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How to report on your net zero journey?

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Key takeaways

  1. 80% of N100 companies across the world report on sustainability, with 65% of those companies disclosing carbon reduction in their reports — KPMG
  2. Adoption of International and European Regulations: Starting in 2025, the EU mandates large and publicly traded companies to disclose ESG-related risks and opportunities, emphasising the impact of their activities on people and the environment, under the Corporate Sustainability Reporting Directive (CSRD), enhancing the depth and robustness of sustainability reporting beyond the previous framework.
  3. Implementation of ESRS for Clear Reporting: The CSRD introduces the Environmental, Social, and Governance Reporting Standards (ESRS) to standardise the disclosure of general, environmental, social, and governance information, integrating these alongside financial data in annual reports and subjecting them to rigorous audit processes for accuracy and reliability.
  4. Structured Reporting on Carbon Credits: Companies are required to maintain a detailed inventory of purchased Carbon Credits, transparently communicate the emission reductions achieved, and adhere to local and international regulatory requirements, underlining the importance of transparency, compliance, and leveraging Carbon Credits for environmental impact and stakeholder engagement.

What do you have to report on for your net zero journey?

Currently, there is no special reporting a company needs to do to comply with legislation or regulation if they are on their Net Zero journey, or have set Net Zero targets. Companies will report their Net Zero activity as part of any normal ESG reporting they might have to complete.

However, there are important circumstances where reporting

  • If a company has signed up to a specific standard, such as SBTI, then there will be specific reporting requirements to meet the standard. This is something to consider before signing up to a standard.
  • Legislation is changing quickly, and under the up-and-coming CSRD legislation that is coming into force in Europe. This legislation states that if you make a net zero claim, you need to
  • Explain the scope, methodologies, and frameworks that your company used to reach their net zero commitment.
  • Explanation of what scope, methodology, and frameworks means.

What are the benefits of reporting on your net zero journey?

There are tangible business benefits to be gained from responding to your stakeholder’s requests for disclosure. The CDP recognises the following benefits when observing the 23,000 companies that have started disclosing their environmental data:

  • Protect and improve your company’s reputation – build trust through transparency and respond to rising environmental concerns among the public
  • Boost your competitive advantage – gain a competitive edge when it comes to performance on the stock market, access to capital, and winning tenders
  • Track and benchmark progress - benchmark your environmental performance against your industry peers, with an internationally recognised sustainability score and feedback against your climate targets
  • Uncover risks and opportunities – identify emerging environmental risks and opportunities that would otherwise be overlooked, to inform data-driven strategy
  • Get ahead of regulation – in a world in which mandatory disclosure is gaining momentum, disclosing through CDP enables companies to meet reporting rules in multiple regions

Potential risks of reporting on your net zero journey?

  1. Regulatory Compliance: Failure to adhere to local and international regulations governing Carbon Credits can result in legal and reputation risks.
  2. Verification Challenges: Ensure the legitimacy of the Carbon Credits purchased by working with recognised certification bodies and adhering to established standards.
  3. Market Volatility: The value of Carbon Credits can fluctuate, potentially affecting the financial aspects of your reporting.

In summary, reporting on Carbon Credits is an opportunity to showcase your environmental commitment and align with sustainability goals. Proper documentation, transparent reporting, and compliance with regulations are crucial to maximise benefits and mitigate potential issues

Regulatory Environment

  1. The European Green Deal and Climate Law set legally binding targets for the EU to become climate-neutral by 2050, to reduce greenhouse gas emissions by at least 55% by 2030 compared to 1990 levels, highlighting the EU's commitment to combating climate change.
  2. The Corporate Sustainability Reporting Directive (CSRD) significantly enhances transparency in environmental and social governance for around 50,000 EU businesses by mandating detailed sustainability disclosures to standardise reporting practices across the EU.
  3. The CSRD's requirements for comprehensive ESG reporting indirectly steer corporate decision-making toward sustainability by necessitating detailed data collection, thus integrating environmental considerations into corporate strategies more effectively.

International and European Agreements and Regulations to be aware of

  • EU’s Green Deal
  • Climate Law
  • CSRD

EU’s Green Deal

Overview: Launched in December 2019, the European Green Deal is an ambitious package of measures that aims to make the EU's economy sustainable by aiming to reach Climate Neutrality by 2050.  The result will be upcoming regulations and policies enforcing emission reductions.

Climate Law

Legislation: The European Climate Law, which passed in June 2021, turns the political commitment to net zero emissions by 2050 set by the European Green Deal, into a legally binding obligation. It has an intermediate target of reducing net greenhouse gas emissions (emissions after deducting removals) by at least 55% by 2030, compared to 1990 levels.

The CSRD

Around 50,000 businesses operating within the European Union are expected to be affected by the recent introduction of the Corporate Sustainability Reporting Directive (CSRD).

