In today’s business landscape, sustainability has emerged as a critical aspect of corporate responsibility. As companies strive to minimize their environmental impact and enhance their social contributions, the need for formalized sustainability reporting becomes increasingly apparent. 

The concept of sustainability has expanded over the last decades to encompass so much more than “going green” and the available standards that could form the backbone of a corporate sustainability report make up a veritable alphabet soup of acronyms. While they all have some overlap, they each are designed to prioritize specific elements of sustainability depending on the sector and region.

Among the various frameworks available, the Greenhouse Gas (GHG) Protocol stands as a widely recognized and respected methodology for measuring and reporting corporate greenhouse gas emissions. 

If you’re just starting to design your sustainability report and your focus lies on carbon reporting and meeting Net Zero targets, the GHG Protocol will provide you with high quality data that provides value to your organization and stakeholders.

Benefits of GHG Reporting

Why undertake GHG reporting at all? These days it can feel like everyone from small businesses to multinational organizations claims to be sustainable. But that’s actually a good thing. 

The deadlines to meet our obligations under the Paris Agreement are approaching. By 2030, businesses will have to have reduced their carbon emissions by 30% from baseline numbers. 

If you’ve looked at the news lately, it feels like there are stories of extreme weather – from wildfires to droughts to floods – every day all over the world. The opportunity to prevent climate change has passed. All we can do now is mitigate the damage by slowing rising temperatures.

Beyond slowing climate change, which takes contributions from all levels of business and government, companies undertaking climate action can see a number of other benefits, including: 

1. Enhanced Corporate Reputation and Brand Value

GHG reporting demonstrates a company’s commitment to sustainability and responsible environmental practices. By disclosing their GHG emissions and reporting on year-over-year reductions and showcasing efforts to reduce them, businesses can build a positive reputation among customers, investors, employees, and other stakeholders.

2. Responsible Investment Opportunities

With more and more investors focusing on environmental, social, and governance (ESG) factors in their decision-making process, businesses that actively engage in GHG reporting and reduce their carbon footprint are more likely to attract responsible investors. Actively striving toward meeting ESG goals can enhance corporate resilience and profitability, giving these companies an advantage in the eyes of investors and financial institutions. 

3. Cost Savings 

When we talk about energy efficiency in the context of sustainability, a lot of emphasis is put on backend emissions like carbon dioxide. But as businesses identify areas with high emissions, they can also identify opportunities for improved resource efficiency and cost savings. 

Implementing energy-efficient technologies, adopting renewable energy sources, and optimizing processes can lead to reduced operational costs and enhanced competitiveness.

4. Reduced Regulatory and Legal Risks

As governments worldwide intensify efforts to combat climate change, environmental regulations are becoming more stringent. By voluntarily engaging in GHG reporting, businesses can proactively identify areas of non-compliance and work towards meeting regulatory requirements. 

Companies who proactively assess their climate risks are better positioned to adapt to evolving climate policies, while reducing the risk of potential fines, penalties, or reputational damage associated with non-compliance.

5. Improved Supply Chain Resilience

Modern GHG standards take a holistic view of sustainability, recognizing that no business operates in a vacuum, and that maximum benefits can be achieved by understanding climate impacts, risks, and opportunities up and down the value chain. 

The GHG Protocol and other standards require that reporting not only assesses an organization’s direct emissions (Scope 1) and energy consumption (Scope 2) but also considers emissions associated with its supply chain (Scope 3). 

By evaluating the carbon footprint of suppliers and partners, businesses can identify vulnerable points in their supply chain and work collaboratively to reduce emissions collectively. 

6. Enhanced Employee Engagement and Talent Attraction

The labor market of the 2020s has seen drastic change compared to past decades. Employers have to work harder than ever to attract and retain talent. Employees are increasingly seeking purpose-driven workplaces that prioritize sustainability and environmental responsibility. 

