A s the impact of climate change becomes increasingly difficult to ignore, businesses across the world are making public pledges to lessen their greenhouse gas (GHG) emissions or achieve net zero—that is, counterbalancing the amount of emissions they produce with an equal amount of emissions that can be reduced or removed.
These pledges are an important step toward meeting emissions reduction targets and preventing the most catastrophic potential impacts of climate change. To reach that goal, promises will not be enough—companies will have to walk their climate talk.
That’s not an easy task, nor a simple one. Different sectors and industries produce emissions in complex and varied ways, and pathways to reductions are equally wide-ranging. To make meaningful changes, companies need both good intentions and good information: accurate and actionable GHG-related data that they can incorporate into their business strategy, easily share with stakeholders, and use to meaningfully track how they are progressing against their commitments.
“Companies are making emissions commitments, and people expect them to honor those commitments,” says Sammy Lakshmanan, an Environmental, Social, and Corporate Governance (ESG) Principal at PwC. “So having accurate, trusted, and verified information is highly critical.”
To build trust in the data companies are reporting, they need a team that confirms the data meets current quality and internal control standards. “To do this requires a new reporting chain of command and process, which takes time,” says Ron Kinghorn, ESG Consulting Solutions Leader for PwC US. “There is a need to upskill employees, build new cross-functional relationships and implement new technologies to create consistency in the reporting process.”
Cloud-based solutions, like those implemented by PwC, can help make the reporting process much quicker for organizations. When teams have access to real-time information, they can make real-time decisions, says Kinghorn. “By doing this companies can begin to align their ESG priorities to their long-term growth strategies, which can help ESG priorities become value drivers for the business.”
You can’t improve what you can’t measure
Businesses have many reasons to reduce emissions—and earning stakeholders’ trust is at the top of the list. Sustainability-minded investors may pressure companies to go further with their ESG commitments and provide more decision-useful information, with many willing to vote against director appointments or even divest from companies that aren’t taking sufficient action on climate and other issues. Consumers say they are more likely to support companies that take the lead on environmental matters, too.
Similarly, governments the world over are now requiring businesses to report on the climate impact of their operations. The European Union recently passed the Corporate Sustainability Reporting Directive (CSRD) that requires large companies to disclose operating information on their management of social and environmental challenges. Meanwhile, the U.S. Securities and Exchange Commission is expected to finalize new rules in 2023 requiring companies to report more detailed GHG data and climate risk factors.
“Whether it’s investors reallocating their portfolios or customers buying low-carbon products, people are making decisions based on those commitments and information,” Lakshmanan says. “As a result, you want to make sure that people can trust the information and make informed decisions.”
That applies within companies as well. Before an organization can reduce emissions, it has to thoroughly understand how it produces them in the first place. That can be a formidable challenge: according to PwC’s Annual Global CEO Survey, more than half of the global CEOs whose companies have not made net zero commitments say that their organizations lack the capability to measure emissions.
Likewise, investors told PwC that they are often frustrated with the quality of current corporate ESG reports and struggle to get good information on companies’ plans for reaching environmental commitments, their progress toward specific targets, and how ESG factors such as emission reduction factor into companies’ business models.
“You can’t improve what you can’t measure, right?” Lakshmanan says. “So the first thing you have to do is establish a good baseline for your emissions. If you aren’t doing that, you have no idea if you’re doing 50 percent better or two percent better with whatever efforts you’re making.”
According to international standards, business emissions fall into three categories, referred to as “scopes.” These scopes can be thought of as concentric circles. The first circle, Scope 1, covers direct emissions from company-owned or controlled sources, like a fleet of gas-powered trucks delivering goods. The second circle, Scope 2, encompasses indirect emissions from the generation of purchased energy, like the electricity from a coal-fired plant that powers the factory that makes the goods that end up on the trucks.
Scope 3, the emissions created through the use of a company’s products and across the full value chain—including the contributions of suppliers and other business partners—is perhaps the most important, but also the hardest to quantify.
Imagine, Lakshmanan says, that you work for an American company and fly overseas to meet with a European client. “Who owns the emissions for that trip?” He says. “Is it your company? Is it the client? Is it the airline? Is it the energy company that sold jet fuel to the airline? Technically, all of these companies are affected by Scope 3. It’s that complex.”
The level of robustness that companies need is increasing
Suppose you’re a shoe manufacturer with two sources of rubber. One source provides rubber at a lower cost. The other source produces rubber with much lower GHG emissions. If you’re pursuing a net zero goal and are also concerned about your bottom line, how do you decide which supplier to use? Answering these sorts of complex questions requires collecting and analyzing more emissions data than ever before, faster than ever before.
“The level of robustness that companies need is increasing,” Lakshmanan says. “Electricity invoices from buildings, employees commuting in cars, plane emissions, refineries and manufacturing facilities, and so on. It’s a lot of different data, and you need good ways to be able to ingest it, aggregate it, and harmonize it.”
For companies with GHG reduction targets, data collection and analysis isn’t the only hurdle to overcome. Integrating that data into reporting systems and business processes is often slow and tedious, with much of that work performed manually across teams and geographic locations.
Similarly, fusing data and internal transformation efforts with supply chain partners can be difficult due to the size and scope of business activities, as well as the fact that emissions reporting has yet to be standardized across companies and countries.
“Without a universal or even U.S. standard for ESG reporting, companies are often on their own as to what should be included in their sustainability reports,” Kinghorn says. “Product footprint, carbon border adjustments, and supply chain resiliency are generally the most challenging to collect data around from an environmental risk standpoint. However, investing in and developing modeling and reporting standards can streamline the reporting process.”
Currently, investors frequently use annual reports, sustainability reports, and investor presentations to understand how organizations are addressing emissions and climate challenges. If a company wants to better understand the quality and transparency of their data, ESG Pulse, a PwC product, can consolidate information from sources across an organization, provide benchmarking insights into where the organization compares to competitors, and pinpoint opportunities for reporting improvements.
“Your investors, your regulators, your customers, your bankers who are lending you money—they want your carbon data, but they all want something slightly different,” Lakshmanan says. “Being able to understand and share those different nuances is quite critical. Cloud solutions provide the analytics capability to do that, and in a self-service way. You can slice and dice the data in whatever way is appropriate to the stakeholder you’re reporting to.”
“Turning commitments into action”
As one of the world’s largest oil and gas services companies, Baker Hughes is deeply connected to the hydrocarbon industry. And the company is supportive of the objectives of the Paris Climate Agreement and is working to significantly reduce its own carbon footprint.
Accurate reporting is at the heart of Baker Hughes’ ongoing effort to achieve net zero Scope 1 and 2 emissions by 2050. Working with PwC over a two-year period, the energy company built and deployed a new system of controls and reporting tools to help track and measure their ESG metrics.
In turn, this allows the company to compare that picture to its goals, gaining insight into where it is making progress and where it needs to make additional adjustments. In 2021, Baker Hughes worked with PwC to create a combination of energy efficiency initiatives, facility consolidation, increased electric power consumption from renewable energy sources, and improvements in its vehicle fleet to reduce its Scope 1 and 2 emissions by 23 percent compared to 2019.
Ultimately, Lakshmanan says, GHG data cloud solutions provide companies looking to reduce emissions with the same service that fitness trackers provide for individuals looking to improve their health—better, more accessible data that leads to better, more efficient outcomes.
“It’s easy to lose track of time when you’re sitting on a video call for hours,” Lakshmanan says. “But my [smart] watch will tell me, ‘oh, you need to stand.’ And I do it. When you have more data and it’s consumable in real time, you make different decisions.”