Table of Contents
Elements of the data loop already exists and should be built upon, as corporate mitigation action accounting and reporting is not entirely new. Voluntary and mandatory GHG reporting programs have indeed evolved over the past 20 years to encourage reporting from private sector actors. This includes national and international voluntary programs like Brazil’s GHG Protocol program, the Science-Based Targets Initiative (SBTi), The Climate Registry, CDP’s disclosure project, and voluntary sector-specific initiatives like the Cement Sustainability Initiative, or Australia’s National Greenhouse and Energy Reporting Scheme (Singh et al. 2014). These programs have provided platforms for private sector actors to report their greenhouse gas emissions. Many of these global, voluntary initiatives have been brought together under the We Mean Business platform, which provides information on the companies that have committed, what companies can do to engage with a particular pledge, and related resources.
Private sector actors across the world are also undertaking and reporting on actions with non-GHG focused targets. These may include, for example, targets related to deforestation or energy efficiency communicated through international initiatives or in corporate social responsibility strategies. For instance, the New York Declaration on Forests, brings together businesses, governments, civil society, and indigenous peoples around a commitment to half deforestation by 2020 and end it by 2030. Similarly, the Consumer Goods Forum—a network of consumer goods manufacturers, retailers, and other key stakeholders—mobilizes its membership towards the goal of zero net deforestation by 2020.
Wilmar, the world’s largest processor and merchandiser of palm oil and the largest palm oil plantation owner and refiner in Indonesia, was one of the first major companies to make a NDPE commitment (announced in December of 2013). This commitment was strengthened late in 2018 in collaboration with The Forest Trust (TFT), with the goal of obtaining a 100 percent independently, verified NDPE compliant supply chain starting in 2020.
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The new commitment and action plan have three key priorities, including:
- “Delivering higher transparency and verification of Wilmar’s No Deforestation commitment across its entire palm oil supply chain”: Wilmar will develop a global monitoring system in collaboration with TFT and other partner organizations to monitor and ensure independent verification of land use change on its own and third-party suppliers’ plantations and operations.
- “Leading cross-industry collaboration to tackle deforestation beyond Wilmar’s supply chain”: Wilmar commits to lead the initial development of a collaborative platform to provide accurate data about at-risk forests and initiate discussions with government bodies, local and international civil society organizations and the relevant commodity industries.
- “Monitoring labour and community issues to ensure No Exploitation”: Wilmar committed to design a framework for social audits of its No Exploitation Policy across its entire supply chain.
Wilmar’s commitment illustrates the critical role that private sector actors can play in building collaborative monitoring systems and collecting accurate data on the drivers of emissions and actions taken to mitigate them.
RE100 provides another example of corporate target-setting and reporting. Through this global initiative, companies set a public goal to source 100 percent of their global electricity consumption from renewable sources and to disclose their electricity data annually, while RE100 reports on their progress. More than 100 businesses around the world have joined RE100 to date.
The world of corporate climate action and reporting is evidently highly dynamic. Notably, building on the longstanding call from CDP’s investor signatories, the Task Force on Climate-related Financial Disclosures (TCFD) has propelled the climate disclosure agenda forward by emphasizing the link between climate-related risk and financial stability (CDP Climate Change Questionnaire, 2018). The Task Force has recommended that both companies and investors disclose climate change information and developed a framework of recommended disclosures applicable across sectors and industries.
Specific recommended disclosures are broadly aligned with existing reporting frameworks and include GHG emissions, as well as metrics and targets used to manage climate risks and opportunities and to track performance against those targets. The TCFD recommends that companies make their disclosures in mainstream (i.e. public) annual financial filings, or in other reports if the information is not deemed material (and therefore not appropriate for inclusion in financial filings). 166 companies have committed to implement the TCFD’s recommendations on the We Mean Business platform and more than 500 companies have stated their support for the recommendations.
Enabling Condition: addressing confidentiality issues
Both voluntary and mandatory requirements may include approaches to ensure the confidentiality of commercially-sensitive information when it is deemed appropriate (Carbon Trust 2018). Indeed, addressing the confidentiality of commercially-sensitive data without sacrificing the transparency and usability of reported information must be a core component of both mandatory and voluntary approaches. Different ways to address this issue include declaring specific activity and process-related data confidential (therefore, while it is still reported, it will not be disclosed publicly). This is the approach used in the United States, for instance (Singh and Bacher 2015). Similarly, CDP retains confidential data from its public reports.
The broader framework for management of GHG information can furthermore be supported by data supply agreements with specific private sector actors who can help ensure the availability of key datasets (GIZ 2010) . Mandatory programs may also allow reporting entities to request that certain data be treated as confidential by submitting appropriate justification, as done in Canada and Japan (Singh and Bacher 2015).
