Moving Goal Posts with ESG and Carbon Reporting
Over the past few weeks, I have spoken to several people who are interested in ESG and each conversation turned to uncertainty about what is required for ESG (Environmental, Social and Governance) reporting. Carbon reporting is the E in ESG.
We have legislation currently before the Federal Parliament which mandates large corporations to report on ESG. The legislation provides guidance on their requirements but I suspect that like most legislation there will still be grey areas where it isn’t clear exactly what is required.
We have the International GHG (Greenhouse Gas) Protocol which is detailed and specific in how carbon emissions are to be calculated. But does the Australian legislation require the use of these Protocols? Then we have accounting standards which will dictate the reporting requirements.
So, yes, there are different pieces of the jigsaw puzzle that we need to put together to see the full picture. And right now, a few pieces of the puzzle are missing.
But what about SMEs? They aren’t directly involved in the current legislation, but they are indirectly. You see, for the large corporations to comply with their requirements, they will need the carbon emissions data from their suppliers.
For the suppliers to calculate their carbon emissions, they need the information from their suppliers. The cascade continues until it could potentially impact the very smallest of businesses.
That is unless there is another raft of legislation which sets out the ESG requirements for SMEs (or those not covered by the existing legislation aimed at large corporations). We can only hope that common sense prevails and whilst ESG is good business, the requirements for SMEs are not as onerous as those for large corporations.
The challenge today is what to do.
Do you wait until legislation requires you to act?
Do you wait until your customer(s) require you to provide the data?
Do you take action now and undertake a carbon emissions footprint assessment so that you know what your starting point is?
I recommend taking action now to get a carbon footprint assessment report. This report will provide you with a baseline to benchmark your future emissions. It will also give you insights into the key areas to focus on within your business to reduce emissions so that when you are required to provide your data to customers or as a reporting requirement, you will already have reduced your footprint.
We are proud to advise that this article was written by the team and not produced by AI.
The Importance of Fuel Consumption in Carbon Reporting
Within the carbon reporting framework, there are three major groups of carbon emissions costs. The first, called Scope 1, is fuel consumption. This reporting section specifically does not include the emissions for the production of the vehicle, the transport from manufacture to the consumer, not the emissions related to the disposal of the vehicle. Those figures are included elsewhere in the reporting framework.
Car manufacturers have been working on reducing carbon emissions in their cars for decades. Data from the US shows Toyota, for example, have reduced carbon emissions in their cars/sedans from 295 grams per km in 1975 to 157 grams per km in 2023. That’s a reduction of 53% over 48 years.
But even at 157 grams per km that equates to 1,570 tonnes of carbon per annum for a vehicle doing 10,000 km a year.
Whilst trucks and farm equipment generally are higher emitters, from an overall perspective, cars are the largest overall emitters of carbon from fuel.
So what does that mean for your business?
There are a number of ways to view the information. Firstly, it is important to be able to identify the fuel consumption for each vehicle or piece of equipment. Just because one vehicle uses the greatest quantity of fuel, doesn’t necessarily mean that it is the worst offender of carbon emissions. This needs to be cross referenced against the km travelled for each vehicle to determine the emissions per km for each vehicle.
I recently saw reference to an employee saving 30,000 km per year due to working from home rather than having to drive to his workplace every day.
Another great example is a company who reviewed the delivery routes of their truck drivers and made significant savings in kms travelled and thus fuel consumption and carbon emissions as a result.
Neither of these examples required additional costs to the company. Other options include trading in vehicles to buy newer more efficient vehicles, but that may be a costly option that cannot be undertaken in the short term.
The fact is that without gathering the data to know what your business’ starting point is, you don’t have the information to make the decisions which will improve your carbon emissions footprint.
Now is the time to gather the data and review your current, baseline, position so you can make a difference for the future.
We are proud to advise that this article was written by the team and not produced by AI.
Environmental Reporting for Marketing Purposes
Being able to say you are “environmentally-friendly” or that you run a “sustainable” business are great for marketing as consumers become more conscious of the environment and choosy about where they buy from.
But in order to make those claims, you need to have scientific evidence to back up the claim. Large companies are being sued for “greenwashing” which is where they make statements about how good they are environmentally but cannot substantiate their claims.