GHG reporting signals a company’s commitment to addressing climate change and promoting a greener future. Engaging employees in sustainability initiatives and reporting progress can foster a sense of purpose, pride, and commitment to the organization’s mission. Additionally, it can attract top talent, especially among younger generations, who are passionate about environmental causes.

7. Innovation and Competitive Advantage

Sustainability reporting can act as a catalyst for innovation within a company. The pursuit of emission reduction targets often drives organizations to explore new technologies, products, and services to help them reach their sustainability goals. These innovations can lead to a competitive advantage as businesses differentiate themselves in the market.

What Is the GHG Protocol?

The GHG Reporting Protocol, sometimes called the GHGRP, was developed by the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD). 

While other sustainability and ESG standards may focus on many different elements including water and forest conservation, diversity and inclusion, ethics and transparency in leadership, the GHG Protocol focuses exclusively on GHG emissions. It provides a standardized and transparent methodology for companies to measure and manage their carbon footprint accurately.

The GHG Protocol is designed to be implemented across sectors and geographic regions. As such, the requirements can be broadly interpreted to make them relevant to organizations regardless of their business activities. They include reporting on three scopes of GHG emissions.

What Are Scope 1, 2, 3 Emissions?

As discussed above, successful implementation of GHG-reduction targets and programs requires a holistic approach that isn’t limited to a business’s activities within their own facilities. As such, the GHG Protocol requires reporting on scope 1, 2, and 3 emissions.

At first glance there can appear to be a lot of overlap between the scopes, and it’s important to understand how they’re different so reports don’t double count emissions. 

• Scope 1: Direct emissions from sources that the company owns or controls, such as emissions from company-owned vehicles or on-site manufacturing processes.
• Scope 2: Indirect emissions generated from purchased electricity, heat, or steam consumed by the company.
• Scope 3: Indirect emissions occurring in the company’s value chain, including emissions from suppliers, customers, and transportation of goods.

Successfully measuring or estimating emissions from all three scopes means collecting information from a variety of different people and departments within your organization, as well as others up and down the supply chain.

The GHG Protocol Corporate Standard

Because the GHG Protocol is meant to be used by organizations regardless of sector or location, it is in fact divided up into a number of different standards, including a community standard for municipalities, and a product standard to help organizations understand emissions throughout a product’s full life cycle.

The Corporate Standard is designed to provide guidance for businesses on estimating their climate impacts as well as potential risks and opportunities in their operations. Completing reports in accordance with the standard involves six steps. 

Step 1: Organizational Boundary and Scope Definition

For businesses new to sustainability reporting, the first step is to identify the organizational boundary and define the scopes. This involves determining the extent of the company’s operations, subsidiaries, and joint ventures to be included in the reporting. 

Step 2: Data Collection

Accurate data collection is crucial for credible sustainability reporting. To start, 

• Identify the sources of emissions within each scope
• Consider the type of energy used, fuel consumption, and business activities
• Contact relevant departments, such as procurement, operations, and finance, to gather the necessary data

Along with being accurate, data collection needs to be done as efficiently as possible. This phase is often where sustainability programs go off the rails. Reporting teams may spend so much time collecting data they don’t have time to bring value to the organization through implementing changes and striving to reach reduction targets.

Step 3: Emission Calculation

Once the data is collected, calculate the emissions for each scope using the emission factors provided in the GHG Protocol. These factors are region-specific and help convert energy consumption data into equivalent greenhouse gas emissions. Emission factors for processes like natural gas combustion have been used and verified for decades and are considered to be reliable high-quality data.

The GHG Protocol Corporate Standard includes calculation tools and guidance that can be used by a wide variety of reporting organizations. The tools include cross-sector calculators for emissions sources like stationary combustion that are present in a large number of businesses, as well as geographically- and sector-specific tools.

Step 4: Setting Targets and Goals

As part of your sustainability journey, it’s essential to set ambitious yet achievable sustainability goals. These targets can be based on various factors, such as reducing absolute emissions, improving energy efficiency, or promoting renewable energy use. Ensure that the goals are measurable and time-bound to track progress effectively.

