How to make complicated environmental reporting less complex?

December 16, 2024

This article deals with the CSRD/ESRS disclosure requirements on environmental reporting and how Solitwork believes in a “spend based approach” as the right starting point for an intelligent and gradual improvement of the CO2 equivalent (CO2eq) reporting accuracy.

Background

The reporting requirements according to the Corporate Sustainability Reporting Directive (CSRD) consists of 12 European Sustainability Reporting Standards

(ESRS). Those standards are either sector-agnostic or sector/company-specific and cover among others disclosure requirements related to environment, social and governance matters (ESG).

The EU covers the six so-called environmental objectives within the ESRS standards; Climate Mitigation, Climate Adaption, Water, Circular Economy, Pollution Prevention and Biodiversity.

The environmental objectives are the interlink between CSRD/ESRS and the EU Taxonomy.

The CSRD will take effect as from:

January 1, 2024 (reporting 2025 – listed companies with more than 500 employees)
January 1, 2025 (reporting 2026 – companies in reporting class Large C and D)
January 1, 2026 (reporting 2027 – listed SMEs)

Environmental disclosures in short

In short, companies are asked to define a baseline on scope 1, 2 and 3 CO2eq emissions, set targets and report on the actual development every year.

The baseline can be one year or an average of e.g. three years (e.g. 2022-2025). It can be normalized, and it needs to consider expected growth and related emissions. The baseline figures need to be updated every 5 years.

Scope 1 is: direct impact
Scope 2 is: indirect impacts (purchased or acquired)
Scope 3 is: value chain emissions beyond scope 1 and 2

Baseline data consist of Scope 1, 2 and 3 emissions, where:

Targets should be set for at least 5 years and can be set using general known reduction factors.

Presenting actual figures on all three scopes does not only require data collection, either manually or automated. It also requires CO2eq calculation and reporting.

In addition, besides the emissions reporting companies are also requested to:

Calculate different KPIs such as “Emissions per Net Revenue” and “Total energy consumption per Net Revenue”
Disclose Emission Factors used for calculations
Report on a granular dimensional level of country, segment, economic activity, subsidiary, Green House Gas (GHG) category etc.
Report all energy related figures in MWh besides CO2eq
.. and a lot more..

In short, companies are asked to define a baseline on scope 1, 2 and 3 CO2eq emissions, set targets and report on the actual development every year.

Scope 1 is: direct impact
Scope 2 is: indirect impacts (purchased or acquired)
Scope 3 is: value chain emissions beyond scope 1 and 2

Baseline data consist of Scope 1, 2 and 3 emissions, where:

Targets should be set for at least 5 years and can be set using general known reduction factors.

Presenting actual figures on all three scopes does not only require data collection, either manually or automated. It also requires CO2eq calculation and reporting.

In addition, besides the emissions reporting companies are also requested to:

Calculate different KPIs such as “Emissions per Net Revenue” and “Total energy consumption per Net Revenue”
Disclose Emission Factors used for calculations
Report on a granular dimensional level of country, segment, economic activity, subsidiary, Green House Gas (GHG) category etc.
Report all energy related figures in MWh besides CO2eq
.. and a lot more..

Complexity made less complex

From a data perspective, the area of environmental reporting according to the ESRS will generate an additional substantial workload within all affected companies in the form of complex data gathering, complex calculations as well as preparation and submission of related disclosures.

To reduce the complexity, we at Solitwork strongly believe in the value of getting started now by gaining a better understanding of your initial CO2eq baseline, especially within the areas of most significance to your company. The initial baseline figures can be determined based on pure “spend based data”. By doing so, you can improve your CO2eq reporting accuracy intelligently and gradually where it matters, by switching data source to activities over time.

Let us improve on CO2eq accuracy together!

We understand activity-based data (like kilometers, liters, kilos etc.) is more well seen and we are truly interested in getting there with our customers. However, we believe in creating even more context to our customers by establishing a complete starting point from known spending via your actual accounting/finance transactions. This is known data and it is most likely dimensioned at the granular level requested (cf. above), which assist you in delivering the numbers and focus the effort.

Financial reporting solutions are one of the ground pillars in Solitwork’s business model, and we consider ourselves as experts in this area. Data is handled with care and integrity always ensuring a proper audit trail.

Our AFC ESG engine enables you to calculate, document and account the CO2eq of every transaction – whether it is spent or activity based – as we connect relevant data sources (like your ERP system) to our AFC platform. The platform further enables you to set up rules that consider different parameters such as category, vendor and department. Rules that you link to desired emission factors, which are available from an external database, including those available from the GHG protocol.

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