Benefits and limitation
However, it is important to consider the potential uses of reported data that each type of requirement allows and their potential limitations. Requirements to disclose climate-related information in annual reports is commonly associated with the intent to inform investors and other stakeholders regarding companies’ climate-related risks, and to help the companies themselves gain a better understanding of opportunities to reduce emissions (TCFD 2017, Singh and Bacher 2015, Defra and BEIS 2019).
This approach, however, may not be able to support complementary policies, like carbon pricing, as it does not allow policy-makers to have easy access to the reported data in a centralized location (unless otherwise required, reported data will be scattered across company reports, which may not exist in electronic and machine-readable formats). In its consultation for the new 2018 regulations, for instance, the UK government recognizes this limitation as an area for potential future review (BEIS 2018).
It has been noted that information reported voluntarily, whether in corporate reports or through multilateral initiatives, can be of varying degrees of quality and consistency (Depoers et al. 2010, UK Impact Assessment, Stanny 2018). For example, a review of French voluntary GHG disclosure practices found that the GHG information included in corporate reports varied widely in its frequency and quality (Depoers et al. 2016). Similarly, in a 2011 Impact Assessment of Options for Company GHG Reporting, the UK’s Department of Environment, Food and Rural Affairs (Defra), noted that the existing voluntary approaches had not led to a sufficiently high level or consistency of reporting (Defra 2011).
Voluntary initiatives with common standards, such as CDP and SBTi, address this issue to some extent, but invariable verification practices mean there is still a risk that the data will not be reliable or comparable over time or across reporting entities (Stanny 2018). On the other hand, mandatory programs, which have emerged in the past 20 years at national, national, and subnational levels, tend to be more prescriptive in their requirements (for example, in regard to calculation or quality management methods), and therefore, potentially bring greater accuracy and consistency to the reported data and increasing stakeholder confidence in the information provided (Singh and Bacher 2015).
Enhancement of legislative arrangement
There is a spectrum of measures that could be considered, from guidance for voluntary disclosures and tacit, voluntary agreements to mandatory requirements embedded in adopted legislation. Both approaches present opportunities and challenges and can serve a wide range of purposes and rationales. When considering reporting arrangements to facilitate data exchange between the private and public sectors, two points are particularly important to support carbon pricing mechanisms, inform national inventories, inform institutional investors, or help reporting entities manage their emissions: data quality, in particular its consistency and reliability, as well as its intended data use.
WRI and the Partnership for Market Readiness drew from the experiences in thirteen jurisdictions to develop a framework of key considerations and practical recommendations for the design of mandatory reporting programs, recognizing that many of these are also relevant for the development of voluntary approaches (Singh and Bacher 2015). Among those most relevant for facilitating better data sharing, these include:
- Creating an enabling environment by establishing clear legal architectures, seeking stakeholder engagement during program development and reviews, and building adequate capacity (including human, technical, and financial);
- And defining clear methodologies and processes for emissions quantification, reporting, quality management, and enforcement.
Enabling environment
Building on existing infrastructures
Establishing clear legal architectures is an important component of the enabling factor for (mandatory) reporting, whether it is possible to implement GHG reporting provisions using an existing law (as done in the United Kingdom, for instance) or requires new legislation (as was the case in Australia and Mexico). In either case, it is important to take advantage of and align with established systems, procedures, compliance, and enforcement measures to build on existing capacities and minimize additional burden on reporting entities (Singh and Bacher 2015).
Stakeholder engagement
Early stakeholder engagement enhances trust between policymakers and stakeholders, promoting compliance and improved data quality through capacity-building support for reporting entities, and resolving conflicts and generating stakeholder consensus and buy-in. As a result, this can strengthen reporting. The Republic of Korea’s GHG and Energy Target Management System (TMS), for instance, was developed through in-depth consultations and negotiations between the government and private sector actors. This promoted cooperation and ensured ownership of the program by key stakeholders (Shrivastava 2015).
Dealing with confidentiality
As highlighted above, the issue of data confidentiality remains an important consideration in a relatively new approach to the management of GHG information—the mandated disclosure of GHG data in companies’ annual reports, (corporate governance reporting requirements). This of course is only relatively new as it pertains to GHG data but builds on a longer history of regulated corporate disclosures of financial and non-financial data (CDSB 2011).
Whereas in the reporting programs mentioned above the GHG information is reported directly to the program administrator (for instance, the US Environmental Protection Agency, or, in Japan, the respective line ministries who then pass it on to the Ministry of Environment), this approach requires companies to publicly disclose the information in their annual reports. Such climate-related disclosure provisions may be based on existing legislation or be established through new laws.
For instance, the UK’s Streamlined Energy and Carbon Reporting (SECR) builds on the legal framework provided by the Companies Act of 2006 and subsequent regulations to simplify and build upon pre-existing disclosure and reporting requirements (the SECR will come into force on April 1 2019) (Carbon Trust 2018). Meanwhile, in France, the scope of pre-existing corporate governance disclosure requirements was expanded to include GHG information first by the Grenelle II Law in 2010 and more recently by the Law on Energy Transition and Green Growth of 2015 (CDSB 2011, Ministere de la Transition Ecologique et Solidaire 2017 , Dewitz 2016 ).
