Martha Amram is the CEO of GLYNT.AI, Which provides investor-level emissions data and standards to companies around the world.
At the annual customer conference in May, SAP CEO announce: “We will add a green ledger in our ERP system so you can account for carbon while calculating today’s financial statements.” This is one of the most visible statements of the new reality: emissions data is now reportable data. It must go through the same rigorous and closed processes that funding teams use for public financial disclosures.
But the financial difference is lagging behind: only 25% use software, and still 55% are using spreadsheets and manually entering data to compile emissions data. Every part of this makes CFOs nervous, given their personal exposure Sarbanes Oxley.
As each finance team searches for a better way, here are three main areas to focus on and how to solve the challenge each team represents.
Actual emissions data
It is very easy to get some industry average emissions data and apply it to the scale of emissions calculations. This work can be done on spreadsheets and there is a logic to that. But investors demand actual data – not envelope background estimates – and are quick to point out flaws. Unconvinced? here last address: “Vanguard makes a ‘laughable’ pledge to get rid of Net Zero.”
Actual emissions data begin with the primary data sources. For band 1 and 2 emissions (at sites), the data is on energy bills and utility bills. Each document is essentially a miniature data silo, and the data must be unlocked. Often, manual data entry is used, but this leads to errors. It’s also expensive, so little data is captured – not enough to plan for emissions reductions. An automated solution that delivers a full set of actual data from primary sources can help.
Accurate data on emissions
a recent study By FTSE Russell showed that reported emissions can be reduced by 50%-200%. Financial analysts make comparisons between peers and over time, but without solid data, comparisons are unreliable. Companies that produce accurate data will be able to show solid progress in reductions over time and clear advantages over their peers.
But inaccurate data is more than just missing numbers. It also originates in the judgments used to produce a single structured file from a very diverse set of input data. The auxiliary terminology is dense, and unless semantic normalization across disparate sources is documented and closed, errors will be introduced by individual data processors using ad hoc judgments.
The solution is automation and testing, every step of the way. One must be able to test whether the data is numerically accurate and that the business logic used to compile it is error-free. Automated systems provide the information needed to verify accuracy and build investor confidence.
Audited emissions data
The financial statements are audited because they are intended to be reported, and emissions data should not be different. Third-party audits increase investor confidence because auditors take a closer look at how data is produced. They get access that investors don’t have.
A typical audit practice is to randomly sample a number of entries from a pool and check for their accuracy, data proportions, and more. Raw source data, audit trail and reported data are all required for each number reported. The auditors will examine the full proportions of a select few.
This level of data preparation is almost impossible without a modern software system. But there is a bit of good news about this.
More than one commentator has noted that the new climate disclosure regulations are very similar to the early days of Sarbanes-Oxley (SOX) compliance, with an urgent need to produce data, and no regulations in place. And a lesson from 15 years of SOX reporting: companies that invested in automation It has much lower compliance costs than those that deferred that investment.
With climate disclosure here to stay – through regulation and high investor demand – automation of reportable emissions data can produce high ROI and provide the actual, accurate, ready-to-check emissions data that investors demand.