Sustainability reporting isn’t a one-time event, and the changes needed to achieve documented targets can involve capital expenditures or process alterations. As such, it’s important to document year-over-year progress toward achieving targets and provide context for when you may be behind timelines, or where your efforts exceed expectations.

Step 5: Verification and Assurance

When possible, it’s recommended to seek external verification or assurance of the reported data. Independent verification adds credibility to the report and demonstrates the company’s commitment to transparent and accurate reporting.

Step 6: Reporting and Communication

Transparency is a critical component of sustainability reporting. Consumers, investors, and the community are all expecting companies to be open about their efforts to reach global GHG reduction targets. 

Once your report is complete, a copy should be made publicly available. This is usually done through a company website, or the report may also be included with other documents like financial reports. 

Overlap With Other Sustainability Standards

As we mentioned at the start, the GHG Protocol is one of many sustainability standards and frameworks available to businesses. While the GHG Protocol focuses exclusively on carbon emissions, others provide a bigger picture and include other areas of ESG. 

You may find that your sustainability needs go beyond GHG reporting, or that investors and financial institutions are expecting a report compliant with a particular framework or standard. 

The GHG Protocol is designed to complement other sustainability initiatives like the Global Reporting Initiative (GRI) standards or the proposed SEC Climate Disclosure Rules.

The goal of any program is never to create an undue reporting burden, but to help organizations understand how sustainability can be used to benefit business, reduce risk, and meet the goals and priorities set by financial institutions, government, and other stakeholders.

Ready To Start?

The GHG Protocol offers a robust framework for measuring and reporting greenhouse gas emissions, providing a solid foundation for businesses venturing into sustainability reporting. By following the protocol, companies can embark on their reporting journey with confidence, ensuring transparency, credibility, and a positive impact on both their business and the community.

But sustainability only brings value to the organization when reports are prepared conscientiously and the whole organization buys into the work required to meet targets. If all your team does is spend all year collecting data and building reports, there is no time left to follow through on opportunities and identify areas for improvement in achieving targets.

A partner like FigBytes can help get your sustainability program off on the right foot from the beginning. The all-in-one sustainability platform streamlines data collection so that it can be entered by the people who have the information at hand, rather than going through a tangle of spreadsheets and email chains. 

FigBytes is designed to already be compliant with sustainability standards like the GHG Protocol. This means less of a learning curve for you. FigBytes will walk you through the necessary data collection and manage the calculations for you using the approved emission factor methodologies. The reports can also be customized to meet the needs of company leadership, stakeholders, and investors.If you’re ready to jumpstart your sustainability journey, FigBytes can help. The first 2030 Paris Agreement deadline is getting closer all the time, and we can help accelerate your progress so you can meet your targets and see real benefits for your organization. Contact one of our experts today to discuss your needs and find out more.

In an era of increasing global challenges, businesses have a critical role to play in addressing the ongoing sustainability of humanity. Sustainability has moved beyond the demand for “green” products or improving energy efficiency. Today, sustainability touches every aspect of business, from supply chain management to ethical business practices to financial reporting.

Corporate sustainability reporting has emerged as a powerful tool to foster transparency, accountability, and positive change. By systematically measuring, disclosing, and communicating their environmental and social impacts, companies can align their operations with sustainable development goals while generating long-term value for stakeholders. 

But what exactly is sustainability, and how is it reported in business contexts? More importantly, how can corporations create sustainability programs and reporting that are meaningful to stakeholders like customers and investors, without wasting valuable time and resources?

What Is Sustainability?

Although the term “sustainability” gets used a lot in the business community, definitions and priorities vary. What is considered a sustainable business practice in one industry can be very different from another. And what is possible to achieve sustainability will also be different from one jurisdiction to the next.

