Monday 20 March 2023
The conversation around Environmental, Social, and Governance (ESG) value creation for a company usually begins with policies, procedures, management systems, materiality assessments, and annual ESG reporting. Once these pieces have been established, companies begin thinking about ESG data and how technology can be leveraged to improve data reliability, ease of capture, and analysis.
In the last month, I’ve been contacted by a record number of companies, friends, other consultants, and website queries regarding the forthcoming US Securities & Exchange Commission (SEC) requirements for Greenhouse Gas (GHG) disclosures and mandatory Scope 1, 2, and 3 emissions reporting for public companies in the United States. The big questions on people’s minds are:
- How do I calculate my Scope 1 and 2 emissions?
- Is Scope 3 material to my company? And will it be required?
- How do I weave my GHG reporting into my financial reporting?
- How can I consolidate my GHG emissions into my 10-K?
- What is the SEC going to require of companies like mine?
The companies that will be directly affected by forthcoming SEC requirements presently include publicly listed companies in the US. And while Scope 1 and 2 emissions are expected to be mandatory, current expectations are that Scope 3 emissions will be required only where they are found to be material to a company. Establishing whether Scope 3 emissions are material presupposes a company has engaged in a materiality assessment. What I’m learning, as companies reach out to discuss forthcoming SEC requirements, is that so few have undergone the basic internal analysis of their ESG risks and opportunities, and their identity with regard to Environmental, Social, and Governance factors. There is an argument to be made that, as SEC introduces new mandatory disclosures, a corresponding level of support be extended to companies that have yet to set their ESG strategy, develop policies, and codify the ways that ESG is expressed throughout the investment lifecycle. Particular support and consideration is owed companies who have yet to conduct their materiality assessment, as this is the base from which an understanding of GHG emissions as a key driver of company risk and opportunity rests.
Back to forthcoming disclosures.
Since so much of my early ESG work focused on High Value Conservation (‘E’), community relationships for shared prosperity (‘S’), and company integrity (‘G’), when our investors began to require the tracking and reporting of GHG emissions, I hired an independent consultant to conduct those measurements, as it seemed like a highly technical, somewhat illusive skill set. Still, the reporting on GHG was always independent of our company financial reports and disclosures.
The prospect of linking financials to GHG emissions from company activity is much more intuitive than I realized back then. Each time a company spends money to run its own buildings or machines, or purchases electricity, or buys airline tickets for an executive, there are corresponding expenses or accounts payable.
Given that most mid-market and enterprise companies are using financial management and enterprise resource planning (ERP) platforms and given that each part of the GHG story involves a cost, it seems logical that one could link financials to GHG reporting and that the paper trail for one (financial audits) would constitute the evidence for the other (ESG assurance).
For the first time in years, I’ve been able to offer a cogent response to requests for strong carbon footprint data management, particularly that which is linked to company financials.
Enter CarbonSuite. CarbonSuite is a cloud technology platform integrated with the NetSuite cloud ERP system to enable companies as they track, monitor, and report GHG emissions.
“CarbonSuite’s mission is to use the power of cloud systems and data analytics to enable small and mid-sized organizations to effectively Measure, Report, and Verify their GHG emissions on their path to Net Zero[1].”
This mission statement, taken from the CarbonSuite website, is offered by a company that claims, ‘accountants will save the world.’ And when you consider the inextricable links between accounting systems and carbon footprint monitoring systems, their claims have merit.
CarbonSuite is presently integrated with the NetSuite (by Oracle) ERP system, enabling companies using NetSuite to leverage this integration to track GHG emissions in a way that is aligned with other key company data. Integrations with other platforms are likely forthcoming.
Rising interest and understanding of ESG in North America, met with forthcoming required disclosures by public companies has created the perfect storm of demand for technology providers who understand how to integrate existing corporate data management systems with GHG emissions tracking, enabling companies to tell a more holistic story to shareholders. Getting this piece right will be a critical indicator of company success.
Kate will be one of the instructors on our new, 5-day ESG Fundamentals course and ESG data technology will form an integral part of this course. The first course will run in London starting 12th June with other courses running in Miami, Dubai and Amsterdam later in the year. For more information or to book, please go here.
[1] https://www.carbon-suite.com/our-mission