Persefoni Expert Publications
Carbon Accounting 201 - What are Carbon Disclosure Mandates? And Why are They Important?
A weekly Persefoni blog featuring all things climate, carbon, and ESG.
Published February 03, 2022
Frequent, accurate, and comprehensive emissions measurements are necessary to achieve carbon reduction goals. Why? Because what gets measured gets done.
As the severity of climate change becomes more apparent, accurate carbon accounting and reporting will no longer be optional. They will become compulsory under carbon disclosure mandates. In fact, several countries have already announced their Taskforce for Climate-Related Financial Disclosure (TCFD)-aligned regulatory measures that include the disclosure of emissions data.
With more countries certain to follow suit, a continually widening global rollout of carbon disclosure mandates is inevitable. These mandates mean companies will have to measure and disclose their greenhouse gas (GHG) emissions in line with their financial statements.
“Proactive vs. reactive responses to climate change and how the latter is upon us with impending mandates”
Associate Director, Carbon Solutions of Persefoni Katie Blum
The Current Carbon Mandate Landscape
The carbon disclosure mandates currently in place are limited in their reach and only require emissions reporting from specific industries, facilities, or scopes. For example, the US Greenhouse Gas Reporting Program solely requests reporting from large oil and gas facilities. Similarly, the UK’s mandatory carbon reporting regulation only calls for the disclosure of scope 1 & 2 emissions (without scope 3) for a rather small group of companies.
This limited coverage has weakened the impact of these mandates. Nevertheless, a study conducted on companies affected by the mandate in the UK had some promising results. They found that companies affected by the mandate reduced their carbon footprint by 8% against a control group, while their financial performance was not adversely affected.
Accordingly, organizations should embrace the more comprehensive carbon disclosure mandates that are imminent. The new mandates will give companies an opportunity to increase their value to their stakeholders — including shareholders.
Measurement - The First Step to Disclosure
Measurement is the most significant roadblock for companies trying to reduce their greenhouse gas emissions. Only 9% of companies are able to quantify their total emissions comprehensively.
Countries including the UK, Japan, New Zealand, and Singapore are beginning to legislate for this. They are the first countries to introduce TCFD-aligned mandates that ensure large publicly traded companies accurately and frequently measure their carbon emissions.
Similar TCFD-aligned mandates have been proposed by the US Security and Exchange Commission (SEC) and the European Union. This is big news. Some of the world’s largest companies will start to be held accountable for their carbon emissions through transparent and accurate disclosure. Further global TCFD-alignment is essential to make disclosure consistent and comparable across all companies.
How Will Companies Adjust?
This will be the first time many companies have embarked on the difficult journey of measuring their carbon emissions. It is undoubtedly a daunting task. Thankfully, a whole host of guidelines and tools have been developed to help in the accounting and disclosure process.
The most recognized and utilized guideline for measuring carbon is the Greenhouse Gas Protocol (GHGP). Created in 1997, the GHGP provides organizations with guidelines on developing inventories for GHG emissions. It was designed to simplify, improve consistency, and provide businesses with the tools to report and manage their emissions.
In 2017, the Task Force for Climate-Related Disclosures (TCFD) released a report to give a common global approach to how companies report on how the climate will affect their business and help companies align with the goals of the Paris Agreement. This has since become the gold standard for fully integrated and transparent climate disclosures, which is why global climate disclosure mandates are strongly aligned with this standard.
Effective software tools have also been developed, which will ease the calculation process. Namely, Climate Management and Accounting Platforms (CMAPs). CMAPs simplify carbon accounting by using codified guidelines (like the GHGP & TCFD) to ensure carbon disclosures are accurate, consistent, and comparable. They provide fully auditable reporting, which allows companies to ensure their disclosures are in line with any carbon disclosure mandate.
Our time to reduce fossil fuel emissions dwindles daily. A universal effort alongside financial institutions is paramount. Carbon disclosure mandates are an important step in this process. They benefit companies by giving them more accountability, helping manage their climate-related financial risk, and facilitating sustainable decisions. Mandatory carbon disclosures can help companies take that first, but essential, step on the journey toward a net-zero economy.
© 2022 Persefoni AI Inc. All rights reserved. This presentation is the exclusive property of Persefoni and may not be copied or distributed, in whole or in part, without the express permission of Persefoni.
Persefoni is the leading Climate Management & Accounting Platform (CMAP). The company’s Software-as-a-Service solutions enable enterprises and financial institutions to meet stakeholder and regulatory climate disclosure requirements with the highest degrees of trust, transparency, and ease. As the ERP of Carbon, the Persefoni platform provides users a single source of carbon truth across their organization, enabling them to manage their carbon transactions and inventory with the same rigor and confidence as their financial transactions.
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