Why rigorous GHG reporting is fundamental to realising net zero targets: Overcoming pitfalls for meaningful disclosure

An integral tool to help achieve net zero, the purpose of GHG reporting is to provide reliable, transparent, and verifiable data about an organisation's GHG emissions. This information forms the basis of effective climate action plans, allowing organisations to identify and manage risks, cut down on inefficiencies, and inform stakeholders about progress towards environmental targets. However, the process is fraught with pitfalls that can result in meaningless disclosures if not addressed properly. This article explores why rigorous GHG reporting is essential, identifies common pitfalls, and offers strategies to support meaningful disclosure.

The imperative of GHG reporting

GHG reporting is fundamental for three key reasons:

1. Supporting regulatory compliance: Many regions are adopting mandatory GHG reporting laws to promote transparency and drive emissions reductions. Reporting assists organisations in complying with these regulations and avoiding potential financial or reputational damage.

2. Facilitating accountability: Transparent reporting allows stakeholders - investors, customers, employees, and regulators - to hold organisations accountable for their environmental impacts. It promotes trust and can boost an organisation's reputation, which is increasingly valuable in today's market where sustainability is a significant factor in decision-making processes.

3. Guiding strategic decision-making: GHG data can guide an organisation's decisions, from short-term operational choices to long-term strategic planning. It provides insights into inefficiencies and opportunities for improvements, helping organisations reduce costs and enhance competitiveness.

Pitfalls in GHG reporting and strategies to overcome them

Despite its significance, GHG reporting is a complex process, subject to several pitfalls that can dilute the purpose and utility of the data. Here are a few, along with strategies to mitigate them:

1. Incomplete scope: GHG emissions are usually classified into three scopes. Scope 1 includes direct emissions, scope 2 involves indirect emissions from purchased energy, and Scope 3 encompasses all other indirect emissions across the value chain. Some organisations only report Scopes 1 and 2, neglecting Scope 3, which often represents the largest share of an organisation's carbon footprint.

   Strategy - Broaden the scope: It's essential to broaden the reporting scope to include all three categories, particularly scope 3 emissions. While this can be challenging due to the diverse sources involved, utilising standardised reporting frameworks, like the GHG Protocol, and leveraging third-party audits can help ensure comprehensive disclosure.

2. Inconsistent data: A significant pitfall in GHG reporting is the inconsistency in data, often resulting from organisations reporting to different mandatory and voluntary schemes. This lack of uniformity can lead to discrepancies, making it difficult to compare and track progress over time. The manual collection and collation of this data can also introduce human errors and inefficiencies, further undermining the reliability of these reports.

   Strategy - Adopt international standards and leverage software solutions: To address this, organisations should adhere to internationally recognised reporting standards, such as those set out by the Task Force on Climate-related Financial Disclosures (#TCFD) or the IFRS Sustainability Disclosure Standards (#IFRS). These provide clear guidelines to ensure data consistency and comparability.

   Leveraging dedicated software solutions can significantly enhance the accuracy and consistency of GHG reports. Such software can use the same source data to produce multiple outputs aligned with different reporting schemes, without compromising the integrity of the data being reported. This not only streamlines the reporting process but also enables tracking of emissions data, thereby allowing businesses to readily monitor and manage their emissions. Software solutions can assist in evaluating different scenarios and supporting strategic decision-making towards net zero targets. By integrating software solutions into the GHG reporting process, organisations can overcome the challenge of data inconsistency and drive meaningful, transparent disclosures.

3. Uncritical dependence on software solutions: While software solutions greatly enhance the efficiency of GHG reporting, unquestioning trust on these tools can become a pitfall. Such unwavering dependence can lead to issues where the quality of the output is only as good as the input - inaccuracies in the input data will inevitably lead to incorrect outputs. If one lacks a comprehensive understanding of the process, it can result in flawed reports. Further, a lack of knowledge about the underlying methodologies used by the software can reduce an organisation's capacity to fully understand and leverage the results.

   Strategy - Engage with expertise and understand methodologies: Even while making the most of software solutions, it's crucial for organisations to engage deeply with the GHG reporting process. This involves not only understanding the nature of their data and how to interpret the results, but also having a thorough understanding of the methodologies underpinning the process. This is where the role of expert consultants becomes invaluable. They can provide the necessary guidance and insights to ensure accurate data reporting, meaningful interpretation of results, and can guide the strategic decision-making process based on these findings.

   An effective approach could be to integrate software solutions with expert human involvement. This ensures an efficient data collection and reporting process while also fostering a robust understanding and interpretation of the data. By combining the best of both worlds, organisations can make more informed decisions, driving them closer to their net zero targets with meaningful and accurate GHG disclosures.

4. Greenwashing: This involves overstating or falsely advertising a company's environmental efforts. It misleads stakeholders and dilutes the effectiveness of GHG reporting.

   Strategy - Ensure transparency and third-party verification: Transparency should be the cornerstone of GHG reporting. Providing clear, accessible, and regularly updated information helps to build trust. Additionally, independent third-party verification can lend credibility to the data and minimise greenwashing.

5. Conflating GHG reporting with comprehensive ESG reporting: Some organisations may fall into the pitfall of equating GHG reporting with comprehensive Environmental, Social, and Governance (ESG) reporting. While GHG reporting is a crucial component of ESG reporting, it is not all-encompassing. ESG reporting also includes considerations related to scenario planning, risk, and resilience management, as well as social and governance factors.

   Strategy - Broaden the perspective: Organisations should ensure their ESG reporting is comprehensive, covering not only environmental aspects, such as GHG emissions, but also social and governance factors. This would mean considering the social implications of their operations, such as labour practices, community engagement, and health and safety measures. On the governance front, companies need to examine their board composition, executive compensation, corruption policies, and more.

   Scenario planning and risk management should be integral parts of the ESG reporting process. Organisations should examine potential future scenarios, identify associated risks and opportunities, and develop resilience strategies. This ensures that the company is not only mitigating its current impacts but is also well-prepared to adapt and thrive in a changing climate.

Navigating this complex landscape can be a challenging task, and that's where we from Rennie come in. Our team of experts is on hand to help guide your organisation through the process of GHG reporting, ensuring you avoid these pitfalls and align your reporting with your overarching sustainability strategy. We're committed to helping you transition from mere reporting to realising meaningful, tangible progress toward your net zero and ESG goals.

For more information, please contact Alex Stathakis at astathakis@rennieadvisory.com.au