The best way (and perhaps the only way) is to undertook a full carbon emissions footprint assessment of your business. The old saying “what you measure, you can manage” comes to mind.
The first step is to understand what your starting point is. This is called the baseline. When you know where you’re starting and the long term goal is to reduce the carbon footprint to zero or as low as you possibly can, you can work out what the steps are to get to zero emissions.
It’s no different from working out how you’re going to get from your home to your holiday destination. You will have various options about how to get there, some will be more expensive than others, you may divert from the direct route to do something else along the way, but ultimately you know what your ultimate destination is.
The same applies to carbon footprints. Knowing the baseline (starting point) is the critical first step. Then the options on what to do next can be explored.
Carbon reporting as little as a few years ago was for the big corporate end of town. It involved sifting through substantial volumes of data, creating and maintaining complex spreadsheets and took hours of work.
Today, with automation systems like @Sumday which simplify the process and automate the mundane calculations the process can be undertaken relatively quickly. This is great news for small businesses who want to be able to use this as a marketing tool to stand out from the crowd.
There’s a window of opportunity to get ahead of the competition now as this type of reporting will become compulsory in the coming years.
We are proud to advise that this article was written by the team and not produced by AI.
The Competition Has Heated Up
The scramble for supply chain contracts is taking a new direction and it may not be what you expect. Traditionally, the key components of getting these contracts relate to price, quality, reliability and availability of volumes of product.
Now there’s a new number in the mix which will turn supply chain contracts on their head. ESG reporting, and specifically Carbon Reporting. With the upcoming legislation mandating large companies to report their carbon emissions data and the race to reduce the number to zero, the impact will be felt down the supply chain and it will happen faster than the speed of light.
There are two ways for a company to reduce their carbon emissions to zero.
Firstly, they can buy carbon credits. Carbon credits are created through various carbon sequestration programs, eg, soil improvement and increased tree canopy, to name two. Whilst this looks like an easy fix, carbon credits have to be bought (which will reduce the company’s profit) and there aren’t enough available for every company to use this option.
Secondly, they need to reduce the carbon emissions in their inputs. That is where those in the supply chain come in.
If a large corporate currently buys from two suppliers who supply essentially the same product or service. Supplier 1 has a carbon footprint of 100 CO2e per tonne, whilst Supplier 2 has a carbon footprint of 20 CO2e per tonne.
The large corporate is going to lean heavily towards Supplier 2 based solely on the carbon emissions. Even if their price is slightly higher than Supplier 1, chances are that Supplier 1 will lose their contract (or not get another contract) and Supplier 2 will get the full contract.
Think about this for a minute.
I believe that price will not be the deciding factor in contracts in the future, carbon emissions will take a higher place in the decision-making process.
To get ahead of the game, now is the time to get ready for carbon reporting and work out your current carbon footprint so that you can work towards reducing it as much as you can before your next supply chain contract renewal discussion.
We are proud to advise that this article was written by the team and not produced by AI.
One Small Business, 17 Tonnes of Carbon Emissions
You’re a small business owner and you think you can’t possibly be emitting much carbon. That’s what I thought, but I put it to the test. I undertook an assessment of my figures for the 2022 financial year.
I specifically started with the 2022 financial year because I want to see whether the carbon emissions changed in 2023 even though I was not specifically making changes to reduce the figure. The answer to that will be another article.
By assessing the carbon footprint in an earlier year, I can use that information as what is known as a baseline figure or as a benchmark against which I can compare future years. The aim is to reduce the figure to zero in the coming years.
I was shocked by the results.
17 tonnes of carbon dioxide equivalents. 17 tonnes, for my small business! That’s 17,000 kg. That’s the equivalent weight of about 4 adult African elephants, 1,370 standard gold bars, or roughly 14 small cars. That’s crazy.
Let’s delve deeper into the numbers to find the cause of all these carbon emissions.
Now I travel a lot for work, so I figured the first place to check would be my business travel and sure enough it’s a big number sitting at 4.82 tonnes. This includes airfares, accommodation and car hire.
That year, I drove long distances to see clients and attend meetings. The next place I checked was my Scope 1 fuel emissions. That’s not a pretty number either. It was 2.44 tonnes. Comparatively, that’s quite good as I did a lot more driving than what is classified as business travel. On balance, that number doesn’t feel so bad. But it’s still the equivalent weight of two small cars…
The next item I checked was my electricity consumption, Scope 2 emissions. Now I live in Canberra, so it’s either freezing cold or boiling hot. Consequently, the air-conditioner is either blasting out heat to warm me up or pushing out cold air to cool me down.
