How to Effectively Measure and Report the ESG Impact Of Your Business

In today's world, organizations are increasingly being held accountable for their environmental impact from not only their own direct emissions but also the emissions from their value chains, known as Scope 3 emissions. 

Measuring and reporting Scope 3 emissions is a complex task, but it is essential for organizations that are serious about reducing their environmental impact as these emissions can represent a significant portion of your organization’s total carbon footprint. 

The Challenges Of Measuring Scope 3 Emissions:

As you start collecting data to measure Scope 3 emissions, you’re likely to face various challenges that arise from the complexity and interconnectedness of your value chain, the lack of standardized methodologies, and the limitations of available data. 

The Complexity and Inter-connectedness of Your Value Chain:

Modern value chains are complex and interconnected, with products and services often passing through multiple stages of production, transportation, and distribution which makes it challenging to accurately track, measure, and attribute emissions across the entire value chain.

Limitations of Data Availability

Your suppliers, customers, and other involved stakeholders may not always have readily available emissions data, or their data may be incomplete or inconsistent. Additionally, some emissions sources, such as fugitive emissions from transportation and agriculture, can be difficult to quantify accurately.

Despite these challenges, measuring and reporting Scope 3 emissions is essential to understanding your company's total environmental impact and making informed decisions to reduce your greenhouse gas emissions. Measuring these accurately will help you measure your organization's overall carbon footprint, identify supply chain emissions hotspots, make sustainable sourcing decisions, and comply with regulations and investor expectations. However, the benefits of measuring and managing these emissions far outweigh the challenges. 

Reporting Scope 3 Emissions

The Greenhouse Gas Protocol Corporate Value Chain (Scope 3) Standard

The Greenhouse Gas Protocol Corporate Value Chain (Scope 3) Standard is the most widely recognized framework for measuring Scope 3 emissions. It was developed by the GHG Protocol, a collaboration of businesses, governments, and non-profit organizations, and is used by companies globally to track and report their greenhouse gas emissions. 

The Scope 3 Standard provides a detailed methodology for identifying, calculating, and reporting Scope 3 emissions. It covers 15 categories of Scope 3 emissions and provides guidance on how to set targets for reducing Scope 3 emissions.

The framework provides a standardized approach to measuring and reporting Scope 3 Emissions, making it easier for your organization to compare emissions data with your peers and to track your emission reduction progress over time. It's recognized by a wide range of stakeholders, including investors, regulators, and consumers, and will help you to improve your reputation and attract investors who value ESG (Environmental, Social, and Governance) principles.

There are various organizations and reporting frameworks that are available like the CDP (Carbon Disclosure Project), GRI (Global Reporting Initiative), BRSR (Business Responsibility and Sustainability Report), and TCFD (Task Force on Climate-Related Financial Disclosures) that can help your organization report and communicate its commitment to being sustainable 

The Carbon Disclosure Project (CDP) 

CDP (Carbon Disclosure Project) is a non-profit organization founded in the UK in 2000 and is now present in over 50 countries and serves as a platform for governments, cities, states, and regions to report their environmental performance. It provides them with a rating called the CDR - Carbon Disclosure Rating.

The CDP questionnaire is designed to help organizations measure, manage, and reduce their greenhouse gas emissions and other environmental impacts. The length of the questionnaire is dependent on various factors. Based on the verifiability of the responses submitted, the level of detail provided, your engagement with your value chains and supply chains, your approach to identifying and managing climate risks, the ambition of your emissions reduction targets, and the completeness of your reporting on Scope 1, Scope 2, and Scope 3 emissions, a Carbon Disclosure Rating is provided.

The Carbon Disclosure Rating is assigned on a scale from A to D, with A being the highest rating indicating that an organization or entity is a leader in environmental transparency and action, D being the lowest, and F indicating that the organization or entity has failed to provide sufficient information to CDP to be evaluated. 

These ratings provide insights for investors, companies, and municipalities; for investors, they indicate the ESG (environmental, social, and governance) performance of companies to help them make informed investment decisions, for organizations, they serve as a benchmark to track their environmental progress and identify areas for improvement, and for municipalities, they assist in attracting investment and promoting sustainable development.

The Global Reporting Initiative

The Global Reporting Initiative (GRI) is an independent, international organization that develops and publishes global sustainability reporting standards to help your organization improve self-awareness and communicate your sustainability accomplishments to your stakeholders. The GRI Standards are the most widely used sustainability reporting framework in the world. And are used by over 90,000 organizations in over 100 countries. These Standards are also recognized by various organizations, including the United Nations Environment Programme (UNEP), the United Nations Global Compact, and the International Organization for Standardization (ISO).

