The recent release of global standards for carbon emissions reporting will bring two important changes for Australian companies.
Firstly, once the standards are adopted, companies will be required to provide rigorous and auditable emissions data.
Secondly, the collection and collation of this more robust emissions data will provide companies with the opportunity to accurately forecast their future emissions and to better manage their emissions reduction programs.
In July this year, the International Financial Reporting Standards Board released their much anticipated Sustainability Standards (ISSB). These two important reporting standards cover the disclosure of sustainability-related information and the disclosure of climate-related risks and opportunities.
The Australian Treasury is proposing that large companies with at least 500 or more staff, a value of $1 billion and/or revenue of $500 million start to report from the 2024-25 financial year. Medium-sized companies will be required to report two years later.
Under the ISSB standard, companies will be required to report their scope 1 and 2 emissions, that is direct emissions those from their own operations and from the indirect use of energy products, such as electricity.
And they will also have to start reporting their scope 3 emissions, which are emissions from their supply chain of suppliers and customers. This means that means that smaller businesses that supply large companies or governments will also need to report their emissions if they want to hold on to their major customers or bid for work in the future.
A single consistent global carbon reporting standard
The new carbon standards will be incorporated into global financial reporting standards, putting them squarely in the remit of financial reporting and accounting professionals.
The standards will see carbon reporting shift from a confusing collection of standards into a single consistent carbon standard that will enable comparison between entities.
This will invariably lead to more rigour and reliability in carbon reporting and the accounts will go to a company’s external auditors to sign off, just like their financial accounts.
As a result, business and operational data will be far more critical in collecting and calculating emissions.
The increased rigour means that data and calculations are too large to be worked out on a spreadsheet, just as a company wouldn’t use Excel to manage all of its transactions and carry out its financial reporting.
Companies will need metrics on their carbon generating activities, and will need a sophisticated reporting and calculation tool to manage past and future emissions. And from there, they can calculate their carbon emissions with enough rigour that an independent auditor can sign them off.
The collecting and collating of this data to meet the regulatory and compliance requirements also provides companies with an opportunity.
Reducing future emissions
Just as companies can use historical sales and associated data to forecast future sales, they can draw in emissions data to calculate future emissions.
Companies can outline their emissions in 5, 10 or 20 years’ time and how their decarbonisation plans are reducing emissions. These accurate forecasts are growing increasingly important as investors, government, the community, and regulators all demand that companies present credible and achievable carbon reduction plans.
The future emissions profiles incorporate all the factors that make up a company’s emissions and so provide business leaders with a tool that can reveal the effect of various initiatives on their emissions.
Climatech is a vibrant industry and this will continue as organisations move to align with the requirements of the new reporting standards. New carbon calculators seem be appearing every week to help companies deal with this. However large complex organisations will need a sophisticated approach to managing their emissions data. Forecast has recently partnered with Decarbify to help organisations of all sizes deal with their reporting obligations and capture the commercial benefits associated with decarbonisation.