International Sustainability Standards Board (ISSB - IFRS) are rolling out new climate-related standards.
In the EU, larger-listed companies are gearing up for the Corporate Sustainability Reporting Directive (CSRD), obliging them to report greenhouse gas (GHG) emissions from 2025. Meanwhile, the U.S. Securities and Exchange Commission (SEC) is proposing a rule mandating enhanced carbon disclosure for public companies, starting in 2024 for large firms and 2025 for smaller ones.
Now more than ever, future-proofing your organisation requires stringent data collection. However, how to gather sustainability data, especially climate-related data, has been a big area of learning for a lot of organisations.
We recently ran a poll amongst some organisations on the challenges they are facing with regards to gathering climate data, and found that:
- 50% of respondents struggle with liaising with suppliers;
- 25% of respondents don’t know where to start when it comes to quantifying and managing Scope 3 emissions.
Drawing from my experience helping organisations with their climate reports, here are a few things I recommend keeping in mind:
#1. Engage relevant stakeholders
The first step to ease the process of climate data collection is to fully understand the needs of all the stakeholders who will be using the information. You simply cannot control what you cannot measure. Aside from government and regulatory bodies, there is also growing pressure from stakeholders for businesses to disclose sustainability data and credentials. Knowing why your stakeholders want information helps you to understand what you need to collect.
- Investors: are increasingly using sustainability (or ESG) metrics to measure the longevity of a company, playing a key role in their decision-making process.
- Consumers/customers: consumers are becoming more aware of the impacts of their expenditures. A Harvard Business Review Survey (2023) finds that new customers trust a brand’s commitment towards people and the planet.
- Employees: are increasingly attracted and retained by companies that visibly have sustainability as a core value.
Providing an honest depiction of the organisational impacts is a perfect way to start a conversation with relevant stakeholders and gain their trust. Effective management of climate data can catalyse positive change, providing organisations with a strategic edge in the evolving landscape of sustainable business practices.
#2. Identify what you need to track
Now that you have mapped out your stakeholder needs, you need to understand what kind of data is relevant to collect. This is also known as Identifying your material topics. For example, you might want to focus on environmental considerations; looking at the way energy is used, tracking the emissions of operations. After you have identified the key climate related topics that are most relevant to your organisation, you can then pinpoint the key metrics to measure them and data points to calculate those.
A simple way to get started is to undertake voluntary disclosures like CDP, TCFD, Ecovadis, GRI etc. The GRI framework for example, lays out practical steps toward stakeholder engagement and materiality assessments. While TCFD and CDP frameworks might help you identify KPIs relevant for investors and key stakeholders and Ecovadis might help you identify material topics along the supply chain.
#3. Map out climate risks & opportunities
We are at the point where climate action is a balancing act to avoid further exacerbation of climate change impacts and to keep them under a manageable magnitude.
The TCFD Framework, IFRS Standards and CSRD Regulations all classify climate-related risks into:
- Transition risks: risks related to the transition towards a low-carbon economy, such as legal, technological, market, and reputational risks;
- Physical risks: risks related to the economic costs and financial losses from extreme weather events, gradual shifts of the climate, or other indirect effects such as shortage of raw materials.
Climate data can provide useful insights to map out these risks and act before it’s too late (or expensive). Undertaking a detailed climate risk assessment will help organisations scan for exposure and vulnerability to climate hazards and the vulnerabilities of key assets, systems and other material topics identified.
It also helps organisations understand the impacts of the growing body of climate laws, liabilities, and regulations that would result in increased costs for the private sector. Mostly, it will help organisations build resilience against the impacts of climate change on market supply and demand for raw materials, commodities, and essential goods and services.
This exercise will also help organisations identify essential data owners across the value chain and streamline reporting by making the reporting process efficient and less expensive.
#4. Clarify roles & responsibilities
Identifying the right stakeholders and data owners will help organisations to centralise and structure a data collection and processing plan to help automate workflows, role assignments and monitoring. This would allow organisations to delegate data quality control to individual data owners (internally and externally) as it is crucial to implement good data management practices that focus on data quality principles such as:
- Comparability: to ensure that data collected and processed is uniform for similar operations, across different locations.
- Consistency: to ensure that the reporting cycles are uniform across various regions, and reference data (like conversions and emission factors) aligns with national data agencies.
- Accuracy: to ensure the quantification of KPIs (emissions, energy etc) are carried out systematically and uncertainties and data gaps are minimal as possible.
- Transparency: data sources, calculation methodologies, and data collection and measurement techniques are clearly documented and approaches clearly defined.
- Completeness: information used must cover all relevant parts of the value chain especially when it comes to environmental and governance data.
#5. Understand your supply chain and enhance collaboration
Once you’ve taken control of your own climate data management, you need to look at your value chain and apply many of the same principles to suppliers, because under scope 3 reporting their risk becomes your risk. Collecting climate data along the supply chain allows you to understand where your biggest impacts lie and what corrective actions you should prioritise.
This can be complex and vary from one organization to another based on location, business model, and sector. It is crucial to understand the relevant Scope 3 categories for organisations as this will help them identify stakeholders, key data points and data owners.
Engaging with an organisation’s key partners who provide valuable services like manufacturing and transportation of essential goods/raw materials, to gather data like the distances and weight of goods transported and embodied product carbon footprints of goods purchased will help organisations improve the accuracy of their Scope 3 emissions and also help their partners gain a deeper understanding of their own operational emissions.
Transparency of operations along an organisation’s value chain will help identify opportunities for partnerships and engagement that would in turn contribute to cross-sector mobilisation towards decarbonisation.
And now, you can get started!
Now it’s time to dive in and start crunching the numbers. Make sure you manage your climate data effectively by:
- Understand what scopes, KPIs and targets are required for your business. What are the key elements you want to capture?
- Identify the data owners within your organisations. Who can get this data to you from within their team or by reaching out to suppliers to get accurate data. Do you need to build capabilities?
- How can you ensure this becomes automatic? What does this process look like? Do you already have a system in place? Do you need a dedicated tool?
- Leverage the data – manage and track the metrics. Measuring and tracking feeds into decision making and actionable insights, then refine the data and broaden engagement.
To learn more about climate data management and discover how best to gather ESG Data watch our upcoming webinar.