I will admit that during my first winter in Canberra, I had the electric heaters (which were in the house before we installed the air-conditioners) on full-time. That was until I got bill shock with the electricity bill. No pun intended.
As a result, the air-conditioners are only used when necessary and once the room is warmed or cooled, they are turned off. Nonetheless, the electricity consumption resulted in 2.72 tonnes of carbon equivalent emissions. Whilst I like to work at a comfortable temperature, I know I can do better with this figure.
Then there are the emissions associated with all the other costs of running my business. This includes software subscriptions, domain and website costs, membership fees, consultants fees, insurance, stationery, telephone and internet. These account for the balance of 7 tonnes, that is 41% of the total emissions.
This assessment was done using generally accepted emissions factors. What will happen over time as more businesses report their emissions data, we will be able to choose suppliers with lower emissions figures which in turn will lower our numbers.
The race is on to be the best in the business with lower emissions to attract and keep customers, whether the business is B2B or B2C.
We are proud to advise that this article was written by the team and not produced by AI.
Carbon Reporting Readiness: Key Points To Prepare
The question I am asked regularly is, “What do I need to do to prepare for carbon reporting?”.
As a starting point, there are three key areas to focus on which will make the reporting process quicker and less time-consuming.
1. Keep records of fuel volumes (this is for Scope 1 reporting).
Whilst most accounting systems will record the dollar value of fuel purchased, whether bought in bulk or filling up vehicles at the petrol station. The best practice in carbon reporting is for the calculations to be based on litres of fuel.
If your accounting records don’t have the litres purchased, talk to your accounts team and ask them to start recording it.
If you buy fuel in bulk, you need to identify how much fuel is in the tanks at the beginning and end of each financial year to work out the actual fuel consumption as opposed to the fuel purchased.
2. Keep records of volumes of electricity consumption (this is for Scrop 2 reporting)
This is similar to the fuel volumes, but in this case, it’s keeping a recrod of the kWh used throughout the year. This information is readily available on electricity bills but rarely entered into the accounting records.
The recommendation is to talk to your accounts team and ask them to start recording this information in the accounting system or ask them to create and maintain a spreadsheet with the relevant information. The decision on which method may depend on how many electricity accounts your business has.
There is a twist on this if you have an agreement with your energy provider for the supply of renewable energy, or you have an agreement with a solar or wind farm to supply electricity to your business. In these cases, the electricity conssumption from renewable energy needs to be reported separately.
3. Seek carbon reporting information from your key suppliers (this is for Scope 3 reporting).
Whilst the early reporting requirements in Australia under the National Greenhouse and Energy Reporting Scheme required only information referred to as Scope 1 and Scope 2, under the new carbon reporting requirements, companies will be required to determine their carbon footprint relating to all their costs.
Whilst there are generic emisssions factors that can be applied, the more reliable information will come from suppliers as they prepare their carbon reporting data.
Now is the time to reach out to your key suppliers and ask them whether they are preparing for carbon emissions reporting, and if not, enter into a dialoge to help them prepare for the reporting requirements.
In Summary
Now is the time to review your data collection processes to identify how ready your busines is for carbon reporting. The sooner you change your data entry to commence the collection of information require for reporting, the easier the reporting process will be.
It is also a great time to contact us to discuss your options and how we can assist your suppliers with their obligations.
We are proud to advise that this article was written by the team and not produced by AI.
Mandated Reporting Coming Soon: Here’s what you need to know
I know, it’s like all the various changes to our tax regime, we don’t like it, we don’t want it and we sure as eggs don’t want more impositions on our already hectic schedules.
But, the powers that be, aka Federal Parliament, have not one but three bills on the table which relate to carbon reporting. The key bill is referenced as the Mandatory Disclosures Bill. Due to the timing of this bill, the start date has been pushed back to 1 January 2025 from the original 1 July 2024.
The first round of mandated disclosures applies to large listed and unlisted companies. Great you say, that’s not me. But, and here’s the big but, over the coming few years, those large companies will be requesting carbon emissions data from their suppliers and that’s where you do come in.