Serving as an improved version of the Non-Financial Reporting Directive (NFRD), the CSRD aims to enhance transparency in corporate practices regarding environmental and societal impacts. It imposes more stringent and transparent requirements for sustainability disclosure.

In a nutshell, the CSRD seeks to establish a more standardised approach to sustainability reporting across the EU, ensuring that the information is uniform, reliable, and comprehensible to all stakeholders.

Given the green light at the beginning of 2023, the CSRD initiates the countdown for the initial batch of companies obligated to comply with its reporting standards for the fiscal year 2024 and then extends its compliance from all large companies to SMEs and finally to all non-EU-country companies.

The CSRD represents a major leap for climate and environmental regulation within the EU, as companies are legally obliged to report on their emissions and future strategies.

While the CSRD doesn't directly incentivise emissions reduction measures, it indirectly shapes decision-making by necessitating comprehensive attention to ESG data collection and reporting. This not only enhances transparency but also underscores the growing importance of environmental considerations in corporate strategy, positioning companies to navigate the evolving landscape of sustainable business practices effectively.

If you would like to better understand the impact of the CSRD on the Voluntary Carbon Market, read our article.

Reporting on ESG

When it comes to Environmental Social and Governance (ESG) reporting, it is important to note that your company will have to comply with a set of specific requirements that are place and industry-dependent.

To report on ESG matters there are a range of standards, frameworks, and management systems that support companies to improve their sustainability strategy depending on their specific requirements.

The most commonly used are CDP and the Green House Protocol

Carbon Disclosure Project (CDP)

CDP is a global non-profit organisation that helps companies and cities disclose their environmental impact data, including carbon emissions, water usage, and deforestation risks.

CDP provides a platform for businesses to measure, manage, and report their environmental performance to investors, stakeholders, and the public, promoting transparency and sustainability.

Greenhouse Gas Protocol

The Greenhouse Gas Protocol is a widely recognised accounting and reporting standard for measuring greenhouse gas emissions.

Developed by the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD), the Protocol provides a consistent framework for organisations to quantify and report their carbon footprint, enabling better climate change management.

Reporting standards, guidelines, and regulations for carbon and climate

Starting in 2025, the European Union will mandate that large and publicly traded companies divulge details concerning the potential risks and opportunities stemming from their Environmental, Social, and Governance (ESG) practices. A particular emphasis will be placed on assessing the consequences of these companies' activities on both individuals and the environment.

This new requirement will be facilitated through the Corporate Sustainability Reporting Directive (CSRD), which replaces the previous ESG reporting framework, the Non-Financial Reporting Directive (NFRD). The CSRD not only takes the place of the NFRD but also elevates the standards for the depth and robustness of sustainability reporting. It expands the scope to encompass a broader array of categories, encompassing not only carbon emissions but also factors such as pollution, water management, waste management, and biodiversity preservation.

To ensure consistency and clarity in reporting, the CSRD introduces the Environmental, Social, and Governance Reporting Standards (ESRS). These standards delineate the precise information that companies must disclose regarding their general, environmental, social and governance requirements and provide guidance on the methods of doing so. Crucially, these disclosures will be integrated into annual reports, alongside financial data, and will undergo rigorous audit processes to ensure their accuracy and reliability.

ESRS1 ESG Reporting

ESRS E1 & reporting on Carbon Credits

ESRS E1 focuses on what a company needs to report about how it's dealing with climate change. This includes sharing information about the amount of greenhouse gases it produces, how it plans to avoid and reduce them, and even how it's using carbon credits to balance out its emissions.

When reporting on Carbon Credits, it's crucial to follow a structured approach that includes several key aspects.

  1. An inventory and comprehensive documentation of the purchased Carbon Credits should be compiled, detailing their project origin, vintage year, and associated emissions reduction or removal data. This meticulous record-keeping is essential for transparency and verification purposes.
  2. It's vital to transparently communicate the emission reductions or removals achieved through the Carbon Credits, using standardised metrics and methodologies such as the Verified Carbon Standard (VCS) or the Gold Standard to ensure accuracy and comparability.
  3. Reporting should encompass the market value of these Carbon Credits in financial reports, demonstrating a commitment to sustainability that can be valuable for stakeholders and investors.
  4. Emphasising the positive environmental impact of these purchases, specifically in terms of reducing the company's carbon footprint and contributing to global emissions reduction efforts, can enhance the reporting's credibility. Leveraging Carbon Credits in marketing and communications efforts can also bolster the company's reputation and appeal to environmentally conscious consumers.
  5. Adherence to local and international regulatory requirements regarding Carbon Credit purchases is crucial to avoid legal issues, as different regions may have specific compliance standards. In sum, a well-rounded approach to Carbon Credit reporting ensures transparency, compliance, and the recognition of environmental and sustainability efforts.