Methodological and reporting approaches
Depending on the context and policy objectives, it may be important to harmonize domestic and international transparency priorities, or harmonize reporting practices with those used in other countries/jurisdictions. For example, the United States adopted a 25,000 tCO2e threshold to determine reporter’s applicability, as that was the threshold used by the existing Californian program. Similarly, Turkey adopted the same applicability requirement as the EU reporting program to achieve harmonization in requirements. To support the national inventory, the Australian program requires that enough information be provided to classify facility-level data into categories used by the IPCC (Singh and Bacher 2015).
More broadly, reporting programs should complement international GHG reporting systems and be “policy neutral”, providing a flexible architecture for the incorporation of or alignment with other programs, such as subnational programs or international systems that could benefit domestic priorities (National Research Council 2010).
The next section provides further examples on methodological standards.
Methodological standards
The prescription of standards and methodologies remains critical to ensuring data quality and consistency in both corporate governance disclosure requirements and reporting programs.
When reporting on GHG emissions, private sector actors can use established accounting and reporting standards, such as the GHG Protocol Corporate Standard and sector-specific standards like the cement sector’s CO2 Quantification Protocol and the Roundtable for Sustainable Palm Oil’s GHG calculator and GHG assessment procedure for new developments. Additionally, specific reporting programs like the ones mentioned above may have their own requirements for calculating and reporting emissions, but in many cases, these are based on the GHG Protocol Corporate Standard (Singh et al. 2014). The GHG Protocol Initiative further provides GHG calculation tools that are consistent with those proposed by the Intergovernmental Panel on Climate Change (IPCC) for compilation of emissions at the national level (GHG Protocol).
WRI has joined force with the New Climate Institute, CDP and the Climate Group, contributed through ICAT to the development of a Non-State and Subnational Action Guidance facilitates the integration of the impacts of non-state and subnational action (i.e., states and regions, cities, businesses, sectors) into national GHG projections and mitigation assessments.
This effort is driven by the recognition that non-state and subnational actions that contribute to climate change mitigation are becoming increasingly important but have often been excluded from national efforts when they determine their national contributions, due to a lack of guidance on how to accurately account and undertake projections for such subnational and non-governmental efforts. ICAT’s Non-State and Subnational Action Guidance provides tools for the integration of non-state actors’ activities including how to undertake the following activities across sectors:
- Account for the variety of non-state and subnational actions undertaken by regions, cities, companies and/or sectors;
- Assess the extent to which those actions are a means towards achieving or surpassing national climate targets; and
- Reflect the impact of those actions in national GHG projections, policy development, and target setting.
WRI is also currently leading the development of SBT guidance for apparel and footwear companies. Since many apparel suppliers are located in Asia, there could be an interesting story to tell, as more and more apparel companies set S3 targets. For example, Levi’s will expand their pilot program with suppliers in AESEAN countries as part of their S3 target, which will help expand renewable energy in those countries. Another example – Yunus Textile Mills (Pakistan) committed to set an SBT specifically because they are a supplier for Walmart.
An interesting driver could well be having a good GHG inventory, in order to make a supplier more attractive to brands with SBTs. This could be a good “business benefit” selling point for AESEAN suppliers. Japan is actually a good example of how government can help industries move acknowledging and leveraging the data and ambition loop concept: “Science-based targets can be used by countries as a metric to track progress against SDG #13, which calls for urgent action to combat climate change and minimize its disruptions.
Uptake of science-based targets in the private sector can also be used to help countries meet their National Determined Contributions (NDCs), which outline what actions they intend to take under the Paris Agreement. For example, the government of Japan has highlighted the need for companies to set ambitious carbon reduction goals consistent with the Paris Agreement, and linked such efforts with the country’s NDC.” Mahindra is another good example of how one vocal leader can mobilize action.
Initiatives that encourage setting and reporting of non-GHG targets often have specific standards, such as RE100’s Reporting Spreadsheet and the Roundtable on Sustainable Palm Oil’s Principles and Criteria. The CDP Climate Change Questionnaire also offers a framework for the disclosure of climate change information, including GHG and non-GHG targets and performance.
Global voluntary initiatives may report companies’ information in aggregated reports or in company-specific case studies. Alternatively, a company may choose its own procedures when reporting on voluntary actions not tied to a specific initiative. While this contributes to overall transparency and building trust in companies’ actions and pledges, it may not effectively provide accurate and consistent data for national MRV and climate projections or facilitate efforts to harmonize practices across jurisdictions (CDSB 2011).
How prescriptive these methods are will depend on a program’s objectives (e.g. support an emissions trading scheme or contribute to the national inventory) and reporters’ capacity and preparedness (Singh and Bacher 2015).
