Comment: Mandatory carbon reporting can be good for business

With an energy system still responsible for two-thirds of carbon emissions, decarbonization of energy supplies is the most critical action any business can make today to progress towards zero emissions and demonstrate climate leadership.  As the world advances in digitalization, data granularity, and carbon-free energy research, ESG targets and carbon accounting have become more sophisticated, stringent and complex. For energy and sustainability managers, this means that harnessing technology and data will be key to staying ahead of your energy management.

What’s changing for businesses in emissions accounting? The introduction of mandatory reporting standards

Starting next year, the EU and the US will implement mandatory reporting of carbon emissions, signifying a new era of accountability for businesses that have previously neglected to disclose their emissions impact. The EU's regulatory framework, proposed by EFRAG, will require emissions reporting to be conducted alongside financial disclosures, affecting approximately 50,000 companies. In the US, the SEC has proposed rules to enhance and standardise climate-related disclosures for investors, making it mandatory for all publicly listed companies to disclose climate-related information in conjunction with financial filings.

The need for accuracy to truly decarbonize

In addition to the enforcement of mandatory reporting, voluntary industry standards are changing to ensure more accurate measurement of emissions that truly reflect decarbonization efforts.

The Greenhouse Gas (GHG) Protocol not only serves as the foundation for increasingly popular voluntary carbon accounting programs like CDP and leadership schemes such as RE100 and SBTi, but also underpins the recently introduced regulatory frameworks on mandatory emissions reporting in the EU and the US. Recognizing the need to align accounting standards with actual emissions reduction achievements, the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBSCD) have initiated a public consultation to gather insights from stakeholders for potential updates to the GHG Protocol. Concerns have been raised about the limitations of market-based accounting, which allows the use of Energy Attribute Certificates (EACs) and has faced criticism for not acknowledging the physical realities of electricity grids and potential double-counting of emission benefits.

The Science Based Targets Initiative (SBTi), which guides companies in reducing emissions aligned with the Paris Agreement goals, has proposed excluding unbundled EACs in the GHG Protocol's Scope 2 guidelines. This proposal, if adopted, would have an impact on the 2,000 companies currently participating in the initiative. Many would need to update their energy procurement strategies to avoid using unbundled EACs.

RE100, a global initiative focused on achieving 100 per cent renewable electricity, has implemented mandatory additionality requirements, disclosure of renewable energy origin, and thorough claims verification. These measures ensure companies actively contribute to new renewable energy capacity, promote transparency in sourcing, and maintain the credibility of their renewable energy claims.

What does this mean for businesses?

If regulations and standards evolve to become stricter, companies may have to report higher emissions than they are used to. According to a recent study by FlexiDAO, business respondents reported less than half of their emissions using current Scope 2 accounting principles compared to if they were required to match their electricity consumption with electricity generated in the same grid region and at the same hour, a more stringent and granular Scope 2 accounting approach.

Embracing reliable data to stay ahead

To address the challenges, energy and sustainability managers can embrace reliable, granular energy and emissions data alongside advanced analytics capabilities to optimise their emissions reporting. This helps energy managers meet emerging regulations as they can have much better oversight of their energy contracts and certificates, tracking daily progress towards renewable energy goals and view deficits or surpluses of EACs or PPA production. Service providers have made great progress in automating the collection of this granular energy data and analysing it with digital tools for decision making of energy managers.

Not only can this help with accurate reporting, but understanding and having good oversight of your energy contracts can also enable data-driven decision-making for energy procurement. Businesses can pursue energy strategies that put them in a stronger climate leadership position such as 24/7 hourly matching and/or avoided emissions approaches, which both rely on tracking your energy consumption to a more granular level and making decisions that have a deeper decarbonization effect.

In a world where decarbonization is paramount, businesses must embrace reliable data and advanced analytics to stay ahead of evolving energy accounting practices. The introduction of mandatory reporting standards and demands for accuracy in voluntary accounting highlight the need for accurate measurement of emissions and increased transparency. By utilising platforms that provide comprehensive energy and emissions data management solutions, organisations can optimise their reporting, mitigate risks, and make data-driven decisions for energy procurement. By prioritising energy management when demonstrating climate leadership, businesses can contribute to a sustainable future, attract environmentally conscious stakeholders, and drive positive change on a global scale.

Simone Accornero is CEO of FlexiDAO