The GRI Standards are divided into three main categories and your organization can choose to report in accordance with one or more of these standards: 

• Universal Standards: These standards apply to all organizations, regardless of their size, industry, or location and cover topics like the organizational profile, reporting principles, strategy and analysis, stakeholder engagement, ethics and integrity, governance, human rights, labor practices, society, environment, and economic performance.

• Sector Standards: These standards provide additional guidance for organizations in specific industries, for example, there are sector standards for mining, oil and gas, and financial services.

• Topic Standards: These standards provide in-depth guidance on specific topics, such as climate change, water, and biodiversity.

There are various formats in which the GRI Report can be prepared, including:

• Full GRI Standards: The most comprehensive level of reporting and requires you to report on all of the universal standards.

• GRI Standards Core: This is a more concise level of reporting that requires you to report on a subset of the universal standards.

• GRI Standards Comprehensive: This is a more detailed level of reporting than the GRI Standards Core and requires you to report on all of the universal standards and some of the sector-specific standards.

The GRI Reports are useful and can add value to a variety of your stakeholders including investors who can assess the sustainability performance of your organization, and these will also help you track your overall performance, set benchmarks and identify areas of improvement. 

The Task Force on Climate-related Financial Disclosures (TCFD)

The Task Force on Climate-related Financial Disclosures (TCFD) is a group of 32 financial institutions that have developed a voluntary framework for companies to report on climate-related risks and opportunities. TCFD recommendations help organizations disclose information relevant to climate-related financial risks and impacts to help investors, lenders, insurance providers, and other stakeholders make informed decisions 

The TCFD report focuses primarily on climate and outlines these four areas of climate-related risk and opportunities:

• Governance: Your organization’s board of directors and management team's oversight of climate-related risks and opportunities.

• Strategy: Your organization’s plans and actions for managing climate-related risks and opportunities.

• Risk Management: How your organization identifies, assesses, and manages climate-related risks.

• Metrics and Targets: Your organization’s metrics and targets for measuring and managing climate-related risks and opportunities.

TDFC Reports help investors or those allocating capital, understand the potential climate-related risks of the organization, which would then impact their investment risk. In fact, it’s also being used by governments and regulators around the world; for example, the UK government has made it mandatory for all large listed companies to report on climate-related risks in line with the TCFD recommendations. 

In 2022, RBI mandated that Scheduled Commercial Banks (SCBs), Urban Cooperative Banks (UCBs), and Non-Banking Financial Companies (NBFCs) with assets over Rs. 5,000 crores must adopt the TCFD framework for climate-related and sustainability-related disclosures. There are a number of factors driving the adoption of TCFD in India; one factor is the increasing awareness of climate change and its potential impact on the Indian economy.

Business Responsibility and Sustainability Reporting (BRSR) framework

The Business Responsibility and Sustainability Reporting (BRSR) framework is a comprehensive ESG reporting framework that is mandatory for the top 1000 listed companies in India. Its an evolved version of the Business Responsibility Report (BRR) framework, which SEBI introduced in 2012 as a voluntary reporting framework. However, the BRR was not widely adopted by companies and lacked clarity in reporting requirements. The BRSR framework is based on the nine principles of the National Guidelines for Responsible Business Conduct (NGRBC which cover a wide range of issues, including climate change, human rights, and corporate governance.

The BRSR framework is divided into three sections: 

Section A: General Disclosures - This section provides an overview of your organization’s basic information like the organization’s profile, legal structure, business activity and offerings, locations of operations and subsidiaries, manpower-related information, Corporate Social Responsibility (CSR) initiatives and spending, and compliance with transparency and disclosure requirements

Section B: Management and Process Disclosures - This section focuses on your organization’s approach to ESG management and processes like the organization’s ESG policy and governance structure, risk identification and assessment procedures that it follows, ESG performance monitoring and measurement mechanisms, ESG training and awareness programs and also stakeholder engagement and grievance redressal methods

Section C: Principle-Wise Performance Disclosures - This section provides a detailed account of your organization’s ESG performance in relation to the nine principles of the National Guidelines for Responsible Business Conduct (NGRBC) 

Filing your organization’s BRSR Report has various benefits, for both - you and your investors. It’ll help investors understand your ESG values and performance, help align both your environmental goals and make informed choices for investment, and it’ll help you understand and improve your organization's ESG performance, make your organization attractive to investors, and reduce your overall risk profile by demonstrating responsible business practices. 

If you’re looking for assistance with filing any of these reports, software like StepChanges will help your ESG teams gather the information required and present reports in compliance-ready formats across TCFD, BRSR, CDP, GRI, IR, and more. Using StepChange’s ESG Accelerator will help you access accurate data, keeping your data relevant and updated with reduced redundancies and errors, and also in reducing the time you take to respond to a compliance or regulatory request. If you’re looking to file your reports this year, StepChange can help. 

Schedule a meeting with one of our climate experts to experience the seamless platform and meet your regulatory requirements today