Increasing global regulations now require companies to obtain independent assurance over their climate disclosures. In the face of these rising expectations, many organizations want to know how they can collect and report emissions data in a way that builds confidence in their disclosures and paves the way for a smooth auditing process. To answer this question, we brought together carbon experts for a webinar, How to Build Audit-Ready Climate Disclosures.
Persefoni's Head of Product, Sara Pealy, Sustainability Director, Anissa Vasquez, and VP of Regulated Reporting Solutions, Billy Scherba, shared their insights about how companies can best prepare their emissions data for external review and how technology can streamline the process and strengthen confidence in the data disclosed.
Below, we’ll take a look at the main takeaways from their discussion.
5 Key Insights on Preparing Audit-Ready Climate Disclosures
1. Pressure to Measure and Disclose Emissions Continues to Grow
A number of external factors are pushing companies to be more transparent about their environmental impacts. Chief among these is the shifting regulatory landscape. Laws from the EU, the US SEC, California, and other jurisdictions call on companies to report their GHG emissions — with varying levels of assurance. But it’s not just regulations that are creating pressure: Investors and customers increasingly want to understand the carbon footprints of the companies they support. Consumers are demanding sustainable products, large organizations are looking to reduce emissions in their supply chains, and retail investors are moving money into ESG-friendly assets. Together, these factors drive up expectations for the quality of sustainability data companies report. Adding to the pressure are fast-approaching deadlines for regulated disclosures, which require considerable time to prepare.
2. New Disclosure Mandates Create Compliance Risk
The consequences of failing to adequately report climate data are real. Companies that don’t provide trustworthy disclosures may suffer reputational damage and diminished brand value: They risk losing customers, partners, and employees. The financial fallout can be severe, from the loss of business to legal fees and costs that arise from re-submitting erroneous disclosures. Finally, organizations can face legal repercussions ranging from fines to fraud charges. In France, for example, leaders who fail to comply with disclosure regulations could see fines of up to €75,000 EUD and even jail time. In this environment, a business that doesn’t meet reporting expectations with credible data could very well lose its social license to operate.
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3. The Greenhouse Gas Protocol provides a roadmap for reporting
While different jurisdictions vary, the Greenhouse Gas Protocol (GHGP) underpins all major climate disclosure regulations around the globe. To ensure audit-ready disclosures, companies can start by following the GHGP’s five key principles:
- Relevance. When it comes to assessing what emission sources are material to measure and disclose, think about how the inclusion or exclusion of that data would help someone inside or outside of your organization make business decisions — just as you would with financial accounting.
- Completeness. You must measure all of the items you identified as relevant — and provide justifications for where you omitted data or used estimates instead of primary data.
- Consistency. Emissions reports need to be comparable year-to-year. You need to use consistent calculation methodologies and frameworks and create repeatable processes.
- Transparency. You must be able to show your work and trace each emissions value back to the source data, with visibility into the calculation methods used.
- Accuracy. Finally, you need to make sure you’re using the best possible data in your calculations and reduce measurement uncertainty.
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4. Controls are crucial for auditability
When controls are well-designed and operating effectively, they contribute to the auditability of an organization's financial processes and data. Auditors rely on controls to assess the reliability and accuracy of financial information, and controls are a central component of several disclosure regulations. The SEC, for example, has directed organizations to review controls as part of the 10-K audit process, and many CPA firms are already planning to include control reviews as part of their carbon emission audits. While it’s commonplace for consultants to manually build a point-in-time emissions profile, ensuring the ongoing accuracy of data over time is much more difficult — this is when controls become crucial.
5. Technology Can Significantly Reduce Risk
To prepare audit-ready climate disclosures, companies need to create repeatable, traceable processes. In preparing climate disclosures, teams consistently face challenges in data collection and management — different departments often own data, and it can be difficult to aggregate it in a way that’s consistent across activity types. When companies track this information on spreadsheets, they greatly increase the risk of human error. This is where technology comes in. Persefoni’s platform, for example, automates calculations and creates a single source of truth. It builds in both procedural controls and preventative controls, seamlessly aligning calculations with guidance from the GHGP (described above) and Partnership for Carbon Accounting Financials (PCAF) to guarantee consistent outputs that meet stringent criteria.
“In financial reporting, you typically do three years of practice on your data. These are very near-term deadlines if you’re preparing regulated climate disclosures.” - Billy Scherba, Persefoni VP of Regulated Reporting Solutions
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Lessons From a Case Study
As Persefoni’s Sustainability Director, Anissa Vasquez has first-hand experience preparing climate disclosures. In the webinar, she shared tips for those starting the process for the first time. First, she noted, if there are changes to data owners or roles (not an uncommon occurrence), you should be sure to document them as you go along. When there’s turnover, companies can use an Inventory Management Plan (IMP) to ensure they’re following a consistent procedure, even if the point person has changed. She explained that additional challenges can arise when an assurance provider asks for an explanation of your approach to calculation, especially if you’re not the in-house expert. Having documentation of your methodology and a knowledge base built into your platform can be a significant help. Finally, she urged those preparing disclosures to think of the auditor as an ally who will help build confidence in disclosures, and to collaborate closely with different functions in your organization.
“Make data owners your best friends. Explain the process, find your team, and stay close to them. If you need more tools, advocate for them.” - Anissa Vasquez, Persefoni Sustainability Director
Using Technology to Prepare for Auditing
Persefoni's Head of Product, Sara Pealy, described several software features that elevate transparency and consistency to pave the way for efficient auditing. For example, Persefoni’s platform provides granular levels of documentation — tracking changes in office square footage, lease dates, and other critical details. The CO2 Activity Ledger allows a user to click on any activity and quickly see a breakdown of how the footprint number came about, with information like fuel type, the calculation formula used, and audit history — all with automated anomaly detection to identify potential errors. As a result, auditors can directly review this information rather than tracking it down from different teams within the company. An audit history report is another valuable feature — Persefoni users have visibility into each time data is created, modified, or deleted. Because the software codifies GHGP and PCAF guidance, auditors can trust that calculations will be consistent and reliable. In addition to these features, Persefoni’s Knowledge Base and Customer Success Team provide additional support to users — allowing teams with zero carbon accounting experience to prepare reports for auditing.
“When somebody’s signing their name on the dotted line, and there’s potential for financial penalties, ensuring the data is correct and accurate is a big piece of the process.” - Sara Pealy, Persefoni Head of Product
A reliable carbon accounting system will build confidence in your climate disclosures and help you to respond to escalating expectations from regulators, customers, investors, and other stakeholders. Ultimately, it’s all about data quality.
Learn more about how Persefoni can help you build audit-ready climate disclosures.
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