It helps if we think of sustainability as a goal rather than a methodology. Whether we’re talking about reducing greenhouse gasses, improving human rights in the labor force, or adopting transparent leadership practices, these may all fall under the umbrella of sustainability for specific businesses.

If you’re looking for a specific list of outcomes that could be achieved through sustainability, the United Nations Sustainable Development Goals (UN SDGs) provide a list of 17 goals to be achieved by 2030. These are:

1. No Poverty
2. Zero Hunger
3. Good Health and Well-being
4. Quality Education
5. Gender Equality
6. Clean Water and Sanitation
7. Affordable and Clean Energy
8. Decent Work and Economic Growth
9. Industry, Innovation, and Infrastructure
10. Reduced Inequality
11. Sustainable Cities and Communities
12. Responsible Consumption and Production
13. Climate Action
14. Life Below Water
15. Life on Land
16. Peace and Justice Strong Institutions
17. Partnerships to achieve the Goal

Achieving these sustainability goals would change not only the business community but the world in general. But without proper frameworks, quantifiable targets, and verified methodologies, these goals are difficult to tackle. 

Why Is Sustainability Important?

Sustainability is more than just a feel-good exercise to be shared on a website. Businesses who adopt sustainability as part of their operations find that it yields a number of different benefits. 

First, sustainability reporting helps organizations identify and manage risks and opportunities. It enables companies to proactively address potential negative impacts on the environment and society, mitigate reputational risks, and identify innovative solutions that lead to operational efficiencies and cost savings.

Secondly, sustainability reporting enhances transparency and accountability. Companies can build trust with stakeholders, including investors who increasingly consider sustainability factors in their decision-making processes. Transparent reporting allows investors to make informed investment choices and encourages responsible investment practices.

Third, sustainability reporting promotes effective stakeholder engagement. By engaging with communities, customers, NGOs, and other stakeholders in a meaningful dialogue organizations are able to foster collaboration and build relationships. Ultimately, this helps companies better understand the expectations and concerns of different stakeholder groups.

What Sustainability Is Not

If sustainability is a goal, then it needs defined targets to make it meaningful. Businesses have already made significant strides over the past decades. They have reduced the use of hazardous chemicals, introduced safer labor practices, and incorporated energy efficiency into purchasing decisions. Surely that must mean they are sustainable?

The answer is, at best, maybe? Without a means of quantifying progress and proving when goals have been achieved, every business is both sustainable and not, all at the same time. 

Companies who want to show they have achieved sustainability need to adopt some kind of framework and standardize their reporting. This allows them to show their progress year over year, and empower stakeholders to compare that progress to other organizations within the same industry or jurisdiction.

The UN SDGs help to standardize efforts toward sustainability by increasing granularity, but they in and of themselves don’t provide methodologies for achieving the 17 goals. To find methodologies and frameworks, we need to look toward published sustainability and Environment, Social, and Governance (also called ESG) standards.

What Sustainability and ESG Standards Are Available?

Several sustainability and ESG reporting standards exist to guide companies in their reporting journey. Here is a list of some widely recognized standards:

• Global Reporting Initiative (GRI): The GRI Standards are the most widely used framework for sustainability reporting. They provide a comprehensive set of guidelines for companies to report their economic, environmental, and social impacts. The GRI Standards offer flexibility and allow companies to tailor their reports to their specific circumstances.
• Sustainability Accounting Standards Board (SASB): SASB provides industry-specific standards for reporting financially material sustainability information. These standards help companies identify and disclose ESG issues that are most relevant to their industry and stakeholders.
• Task Force on Climate-related Financial Disclosures (TCFD): TCFD provides recommendations for companies to disclose climate-related risks and opportunities. The framework assists businesses in assessing and reporting their climate-related financial impacts, ensuring that investors have consistent and decision-useful information.
• CDP (formerly the Carbon Disclosure Project): CDP is a global platform that encourages companies to disclose their environmental data. It focuses on climate change, water security, and deforestation, providing insights to investors and companies on how to manage and reduce environmental risks.