Forewarned is forearmed as the saying goes. My take is, it’s time to get your house in order. It’s time, now, to look at the way you capture your data and start implementing changes so that your data entry includes the relevant information needed for carbon reporting. This will make it so much easier to undertake the reporting requirements.
The second bill is the Net Zero Economy Authority Bill 2024 which will establish an independent authority “to foster a positive and orderly economic transition as the world moves towards decarbonisation”.
Bottom line. We’re on this ride to carbon net zero whether we want to be or not. It feels to me just like when the Superannuation Guarantee Charge came into effect. There was a lot of pushback from the business community and specifically clients who didn’t think it was right or fair. As I said then, and I’ll say it again now, it isn’t whether you agree with the legislation, whether you agree with the context of the decisions behind it or not. It’s law (and in this case, it will be law) and you will be required to comply.
From a more practical point of view, I believe that future buying decisions will not only be made based on the financial cost, but also on the carbon cost to the company. Where large companies are stating that they are working towards the target of net zero emissions, there are only two ways they can achieve it.
One way is to buy carbon credits. This is costly and the availability of those carbon credits will not be sufficient to offset all of the world's needs to get to net zero. It may be a factor and part of an overall strategy by a company to help reduce its carbon footprint, but it isn’t the real answer.
The second way is to reduce the carbon footprint of their costs, whether that is in their internal processes or the costs associated with their supply chain.
In my view, the time is ripe for every medium-sized business to identify its current carbon footprint and start working towards reducing it in the next few years. In that way, when asked for your carbon data, you’ll be one of the good guys with a low carbon footprint emission factor and will go to the top of the list of preferred suppliers.
Businesses which fail to understand the importance of this and fail to take steps in the immediate future run the risk of losing contracts to their competitors who got a few steps ahead and have reduced their carbon footprint.
Now’s the time to take action and reach out to us to discuss your options.
We are proud to advise that this article was written by the team and not produced by AI.
From Cereal to Climate: Why information is vital for informed decisions
We need information. Without information, how can we make decisions? We certainly cannot make informed decisions if we don’t have the information available to us to understand the choices we make in our decisions.
This is true in every part of life, from deciding what cereal to buy, to what school to send our kids to, to our views and decisions about the changing environment around us.
I read an article this week about the Great Lakes in Canada/USA. The lakes are the largest freshwater system in the world. Usually, they are covered in ice over the winter months with as much as 91% coverage in February. However, there was only 3% ice coverage in February this year.
So what, you might say. And maybe, here in Australia, who cares, you might add.
My point is that this is an example of the changes in our environment, the impact of which is yet to be determined. What is clear is that there will be an impact and the ecosystem of the lakes will change.
The water temperature will rise sooner, the fish eggs that are protected by the ice will no longer get that protection, and oxygen won’t reach as low into the depths of the lakes, which in turn will reduce plankton numbers. Fish that feed on plankton won’t have the food supply they need, and their numbers will fall and so on up the food chain. The lakes will be buffeted by winter winds with shorelines eroding and the winds pushing sediment into harbours making them shallower and hazardous for boat access.
You see, you can’t deal with one thing in isolation. Every part of the world we live in is intertwined and even small changes will have an impact.
We’re not immune from changes in Australia. We know the impact drought has on our farmers and food production, we have seen the devastation wrought by floods and bushfires. Every time these weather conditions occur, the environment has to re-adjust to regain equilibrium again. More often than not the result is not the same. Native animal populations are reduced and in some instances, decimated, and plants and tree species struggle to regain a foothold. I don’t like to think about the bugs and reptiles (because I don’t like them), but they too are an integral part of the ecosystems in which they live and their populations may or may not be able to recover.
Ultimately, we need information. We need to have sufficient information to make informed decisions. Part of that process is the requirement for large corporations to report their greenhouse gas emissions. Over the next few years, those large corporations will be seeking carbon reporting data from their suppliers to meet their reporting obligations.
Now is the time to start reviewing your accounting records to make the necessary changes to ensure the ease of preparation of your carbon emissions reports in the future.
We are proud to advise that this article was written by the team and not produced by AI.
Unveiling the true environmental cost. Why complete carbon reporting data is vital for decision-making.
