Top 5 questions on sustainability and ESG reporting answered
Sustainability has gained a lot of traction in recent times, but with little clarity. As businesses strive to incorporate more environmentally conscious strategies and reporting into their operations, they seek visibility into this ever-evolving process.
To help bridge this gap, our sustainability experts have answered the top five questions for enterprises worldwide. These questions shed light on several aspects of sustainability, ranging from carbon credits to starting sustainability and ESG reporting.
Question 1: Are carbon credits a credible way of saving the environment?
To achieve net-zero status, enterprises typically collaborate with various partners for initiatives to help balance business and environmental needs. One of the popular options is to use carbon credits — which is essentially neutralizing emissions by purchasing carbon offsets — credits generated by projects that are reducing carbon emissions elsewhere. This option is considered an easy fix and can often come across as a ‘greenwashing’ initiative.
In an ideal scenario, purchasing carbon credit should be one of the options and not the only one for enterprises to meet their net-zero goals. To make a meaningful contribution to fight climate change, businesses must focus on reducing their emissions and promote operational efficiency across all processes. Once these objectives are met, is when businesses should purchase carbon credits to offset excess emissions.
Some countries are taking a direct approach and have imposed restrictions to this end. Indonesia for instance has banned the purchase of carbon credits to encourage enterprises to focus on activities that go beyond greenwashing. China, on the other hand, levies heavy carbon taxes. These measures are aimed at urging businesses to explore more sustainable ways of reducing emissions within the realm of their operations before opting for carbon credits purchases or other offsetting mechanisms.
In the end, adopting a more holistic approach and implementing sustainable practices across all operations is what will benefit enterprises in the long run than a one-off exercise.
Question 2: How does analytics help facilitate carbon trading?
Carbon trading is the process of purchasing and selling credits that allow businesses some leeway to emit carbon dioxide or other greenhouse gases within certain limits.
Leveraging data and analytics to make carbon trading easier in operations, policies and systems, is important to make a positive contribution to climate change and becoming carbon neutral. For enterprises focusing on carbon trading, carbon market activity is driven in two forms. The first is through Compliance carbon markets (CCMs) which are government-led efforts to regulate emissions through cap-and-trade schemes. The second is Voluntary carbon markets (VCMs), which is a nascent but expanding scheme that allows companies and individuals both to buy carbon credits that fund carbon neutralization projects. In both scenarios, enterprises require analytics to identify projects in sync with larger business goals.
Carbon prices are also subjected to significant volatility resulting from international politics and negotiations. When trading in carbon markets, businesses need to leverage sophisticated analytics to be on the right side of a price trend to avoid increasing expenses. Scenario forecasting is another area where analytics play a critical role by enabling users to understand risk exposure of carbon trades, helping them trade ahead of the curve. Anticipating trends and making decisions backed by data are some of the other key benefits too.
Question 3: The European Union focuses on a non-financial report from businesses after COP26. What are the parameters and approaches for enterprises to consider in this report?
The European Union focuses more on non-financial reports from businesses because sustainability risks, although accessed as non-financial or non-economic risks, turn to operational and financial risks eventually.
For instance, if an enterprise does not have the necessary human rights compliance or waste management strategies in place, it cannot report accurately on specific disclosure metrics. This non-compliance often leads to reputational loss and mutates into financial risk given its impact on the bottom line. It’s also the reason why in most enterprises, it’s the CFOs who are held accountable in this aspect.
With non-financial reports gaining importance, organizations must first track and measure their focus areas with the help of materiality analysis. Taking on this exercise helps illuminate areas of priority across the environment, social and governance.
Data is crucial here. Having the right data, at the right time provides enterprises the visibility into the current state of affairs, adherence or lack of it which then allows them to take necessary action.
For instance, if a business wishes to start its sustainability and ESG reporting journey, it must first gather data for its Scope 1 and Scope 2 emissions. Once collated, this data will be crucial in measuring present emission rates and forecast future emission rates based on historical performance. These insights help enterprises arrive at strategies to bring in more efficiency and achieve their net-zero goals.
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Question 4: How can chemical industries benchmark themselves based on the ESG performance?
Over the past three years, some of the major chemical companies lost shares amounting to as high as $80 billion. C&EN reported that chemical company shares ranking high in ESG indexes outperformed companies with low ESG ranking by 4.8% per year. This data suggests that ESG reporting and benchmarking are essential for any chemical company’s growth.
Enterprises such as BASF, Shell BP and LyondellBasell have programs in place to reduce their carbon footprint and plastic waste.
To get started on the ESG path, the initial focus for businesses should be to consolidate all relevant data scattered across spreadsheets and disparate systems. This allows businesses to conduct a materiality analysis to identify and rank critical issues in sync with organization and stakeholder expectations. Enterprises can either collaborate with internal teams or partner with vendors externally to create an ESG report compliant with various frameworks.
Sustainability data is vast and intimidating given its sheer volumes. There is significant effort required to transform this data into actionable insights. Cloud-driven solutions let businesses connect data from all sources, spreadsheets included, that help reduce manual efforts and increase efficiency by automating repetitive tasks. Further, layering this data with sophisticated analytics and visualization tools makes it possible to arrive at sound decisions backed by data and not instinct.
Question 5: What steps should organizations undertake if they are interested in reporting and forecasting for Scope 1 and 2 emissions?
An organization in its nascent stage of reporting and forecasting for Scope 1 and 2 emissions should start with measures to manage large volumes of data necessary for GHG inventory.
The next step would be to evaluate reduction targets based on Scope 1 and Scope 2 emissions after calculating activity and emission data. Executing this manually with spreadsheets is not only cumbersome but takes significant man hours. It also presents a high risk of data miscalculation and mishandling.
Eka’s cloud-driven ESG and Sustainability reporting solution addresses this by connecting Scope 1 and 2 emission data from disparate sources and then transforming it into clear visual representations that help users unearth critical insights. These insights allow an enterprise to identify risk and anticipate future emissions based on the past GHG inventory.
With the environment taking center stage, enterprises that embrace a holistic sustainable transformation across all aspects of business and leverage sophisticated cloud-driven sustainability and ESG solutions will stand a better chance of building a long-term, sustainable business for generations to come.
To learn about creating a sustainability report for your enterprise, click here.