There are also a recent number of geographically-specific standards. These were developed to provide consistent reporting within a particular jurisdiction. Examples include the BRSR in India, the CSRD in Europe, and the proposed  SEC Climate Disclosures in the US.

The requirements in each standard will vary, depending on the priorities of the organization who has prepared it and the intended use of the data. Some ESG standards are designed with specific end users in mind, like investors or insurance underwriters. As a result, the content and format of the report will vary to meet these diverse needs.

What Is Included in a Sustainability Report?

The specific information in each sustainability report will depend on the standard being followed and the company doing the reporting, but generally you can expect to see the following information:

• Executive Summary: This section provides a concise summary of the report, highlighting key achievements, challenges, and future sustainability goals. It serves as an overview for business leaders to quickly grasp the organization’s sustainability performance.
  
• Company Profile: This section provides an introduction to the company, including its mission, values, and overall business strategy. It describes the business’s operations with details like its location, the size of the facilities and workforce included in the report. It also outlines the organization’s commitment to sustainability and how it aligns with its core business activities.
  
• Materiality Assessment: A materiality assessment identifies the most significant environmental, social, and governance issues for the organization and its stakeholders. This section explains the process of identifying material issues and how the company plans to address them. This section is critical to building an effective and relevant sustainability program.
  
• Environmental Performance: This section focuses on the company’s environmental impacts and initiatives. It may include information on energy use and efficiency, greenhouse gas emissions, water usage, waste management, and efforts to mitigate environmental risks and take advantage of environmental opportunities.
  
• Social Impact and Stakeholder Engagement: Here, the report highlights the organization’s efforts to address social issues, such as employee well-being, diversity and inclusion, community engagement, and philanthropy. It may also discuss stakeholder engagement strategies and initiatives.
  
• Governance and Ethics: This section provides insights into the organization’s governance structure, ethical principles, and risk management practices. It may include information about board composition, executive compensation, anti-corruption measures, and policies on responsible sourcing.
  
• Performance Indicators and Targets: Having quantifiable targets is critical to showing progress year over year. This section discusses performance against targets and benchmarks, allowing decision makers to assess the effectiveness of sustainability initiatives.
  
• Future Goals and Strategy: This section outlines the company’s sustainability roadmap, including its long-term goals and strategies. It demonstrates a forward-looking approach, indicating the organization’s commitment to continuous improvement and innovation.
  

The goal of using published sustainability and ESG standards to prepare reports is consistency. End users want to be able to see and understand the organization’s progress over time, and be able to compare it to other companies within an industry or investment portfolio. 

It is often a requirement of sustainability reporting standards that the final report – or at least summary of it – be made publicly available. This enhances the organization’s commitment to transparency and accountability. Some organizations, like the CDP will also give an independently-verified score to give readers an at-a-glance idea of sustainability performance.

How To Collect Data for Sustainability Reporting

One of the most time-consuming aspects of sustainability reporting is often data collection. Depending on the size of your organization, a number of different individuals and departments can be involved. These could include teams like:

• Purchasing
• Accounting and finance
• Human resources
• Production and manufacturing
• Maintenance
• Environmental, health & safety management

Modern sustainability standards often also require data to be collected from the supply chain and customers. The goal is to provide a holistic picture of sustainability risks and opportunities, including factors like greenhouse gas emissions involved in the transportation of raw materials, as well as safe disposal of products at the end of their lifespan. 

The team involved in data collection is generally responsible for: 

• Identifying relevant data sources and collecting data in a consistent and accurate manner
• Collaborating with other departments to gather necessary information
• Ensuring data quality, including data accuracy, completeness, and timeliness
• Implementing data management systems or software to streamline data collection processes
• Conducting regular audits and validation processes to verify the integrity of data
• Documenting data collection methodologies and maintaining an audit trail for transparency and verification purposes
• Adhering to reporting frameworks and standards to ensure compliance and comparability of data

If there are any changes to data collection from year to year, these need to be carefully documented because it will impact performance data and may give an inflated sense of progress. 

