Carbon Disclosure Crash Course: A Must-Read Guide for Companies

Carbon Disclosure Crash Course: A Must-Read Guide for Companies
Photo by Jas Min / Unsplash

For any businesses operating in today's increasingly climate-conscious economic landscape, comprehensive carbon disclosure is no longer a nice-to-have, but an existential must-have. Stakeholders from investors to customers to regulators are demanding credible emissions data and robust decarbonization strategies from corporations.

The implications are immense - those that fail to properly measure and report their carbon footprints risk falling behind on everything from regulatory compliance and reputation management to operational resilience and long-term competitiveness. This crash course provides the fundamentals.

Carbon Disclosure 101:

Understanding the Three Scopes To conduct an effective greenhouse gas emissions inventory, companies must account for and disclose their impacts across three distinct "scopes" as defined by the global Greenhouse Gas Protocol:

Scope 1 - Direct emissions from company-owned/controlled sources like facilities, vehicle fleets, manufacturing processes, etc. Think furnaces, smokestacks, tailpipes.

Scope 2 - Indirect emissions from purchased electricity, heat and steam used to power operations.

Scope 3 - All other indirect emissions across the entire corporate value chain, including business travel, employee commuting, waste disposal, and upstream/downstream activities like supplier and product impacts.

According to the UN Global Compact, Scope 3 emissions account for a whopping 70% of the average corporate value chain’s total emissions, but Bloomberg’s company reported ESG data on 15,000 companies reveals that only about 20% of them disclosed their Scope 3 emissions for the 2020 fiscal year.

While Scope 1 and 2 emissions are more straightforward to quantify, Scope 3 represents both the largest slice of most companies' carbon footprints as well as the most complex to accurately measure. But make no mistake - ignoring value chain emissions provides an incomplete and misleading portrait of an organization's total climate impacts.

The Stakes: Why Disclosure Matters

Companies that take carbon disclosure seriously and embed it into their core strategy stand to reap substantial rewards:

Regulatory Compliance: Mandatory emissions reporting rules like the SEC's proposed climate disclosure requirements are rapidly emerging. Early adoption gets companies out ahead.

Cost Savings: Many emissions reduction initiatives like energy efficiency, sustainable transport and waste reduction deliver significant operational cost savings.

Reputation & Marketing: Investors, consumers, and the public are demanding credible sustainability commitments and progress from corporations. Accurate emissions reporting enhances brand reputation and boosts marketing.

Resilience & Competitiveness: Carbon accounting surfaces transition risks like evolving emissions regulations and policy that can be proactively managed.

Setting Targets & Implementing Reductions

With a comprehensive emissions baseline in hand, companies can set science-based reduction targets approved by the Science Based Targets initiative, and develop strategic mitigation plans spanning:

Facility & Equipment Upgrades: Microsoft reduced its combined scope 1 and scope 2 emissions 22% in 2022, amid efforts to meet its goal of near-zero scope 1 and scope 2 emissions by 2025. The tech firm achieved 95% of its progress on scope 2 emissions through power purchase agreements, green tariff programs and unbundled renewable energy certificates, it said. Amazon's portfolio is now big enough to power 7.2 million U.S. homes each year, with more than 500 solar and wind projects globally,

Sustainable Transportation: Companies like IKEA, Amazon and delivery giants like UPS and DHL are rapidly electrifying their delivery vehicle fleets, while engaging suppliers on transportation emissions.

Value Chain Engagement: In 2022, more than 18,600 companies around the world disclosed climate change data through CDP a 42% increase on 2021.

Credible Carbon Offsetting: While prioritizing internal reductions first, quality carbon removal offsets can neutralize hard-to-abate emissions.

The Road to Best-in-Class Disclosure

Building an effective, credible carbon disclosure program is a multi-year journey requiring cross-functional coordination, robust data management systems, approved quantification methodologies like the GHG Protocol, transparent reporting mechanisms, and steadfast leadership commitment.

But the corporations that treat emissions disclosure not as an obligation but as a strategic imperative will be best positioned to remain viable and competitive on a rapidly decarbonizing planet. Those that downplay or ignore carbon accounting do so at their own risk in the age of climate impacts, activist investors, and environmentally-conscious stakeholders.

While climate disclosure may be complex, the potential consequences of inaction are even more so. Companies must move swiftly to embed carbon measurement, reporting and verifiable reductions into the core of their business model. The future and bottom line depends on it.

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