Why are more and more organisations getting their environmental data audited?
With the simultaneous advent of the Task Force on Climate-related Financial Disclosures (TCFD) and the EU Non-Financial Reporting Directive (EU NFR) over the past 3 years, environmental reporting is being driven into the limelight in boardrooms in a manner it has seldom seen before.
Whilst the Mandatory Greenhouse Gas regulation in 2013 went some way to enhancing engagement on non-financial issues with top management, the latest changes to the reporting landscape such as the adoption of Streamlined Energy and Carbon Reporting (SECR) legislation in the UK, feel like a more emphatic game changer. We are already seeing in-house sustainability teams gain a heightened profile for their work and establish firmer communication channels with top management ensue of the newest industry developments. We have also seen extra attention paid to 2018 environmental disclosures by those working in legal and risk departments; with more questions being asked about the validity and verifiability of environmental data by these gatekeepers to the annual report and accounts content.
CDP analytics of European companies show that on average >70% of respondents achieved independent verification of any percentage of Scope 1 and 2 emissions data, with the proportion falling to 56% for Scope 3 emissions. At Carbon Smart, we are forecasting that, whilst neither the TCFD, SECR nor the transposition of the EU NFR regulation in the UK mandates third-party assurance of non-financial data (although they all recommended it), demand for verification will increase over the course of the coming years.
Therefore, what is stopping so many organisations from having their sustainability data audited with similar rigour to financial data? In our view, the benefits of external verification are clear and with the right approach, clients can use verification to their strategic advantage; rather than it being an annual burden.
Organisations can gain considerable value from verification, we have listed some of the key benefits below:
In our experience there are a number of key reasons why nearly half of CDP respondents from the UK don’t verify their data; many of which have persisted for the past 10 years and which we have been working hard to dispel:
In our view – whilst verification must remain standards lead, independent verifiers need to be more creative with their offerings to clients. This means adding additional value outside of the verification process rather than ceding to a strict standards-only based approach and making the engagements seem onerous and a tick in the box. In addition; businesses need to be more demanding of their verifiers – not only seeking third-party sign-off but insisting on a clear verification strategy that will evolve their reporting over the coming years.
The best verification outcomes, based on our knowledge include the following approaches:
Insist on a critical methodological review to avoid an echo chamber
Our assessments of corporate carbon footprints undertaken by internal teams or external consultants, revealed that most organisations do not have enough resources to digest every methodological amendments in the environmental reporting landscape. By insisting that your verifier appraises your approach against the newest techniques is vital. Key areas to challenge are anywhere the phrase ‘we’ve always done it this way’ is mentioned; and/or where a method has been applied by a software provider without a full view of the reporting organisation.
Make the verification process a part of your day to day reporting
Many organisations expect verifiers to decree a verification sample approach each year; however, this can be better managed as a part of an ongoing dialogue between verifier and client. Whilst the sample must be representative; there is no reason why wider reporting goals cannot be discussed and accommodated as part of the process. For instance, it is possible to simultaneously verify data whilst enabling the following:
Whilst having a verifier in attendance at either of the above may appear as high risk to an organisation, we would caution the opposite; material methodological decisions and/or data updates are best checked and ratified at the point of decision rather than later in the process
Our firm view is that verification can be extremely beneficial to businesses; however, both verifiers and their clients should step beyond the execution of the mechanics of the verification process and take a more collaborative approach; laying out a roadmap to future best in class reporting and sculpting verification engagements to support this.
we get it.