In the past week or so, I’ve seen a video explaining the inputs in the construction of wind turbines; steel, concrete, carbon, epoxy and so on. I’ve seen another video showing examples of how things go wrong with blades falling off, the rotor motor blowing up, a turbine falling over and more. And another referred to the area required for wind turbines being so much more than other energy generation sources.
The debate is raging and getting louder.
The problem is that there is no right or wrong answer, just decisions to consider to determine the correct priorities.
Wind farms require large areas of land, potentially reducing the land area used for food production.
Whilst wind farms are considered not to produce harmful greenhouse gases, that may be true in their energy generation, but that’s not the full picture. Greenhouse gases are produced in the construction of the actual structures, the fuel consumption to deliver them from the place of manufacture to the land on which they are erected, not to mention the impact on the ecology of the land around them.
What are the effects of wind farms on the local bird species, bird migration, and animals who live in the area which may be impacted by the continual noise? These impacts cannot be measured in terms of greenhouse gases. It is impossible to put a dollar value on this either without it being an arbitrary calculation.
But it’s not just the cost to the environment of building and operating wind farms it is also what happens to the structures when they break down or are no longer in use. Let’s be realistic here they aren’t going to last forever. What happens to all that steel and concrete and the carbon blades? They aren’t biodegradable. They aren’t reusable. They’re only good for landfills and they’re not small.
So what do we prioritise:
Food vs wind energy generation?
The ecological cost to our birds and animals vs wind energy generation?
End of life impact vs wind energy generation?
The one lesson that is key is everything is inter-related. You cannot use land that was once farmland and convert it into wind farms and expect the same quantity of food production. You cannot eliminate a bird species from an area without impacting the number of insects and bugs. Every type of ecological area is unique and carefully balanced. Make one change and it tips that balance and changes the dynamics completely.
It's all about choices. But how can we make choices if we don't have the information to make informed decisions?
Carbon reporting, and that means full carbon reporting, is essential.
We are proud to advise that this article was written by the team and not produced by AI.
Demystifying Carbon Reporting: Understanding Why We Need to Report
I remember my teenage years living in Canada where I first got seriously interested in the environment. Rachel Carson’s classic book, “Silent Spring” about the effect of pesticides on the environment was read with great interest and I became involved in the environmental movement, attending my first major environmental conference at the tender age of 16.
Over the years since then, we have become more aware of the impact we are making on the environment around us and the world as a whole. Nations around the world have gathered together to discuss potential solutions, they’ve signed Protocols and Agreements and developed global frameworks.
Legislation has been enacted requiring large corporations in Australia (and in many other countries around the world) to report on their carbon emissions..
But it’s not just the large corporations who need to be collecting the data. Every business that supplies to the large corporations will need to provide their carbon emissions figures to those large corporations so that they can provide complete data.
For example, on 17th August 2023, Coles announced that it would engage with 75% of their suppliers (in dollar value terms) to provide scientific based carbon emissions data by 30 June 2027..
You see:
Every time we use transport, cars, buses, trains and planes, the vehicles emit gases which are harmful to our planet.
Every time we turn on the power, lights, fridges, air conditioning, computers, the electricity generation emits gases which are harmful to our planet.
Every time we do pretty much anything, we are emitting gases which are harmful to our planet.
And those emissions need to be recorded and reported, and then reduced. But what are the emissions we’re talking about?
There are a number of gases which are collectively called greenhouse gases as they work like the glass in a greenhouse by letting visible light from the Sun pass through the atmosphere, but these gases absorb energy from the Earth and warm the atmosphere. Hence the term global warming. The more of these gases that are emitted into the atmosphere, the warmer the atmosphere becomes.
Carbon dioxide is the most common of the gases and is used as the global unit of measurement with all other gases converted into a carbon dioxide equivalent.
In its simplest form, carbon reporting is measuring the amount of carbon dioxide equivalents that a business (or person) has emitted.
We are proud to advise that this article was written by the team and not produced by AI.
Making Sense of the Jargon: A Simplified Guide to Carbon Reporting Terminology
GHG, Scopes 1,2 and 3, tCO2e, ESG, GRI, SBTi, cradle-to-gate, cradle-to-grave, upstream, downstream, fugitive emissions (sounds like something from a crime movie), GWP, emission factors, spend based method, activity based method, emissions intensity reporting, and the list goes on…
But the good news is that whilst the experts (that’s us) need to know all of this, many of them you don’t need to know.
