Earth Day, observed annually on April 22, marks the anniversary of the birth of the modern environmental movement in 1970. A half-century later, more than a billion people around the world mobilize for action on Earth Day, according to EARTHDAY.org, taking part in activities designed to help change human behavior and create global, national and local policy changes that will benefit the planet.
Earth Day is a reminder for businesses across industries that they have a significant responsibility to the communities they operate in to address carbon emissions in an effort to prevent further acceleration of climate change. As energy and carbon are tied so closely together, energy and utilities companies are under particular pressure to prioritize carbon emission reduction and demonstrate to their stakeholders, and the public at large, that they are making measurable commitments and progress on that front.
This year, that pressure is even more intense — for several reasons. Top among them are the new U.S. Securities and Exchange Commission (SEC) proposed regulations that would require reporting companies to enhance and standardize climate-related disclosures for investors in registration statements and periodic reports, such as the annual reports on Form 10-K. The Biden administration has also taken executive actions aimed at addressing the issue of climate change, including setting ambitious goals for “American workers and businesses to lead a clean energy revolution that achieves a carbon pollution-free power sector by 2035 and puts the United States on an irreversible path to a net-zero economy by 2050.”
Many leading companies, including energy and utilities businesses, are already making or planning to make voluntary disclosures about their environmental, social and governance (ESG) progress to the public. But the SEC’s proposed rules underscore the value of these companies taking the extra step to provide meaningful details in their reports, including metrics, particularly about climate-related risks and objectives. Investors, customers, employees and other stakeholders are paying more attention than ever to companies’ environmental practices — and not just on Earth Day.
Setting Achievable Goals Requires Understanding Where You Are Now
Despite all this pressure, it’s important for energy and utilities companies to step back and understand where they are today with their carbon emissions before attempting to communicate carbon reduction goals and aspirations to shareholders and other key stakeholders. At Protiviti, we believe that a carbon footprint assessment that measures the total amount of greenhouse gases from a company’s operations and the assets it controls is a critical starting point.
The information gathered during this baseline assessment will help your energy or utility business know where it stands with its “Scope 1” greenhouse gas emissions — one of the three “scopes” outlined in the SEC’s recent guidance around its proposal to enhance and standardize climate-related disclosures to address investor and other stakeholder needs. Here are the scope definitions:
- Scope 1: These are direct emissions from a company’s owned or controlled assets.
- Scope 2: These are indirect emissions from the generation of purchased electricity, steam, heating and cooling that the company consumes.
- Scope 3: Greenhouse gas emissions categorized by the SEC under this scope are from upstream and downstream activities in the company’s “value chain.”
The SEC has already proposed disclosure compliance dates for large accelerated filers, accelerated filers and non-accelerated filers for Scope 1, Scope 2 and Scope 3 disclosures. The commission also set dates for smaller reporting companies for Scope 1 and Scope 2, but it has currently exempted these companies from disclosing carbon emissions under Scope 3.
Benchmarking Isn’t Enough — You Need Hard Data
Once your business understands how much carbon it is emitting directly from operations and assets, and from where, you can set and state your climate reduction goals with greater confidence. You may even find you have a more positive story to tell around your company’s environmental impact than you thought.
You can’t get that insight solely from benchmarking against your peers, however. You need to gather hard data that is specific to your operations. This information will help you measure your company’s carbon reduction progress over time and identify areas where you may need to place more emphasis to move the needle on change. It will help you — and your stakeholders — know that you are making an impact.
So, as you celebrate Earth Day 2022 — a day of environmental action that draws more attention and involvement globally with each passing year, just like the sustainability movement itself — take a moment to set a target date for a carbon footprint assessment. Also, consider the following questions as you start laying the groundwork for your carbon reduction journey:
- What are our climate-related reporting requirements, including timelines from the SEC?
- Does our internal team have the ability to assess our carbon emissions internally?
- If we don’t have the right talent within our organization to assess our carbon emissions, where can we find the resources that we need?
Our firm works with energy and utilities companies around the world to answer their toughest questions about that journey and help them address other critical business challenges in this time of transformative change for the industry. We also provide ESG solutions that enable sustainability in a way that positively impacts your organization, community and the planet.
Happy Earth Day!
Protiviti
To read more about the SEC’s proposed rules for enhancement and standardization of climate-related disclosures, download Protiviti’s recent Flash Report on this topic.
