As environmental, social, and governance (ESG) programs have become mainstream for United States companies, emissions reporting is no longer an optional activity or solely the domain of a select few environmentally conscious organizations. Rather, the expectation is for businesses of all types, shapes, and sizes to understand and disclose their emissions, and to start doing so sooner rather than later.
Indeed, those organizations that have yet to demonstrate an effort to get started with emissions reporting are now considered laggards by their various stakeholders. And they are in no way being allowed to continue flying under the radar. From investors to customers to employees and even legislators, stakeholders of all types are forcing the holdouts to pay the price for non-disclosure. And companies simply can’t afford to delay emission reporting any longer.
Here are the top five reasons to put sustainability reporting plans in place today:
- Sustainability reporting drives valuation. Investors are increasingly pressuring publicly owned and PE-backed firms to demonstrate commitment to sustainability and to disclose progress toward sustainability goals. It’s not just that these investors are concerned about the environment; it’s also because of the growing evidence linking sustainability with better financial performance.
A recent study by Westminster University showed “a positive and significant effect of sustainability reporting on a firm’s return on equity, return on assets, and profit margin.” Specifically, the research suggests a 10.719% increase in profit margin for public companies that publish sustainability reports. Another recent survey by global professional services firm KPMG indicates that 60% of investors would be willing to pay more for companies with high ESG maturity, which can be demonstrated through regular progress toward emissions reduction targets published in corporate sustainability reports.
Statistics like these are contributing to a substantial increase in the proportion of companies publishing such reports in recent years. According to research from Governance & Accountability Institute, nearly 100% of S&P 500 companies reported in 2022 along with 82% of the mid-cap companies making up the smallest half of the Russell 1000. As more and more companies begin to calculate and share emissions, those companies that continue to drag their feet and fail to be transparent risk alienating their investors.
- Your biggest customers want your data. Any company that is part of the supply chain of a larger organization will be asked to start reporting emissions sooner than later. This is because large, publicly traded corporations are expected to provide sustainability data not only for their own companies (scope 1 and scope 2 emissions) but also for their supply chains (scope 3 emissions). In order to adequately report scope 3 emissions, companies need emissions data from their suppliers, and most companies are turning to their suppliers to disclose that data in accurate and verifiable ways.
In some cases, large businesses may only ask their tier 1 suppliers to provide emissions data. But as reporting requirements grow increasingly stringent, reporting expectations will extend to tier 2 and tier 3 suppliers as well. Suppliers that fail to meet these requests could risk their contracts with these major businesses, so it’s best to be prepared to deliver the data whenever a key customer requests it.
- Your reputation depends on transparency. Your customers do not have to be major corporations to be concerned about your environmental and sustainability practices or to expect your business to be transparent about its environmental impact. Companies that offer consumer-facing products and services are also being increasingly scrutinized by the public. The 2022 Climate Action Awareness Report demonstrated that consumers clearly understand the concept of greenhouse gas emissions and that they believe companies need to take action to offset their emissions. The consumer survey also showed that consumers expect companies to be transparent about their climate actions, and that they will use the information companies provide to influence purchase decisions.
Ultimately, companies that take the initiative to be transparent about their operations through emissions reporting will benefit from increased consumer support and loyalty. Those that remain elusive will put their brand reputation and sales at risk.
- Sustainability strategy hinges on your data. Companies need to understand their emissions and how they compare to industry peers in order to develop meaningful ESG programs and targets. Through emissions reporting, companies can establish baseline data along with a means of demonstrating meaningful sustainability progress going forward. The process requires companies to put protocols and the controls in place for how data is sourced, gathered, and analyzed, all of which help to promote the high quality of data needed for reliable reporting.
When companies begin analyzing and understanding their utility and emissions data, they will be positioned to make faster and better decisions about their energy use and costs. Because companies can’t successfully manage what they don’t measure, emissions reporting is often the first step toward meaningful evaluation of renewable energy sources and how they can be implemented to further sustainability goals.
- Emissions reporting is increasingly becoming the law. Right now, many companies can choose what and how to report when it comes to emissions. But that won’t be the case for long. New regulations are increasingly mandating emissions reporting for all types of companies, and not just major publicly traded organizations.
Indeed, while public companies have been awaiting the final climate disclosure rule from the Securities and Exchange Commission for some time now, The EU Corporate Sustainability Reporting Directive (CSRD) is already in effect, mandating climate reporting requirements for companies with operations in Europe.
The state of California has also passed its own climate rule. California SB253(link to sb253 blog) requires companies—both public and private—making more than $1 billion annually with any business operations in California to report on their scope 1 and scope 2 emissions by 2025. Under the new law, companies will have to report scope 3 emissions by 2026, which will extend emissions reporting requests to many more organizations up and down the value chain and all across the country.
The time to start an emissions reporting plan is right now.
Whether the request comes from your investors, your customers, or a regulator, it is forthcoming. Sooner or later, every organization is going to be expected to provide financial-grade emissions reporting based on quality data that is auditable and verifiable. Developing the capabilities to gather and report on this information is no small task and often takes times, resources, expertise, and processes that many companies lack. Depending on which stakeholder is making the request, companies often find themselves facing short compliance deadlines with significant consequences for non-compliance.
The key to avoiding potentially serious financial repercussions is starting now and making a detailed plan for how the data will be collected, cleaned, and analyzed, including the type of reporting system or platform to be used. Need help taking these first steps? Give our utility and energy experts a call. We offer full support for emissions reporting and sustainability planning to help you meet your stakeholders’ requests and create the path to the greener future your company needs today.