For example, the highest data quality is always direct measurement, but this may not be immediately available for organizations new to sustainability reporting. Standards allow for estimates based on production rates, facility size, or other published emission factors. However, if directly measured data becomes available, the current report will need to accurately reflect this change to provide important context.

Make Sustainability Reporting Easier

If you’re new to sustainability reporting, it can be hard to know where to start. Even deciding which standard to follow can feel daunting. The data collection learning curve is steep and with so many people and departments involved, it can be easy for costly miscommunications and delays to occur.

It’s not uncommon for sustainability reporting to feel like a year-round undertaking. The team may feel like they spend the whole year collecting data and building reports, only to have to start all over again the following year. With so many months spent on data gathering, there’s no time left for implementing the improvements needed to progress toward sustainability goals. 

To avoid making sustainability feel like a paper exercise that brings no value to the organization, efficiency is the name of the game. You need your team to get up to speed on the relevant standards as quickly as possible, streamline data collection, and generate reports that are meaningful to all stakeholders.

A sustainability software partner like FigBytes can do a lot of the heavy lifting for you. It’s designed to make data collection easy, using a cloud-based platform that can be shared with users throughout your organization and even up and down the supply chain. Annual updates are made simple, and the software keeps up to date on relevant standards for you, so you know your sustainability report is compliant.

If you’re not sure where to start, or if you’ve already begun reporting and need help making the process easier and more valuable, FigBytes can help. Speak with an advisor today to find out more.

The 2050 deadline to meet the Paris Agreement commitments for a net zero economy may still feel like a distant date, but the time to act is now. The first checkpoint in 2030 is only seven years away, and we need to cut emissions by at least 45% by then; a challenge when global emissions continue to rise.

But while a lot of the focus is on resource-intensive industries like oil & gas, the financial sector has a critical role to play if we’re going to reach our net zero goals. Initiatives like Environmental Social and Governance (ESG) reporting are designed to help businesses from all sectors understand their carbon emissions and how to reduce them. In particular, standards like PCAF Carbon Accounting are designed specifically for the financial sector.

Why Do Financial Institutions Need ESG Reporting?

When the general public imagines a business undertaking things like carbon accounting, it’s easy to picture how it works in sectors like manufacturing, power generation, and oil & gas. These can be emissions-intensive sectors and it’s simple to envision what activities they might undertake to reduce their carbon footprint.

With financial institutions, there may not be significant direct emissions like there are in other sectors. But that doesn’t mean these institutions can’t have an impact on the global carbon landscape. Banks around the world still have $4.6 trillion invested in the fossil fuel sector. That investment means there is a significant potential to direct the future of the industry.

Banks play a critical role in moving businesses toward a net zero economy. Their investment will help facilitate the transition to low- or no-carbon activities. Financial institutions need a standardized methodology to show progress and identify risks and opportunities within an investment portfolio.

What Are Financed Emissions?

Financed emissions refer to the portion of carbon emissions that are made possible by a financial institution’s investment. Depending on how that investment is structured, it could be estimated as the organization’s entire carbon footprint, or a proportion based on the size of the investment versus the company’s complete debt and equity.

Ultimately, financed emissions is about calculating the absolute amount of carbon generated and released, as well as the amount recaptured or avoided, as a result of the institution’s contribution to the economy.

What Are the Available ESG Standards?

There are a variety of ESG standards that have been developed and consolidated over the years. The goal is always to standardize climate and sustainability reporting so that investors and stakeholders can easily compare data on an annual basis and between businesses across sectors and in different countries.