So, here’s a summary of what is good for you to know.
GHG - an abbreviation for greenhouse gases. Simply put these are the nasty gases that we produce in our businesses (and personal lives) that are impacting the environment and are responsible for the increased average temperature of the planet. The most common one is carbon dioxide.
Scopes 1, 2 and 3. These are a way to separate three different sources of emissions into separate buckets so that each can be reported individually. Scope 1 is fuel consumption. Think fuel in vehicles, trucks, ships, manufacturing equipment, generators and fugitive emissions.
I love the sound of fugitive emissions, it conjures up a prisoner on the run in a movie which is exciting and potentially scary or full of suspense. But fugitive emissions are not nearly that interesting. They are the gas leaks from equipment, like refrigerators and air conditioners. It may be gas that’s leaked during servicing of the equipment, or it can be the gradual release of gases as the equipment ages and is less robust.
Scope 2 is electricity usage.
Scope 3 covers everything else a business consumes.
Carbon reporting use where possible, activity based data. For example, litres of fuel, airline miles travelled, kilowatt hours of electricity. However, where there is no activity data, we use spend based data. That is, we use the amount spent and apply the emissions factor to that.
Emissions factors. There are 10s of thousands of them, with more being added as data becomes available. I know, that’s a lot, but the good news is you don’t need to know the details of any of them. These are the numbers we use in our calculations and they are applied based on the allocations we apply to the business costs.
At the end of the day, there are two numbers that are reported. Total carbon emissions reported in tonnes of carbon dioxide equivalents (tCO2e). This figure is a total of the Scopes 1, 2 and 3 emission figures.
The second number is the emissions intensity figure. This is the figure of emissions per unit of production in the business. Examples include:
An electricity company would use emissions per megawatthour of electricity generation,
A farmer would use emissions per tonne of produce
A tech company may use emissions per equivalent full time employee
A consulting company, like mine, would use emissions per dollar of revenue
As the requirements for reporting carbon emissions increase, we will start to see more emissions intensity figures. I believe that these will become a requirement on food packaging, white goods will not only have their energy ratings but also the emissions intensity figures. We will be making buying decisions based on emissions intensity figures before long.
We are proud to advise that this article was written by the team and not produced by AI.
Photo by Emiel Maters on Unsplash
Charting the Course: A Historical Perspective on Carbon Reporting Standards
Whilst knowing and even remembering important events and dates in history is not required to undertake carbon reporting, it is useful, I believe, to understand how this has evolved over time.
In 1974 R.G. Hunt developed the first carbon accounting framework called the Life Cycle Assessment (LCA). The LCA method was created to track the environmental impact of products and services from raw materials, through usage and subsequent disposal. This concept of encompassing the data for the entire life cycle of the product or service is also known as “cradle-to-grave”. A term which is used today.
In 1987 the United Nations held a meeting in Montreal which resulted in the signing of the Montreal Protocol where 198 countries agreed to ban ozone depleting substances but reducing the production and usage of those products. The most well known of these were the chlorofluoracarbons (CFC’s) which were used in aerosols, solventl and refrigerants.
This was a milestone agreement where not only was the Protocol agreed unanimously, but it ratified the idea that the actions we take were depleting the ozone layer and impacting the environment of the planet.
Ten years later, in 1997, the United Nations met in Kyoto and ratified the Kyoto Protocol where the signatories agreed to reduce carbon emissions 5% below the level in 1990. Different targets were set for different countries to take into account their relevant capabilities in achieving the targets. The targets only applied to developed countries.
In 2015, the Paris Agreement was signed expanding the emissions reduction targets to apply to developing countries as well. This agreement was signed by 193 countries who agreed to work to limit global warming to less than 2 degrees and preferably less than 1.5 degrees below pre-industrial levels by 2050.
It was during the Kyoto meeting that the GHG (greenhouse gases) methodology was developed. The first iteration of the GHG Corporate Standard was published in 2001 with amendments in 2004. This is the global standard that provides the framework for every business around the world to report their carbon emisssions data.
Building on the Corporate Standard, in 2011, the Corporate Value Chain (Scope 3) and Product Life Cycle Standards were issued.
All carbon reporting undertaken now uses the GHG Protocol standards.
We are proud to advise that this article was written by the team and not produced by AI.