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Addressing the Inconsistencies in Investment GHG Emission Reporting

1 October 2024

Introduction

We are often asked by our investment clients why GHG emission data they receive through their financial transactions is not consistent or complete, leading to questions of accuracy and ultimately usefulness if it cannot be therefore used comparatively.

Whilst it’s obvious to point to the methods and mathematics used in assessing GHG emissions especially at an asset investment level, the largest influence on the inconsistencies are more institutional in nature. These are deep routed in the culture, business practices and operational frameworks of organisations.

Creating more guidance, rules and tools does do not get to the root cause of the problem of inconsistency in GHG emission reporting.

Every organisation or project we work with is different predominantly down to due to sectoral, market and management cultures but there are three typical reasons for the major inconsistencies in GHG emission reporting that apply everywhere.

One: The Undervalued Importance of GHG Emissions Data

We can see the limited value placed on good quality inventory development through the limited resources and budget being allocated to ensure their accuracy and effectiveness.  Whether it’s the salary banding of the in-house expert or the budgets for consultancy to deliver GHG Inventories the inconsistencies in resource and budgeting will alter reporting outcomes.

Variation in investment directly varies the quality of the outputs.

This creates a self-fulfilling prophecy the lower the investment, the lower the quality, the less decision makers can rely on the outcomes, the less they are willing to invest.  An indicator of this cycle is the sustainability ‘budget cut’.  If budgets are being cut, there’s something wrong with the institutional understanding of climate change risk.

This is problematic because the initial data and projections set the foundation for future actions and policies. If the information is not accurate or comprehensive, it can lead to misguided decisions and weak strategies.

Two: Practitioner Bias and Experience: The Influence of Expertise

Practitioners’ technical proficiency and experience play a significant role in the accuracy of GHG emissions reports. However, their expertise can also introduce biases, especially with specialist expertise.

Practitioners will have their own data sets, emission factors, tools and quality assurance procedures using other industry expertise. These institutional arrangements create limits on a practitioner’s perspective which skews results.

No two experts in the field of GHG emission reporting will end up with the same results.

Three: Emission Reporting Confusion: The Challenge of Emission Ownership

Confusion over emission ownership is a significant challenge in GHG emissions reporting. This issue is particularly prevalent when reporting indirect emissions, where responsibility and accountability is subjective.

Different stakeholders have varying opinions on who should be responsible for what emissions, especially within a supply chain, which are influenced by their biases, interests or indeed status.

Every organisation sits within supply chains that are defined by decades of institutional behaviours, hierarchies and processes.  These relationships are all very different which can be seen through how information and data is traded between them.  The maturity of these relationships plays a significant role in defining who is responsible for what, and the provision of good quality data reporting between entities.

It is rare that any one organisation, regardless of sectoral guidance, will assess their indirect emissions in the same way.

An investment community response to the inconsistencies

To a large extent it shouldn’t really matter if any two organisations assess their emissions in different ways, as long as they’re reducing them.

But it is still a problem for organisations, like our investment community who are looking to understand the impact of their investment.  It is hard for them to trust what is being provided to them.

Achieving greater accuracy, consistency, completeness, and comparability in GHG emission reporting, as defined by Article 13 of the Paris Agreement, requires continual improvement within the complex systems in which governments and organisations operate.

Responding to these collective barriers to consistent and comparable GHG emission reporting requires understanding such issues as they apply to the financial institutions’ GHG Inventory.

Developing robust institutional arrangements for GHG emission inventories is crucial for ensuring accurate and consistent data reporting. An important step in developing these arrangements is to undertake an audit of the system the inventory is responding to.  Institutional audits need to:

• Conduct a comprehensive review to identify all potential causes of inconsistencies between ex-ante (projected) and ex-post (actual) emission reporting.
• Create a detailed list of issues that need to be resolved, considering factors such as data collection methods, reporting standards, and calculation methodologies.
• Evaluate the impact of each identified issue on the overall accuracy and reliability of emission data.
• Prioritise issues based on their significance and the extent to which they affect data comparability and consistency.
• Determine whether each issue is technical (related to the mathematics of emission calculations) or institutional (caused by behaviours and organisational processes). This categorisation will help in developing targeted solutions for each type of issue.
• Identify individuals and stakeholders responsible for addressing each improvement requirement.
• Assign clear roles and responsibilities to ensure accountability and effective implementation of solutions within your organisation.
• Create a comprehensive data improvement plan that addresses each identified issue.
• Prioritise actions based on the impact of the issue and the ability to influence its resolution and include specific steps, timelines, and resources required for each action item.

By addressing these inconsistencies through a structured and systematic approach, financial institutions can enhance the accuracy, consistency, and comparability of GHG emission reporting, contributing to more effective climate action and progress towards net-zero goals

For further information on Aether’s work with transparency and integrity arrangements for GHG emission reporting please contact melanie.hobson@aether-uk.com or jonny.riggall@aether-uk.com.

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