Some of the ESG standards include:

• CDP – applicable to public and private sectors, the CDP includes reporting focusing on climate, water and forestry. For reporting organizations, their CDP Score is made publicly available each year.  
• ISSB/SASB – a relatively new standard, this standard aims to integrate sustainability reporting into financial reports 
• TCFD – this framework is designed to help investors, lenders and insurance underwriters make informed decisions among their portfolio and assets
• BRSR – India’s new ESG standard was introduced in early 2023 and requires reporting beginning with the 1,000 largest companies in the country
• CSRD – an EU-specific ESG standard, the roll out of this standard will begin with the largest companies in 2024, but will ultimately require reporting from small and medium-sized businesses too
• SEC Climate Disclosure rules – still in development, this American standard will mandate ESG reporting as part of SEC filings
• PCAF – while many standards focus on helping organizations quantify direct emissions and impacts of their operations, the Partnership for Carbon Accounting Financials (PCAF) is designed for financial institutions to help them measure climate impacts of their portfolio

What Is the PCAF Standard?

The PCAF Standard is also called the Global GHG Accounting and Reporting Standard. It’s designed to assess and quantify GHG emissions in the financial sector. There are three parts to the standard. These are financed emissions, facilitated emissions, and insurance-associated emissions. 

The standard for financed emissions include reporting guidance across a number of financial asset classes including:

• Listed equity and corporate bonds
• Business loans and unlisted equity
• Project finance
• Commercial real estate
• Mortgages 
• Motor vehicle loans
• Sovereign debt

The facilitated emissions standard is new in 2023 and has yet to be fully released and will provide guidance on estimating and reporting GHG emissions related to capital market transactions.

The insurance-associated standard includes methodologies for reporting GHG emissions to the re/insurance underwriting sector.

Under all parts of the PCAF standard, the goal is to follow a four-part process that ultimately leads to net zero emissions by 2050. As shown in the image below from the PCAF standard, this process includes the following steps:

Source: Part A – Financed Emissions 2nd edition (2022) 

Although the PCAF standard is industry specific, it is being implemented around the world, with implementation teams operating in five regions: Africa, Asia-Pacific, Europe, Latin America and North America.

Reporting Financed Emissions to PCAF

Understanding GHG Emissions

Under the PCAF standard, carbon accounting looks not only at generated GHG emissions, but also at removed emissions and avoided emissions.

Generated emissions are what we think of most often when we consider GHG emissions. These are those created and released as part of business operations, or–in the case of financial institutions–as part of operations resulting from bank investments.

Generated emissions also include indirect sources that what we typically see in other GHG standards. These are the Scope 2 and 3 emissions that result from sources like purchased electricity or supply chain emissions.

But not all investments result in GHG emissions. In fact some, like investing in growing the forestry sector, or carbon capture may actually result in removing carbon from the atmosphere. And other investments may result in avoiding these emissions by funding projects like clean energy infrastructure.

While it’s important to highlight generated, removed and avoided emissions, under the PCAF standard, these should be reported separately, not as a net carbon number. Without this level of granularity, reporting financial institutions will not be able to identify areas for improvement in future years.

Setting Business Goals

Effective ESG reporting has to align with business goals or else it’s just an administrative exercise. As companies are starting out with their report, it’s important to clearly state the goals of their ESG program and how it aligns with larger business priorities.

Every institution’s goals will be different, but PCAF suggests the following as a starting point:

• Creating transparency for stakeholders. Transparency is one of the key motivators in sustainability reporting, especially in the financial sector. Investors want to see how their money is being spent and who is benefiting from it. 
• Managing climate-related transition risks. The transition to the net zero economy isn’t always smooth sailing. Companies may have to incur additional costs to offset carbon generation, or make capital investments without immediate payback to meet their commitments. Financial institutions need to be able to identify what risks exist in their portfolio while organizations complete their transition.
• Develop climate-friendly products. Within financial markets, green products are emerging, helping financial institutions decide which sustainability projects to fund and how to prioritize future investments to better support carbon reduction opportunities.
• Align financial flows with the Paris Agreement. Financial institutions play a critical role in setting and meeting science-based net zero targets in accordance with the Paris Agreement. Using ESG frameworks will help them better understand the absolute carbon footprint for their investment portfolio and where changes are needed to meet targets.

