27 January, 2023
Corporate carbon footprint disclosures are not new. It has been over five years since the Task Force on Climate Related Financial Disclosures (TCFD) launched their recommendations for how companies should report on climate change. The CDP, the world’s leading disclosure system for voluntary climate reporting, was founded in 2000.
Many companies have, for some time now, been calculating and reporting carbon footprints. Crucially, however, they have for the most part been doing so voluntarily and with limited scrutiny. This will not continue. Markets around the world are moving towards mandated disclosure of audited climate (and other sustainability) data, with plans already in place in the US and EU.
Increased rigour in climate and ESG data collection is a good thing – it means that companies will have more and better information with which to set targets and make plans. It also means that more stakeholders within the business will be involved in tracking climate metrics year-round, strengthening oversight of emissions-generating activities and engaging more of the workforce in climate action. And it is reasonable to assume that once consistent disclosure is in place, and comparisons can be made, improvements and progress will follow.
But collecting this data in a manner that meets the exacting standards of third-party assurance will be a monumental challenge for businesses. Most climate data collection is done within sustainability divisions, many of which lack the resources or controls to collect high-quality well-documented data. These systems must be strengthened, with checks and processes akin to those used for producing financial statements. Some businesses may find that it makes sense to shift the entire process to accounting departments to take advantage of their expertise in this domain.
Regardless of the approach they choose, all companies should be looking ahead and planning for better ESG data collection. Those who don’t will find themselves on the back foot – or, worse, the wrong side of regulations.
By Louise Podmore