Your organization may have additional goals you want to meet, or you’ll need to tailor the goals above to better reflect your operations. Either way, a clearly stated list of goals is critical before you can set measurable and material targets.

Completing GHG Accounting

The core principles of GHG accounting are as follows: accuracy, transparency, completement, consistency, and relevance. In order to be valuable to financial institutions and useful to investors and stakeholders, GHG accounting needs to yield high quality and verifiable data so that progress can be traced year over year.

Financial institutions will measure or estimate the GHG emissions for which they have operational or financial control. These are either reported as Scope 1 (direct) or Scope 2 (indirect) emissions.

If the institution has additional loans and investments that result in GHG emissions beyond their operational or financial control, these are reported as Scope 3 emissions, similar to the way other companies report Scope 3 for emissions from their value chain but outside the organization.

In addition to measuring emissions from each scope, GHG accounting also needs to provide commentary on data quality. High-quality data may not be available to financial institutions throughout their portfolio, but assessing data quality identifies areas for improvement over time.

Methodologies for Measuring GHG Emissions

Under the PCAF carbon accounting standard, methodologies are prescribed for each of the seven asset classes. As a reminder, these are:

• Listed equity and corporate bonds
• Business loans and unlisted equity
• Project finance
• Commercial real estate
• Mortgages 
• Motor vehicle loans
• Sovereign debt

The financial institution will report all the Scope 1 and 2 emissions of each party under each asset class. Scope 3 emissions are being phased in to relevant asset classes, based on the understanding that these will be more difficult to quantify in early years of reporting, particularly for sectors that are also new to ESG reporting.

How institutions calculate their financed emissions will depend on the available information from their portfolio. Where possible, the best data quality always comes from directly measured and reported numbers, but these may not always be available or communicated to the bank.

An alternative is to use physical activity-based emissions. This would be something like estimating GHG emissions based on the amount of natural gas consumed by a business. This information, along with published emission factors, can be used to estimate emissions. The institution would then attribute a portion of that estimate as those emissions that resulted from their financing.

Another method would be to use economic activity-based emissions. This method can be the least accurate, but uses metrics like revenue to estimate emissions based on a per-unit-of-production basis. 

For asset classes like commercial real estate, the methodologies may be different. Direct measurement is still preferred, but estimates based on metrics like square footage or the number of buildings being reported on can be acceptable.

This variation in methodologies is why data quality and transparency on calculations is so important. In order to provide the best context for investors and stakeholders, financial institutions should prepare their report to a level of granularity where disclosure is meaningful. This usually means reporting on a company-by-company basis.

In addition to carbon emissions generated, financial institutions will also report on carbon captured, both through natural and technological means, emissions avoided, as well as carbon credits generated and retired.

Where To Start With PCAF Accounting?

Implementing a new ESG reporting program can be a significant undertaking for any company, and preparing a report that pulls data across an entire portfolio can be especially labor intensive. 

Providing a complete and accurate picture of financed emissions is critical for transparency and to achieve net zero goals, but actually painting that picture in a useful and meaningful way is a daunting task.

A sustainability platform like FigBytes can help streamline your ESG data collection and prepare a comprehensive and validated report. The cloud-based software solution means you can send data requests directly to portfolio organizations, saving yourself valuable time on data entry. 

FigBytes also uses validated calculation methodologies so you don’t have to reinvent the wheel when estimating emissions across your portfolio. We use methodologies approved by standards and organizations like PCAF, CDP and TCFD, meaning your data will be consistent and comparable across the industry. 

ESG is an important tool to evaluate risk and a worthwhile undertaking as part of meeting the world economy’s Paris Agreement commitments. But your business is finance, not report writing. Using a tool like FigBytes means your ESG program is set up for future success from the beginning. For more information on how FigBytes can help you understand financed emissions and ESG reporting for financial institutions, speak with one of our solution advisors today.