Editor's Note: Emily Pierce is Chief Global Policy Officer and Deputy General Counsel at Persefoni, a company headquartered in Tempe, Arizona. Persefoni provides carbon accounting and sustainability management platforms. The views expressed in this article are solely those of the author.

In an era of increasingly stringent global sustainability disclosure regulations, companies are facing ongoing pressure to collect, calculate, and report greenhouse gas (GHG) data. This process is challenging and can be extremely complex, but evolving technology can help CFOs meet these requirements.

Today's business environment requires CFOs to recognize that the demand for GHG data extends beyond mere regulatory compliance—it is about maintaining competitiveness in markets that demand transparency regarding sustainability risks and risk assessment metrics. Market forces, investor expectations, and global trends are driving companies to proactively disclose climate risks and related emissions data, even if they are not currently subject to climate-related regulations. Financial leaders must proactively integrate GHG data into financial planning, leveraging technology to manage and analyze this critical information. Failure to do so may leave companies lagging in both compliance and competitiveness.

This year marks the beginning of a wave of strengthened, regulated sustainability and climate disclosure requirements globally. Companies need to understand and prepare to disclose their carbon emissions information, including Scope 1 (direct emissions), Scope 2 (indirect emissions generated within a company's value chain, encompassing its supply chain), and Scope 3 (all indirect emissions generated across a company's entire supply chain).

In the United States, the Securities and Exchange Commission's (SEC) climate disclosure rules, although currently stayed pending litigation, would still require U.S. public companies to disclose material climate-related information, including Scope 1 and Scope 2 emissions, accompanied by appropriate assurance reports. Some CFOs are awaiting court decisions, but regulatory progress in other jurisdictions already requires companies to take action.

Meanwhile, California's climate laws will require public and private companies with annual revenues of at least $1 billion that do business in California to disclose Scope 1, Scope 2, and Scope 3 emissions, as well as climate-related financial risks. Assurance requirements will be phased in. Although implementation details are still being finalized, the legislative mandate is clear: GHG emissions reporting will be regulated, and thousands of companies will need to comply.

In Europe, the Corporate Sustainability Reporting Directive (CSRD) is now in effect. Large European listed companies have begun collecting data to disclose sustainability information for fiscal year 2024 in their next annual report. Next year, this requirement will extend to more companies, including listed and non-listed entities. These reports, which follow the European Sustainability Reporting Standards, will require disclosure of Scope 3 emissions, as well as detailed information on transition plans and targets. The standards also require companies to disclose the percentage of Scope 3 emissions calculated using primary data provided by suppliers.

Within the next four years, the CSRD will apply to approximately 50,000 companies, including many U.S. businesses. Globally, many jurisdictions are strengthening their disclosure regulations by incorporating the IFRS Sustainability Disclosure Standards (ISSB standards). These standards also set clear expectations for disclosing emissions data, including Scope 3, and directly require reporting entities to prioritize the use of primary data in their calculations.

Preparing for Compliance

As the regulatory landscape unfolds, CFOs must focus on compliance while also understanding its impact on competitiveness. Regulations emerge in response to market demands, which is reflected in voluntary trends, such as the approximately 23,000 companies currently reporting their emissions and other data to the Carbon Disclosure Project (CDP) in response to shareholder or business requests. Capital providers are also driving related requirements because they need to calculate their financed emissions. Regulations like the CSRD will further accelerate this market demand.

CFOs need to help their companies confront their greenhouse gas emissions and climate-related financial risks. This involves vast amounts of data, and processing this data can be extremely resource-intensive.

However, technology offers a solution that can significantly simplify the process. Software automation forms the backbone of a robust carbon data program, and artificial intelligence is increasingly being deployed to streamline carbon accounting and analysis. Benefits include:

  • Increased efficiency in building a comprehensive carbon footprint: Technology enables organizations to measure and analyze their carbon footprint across all operational areas, supporting global data management and granular tracking. For companies with complex corporate structures and multiple reporting requirements, tracking and reporting emissions by segment is crucial for efficiently meeting compliance requirements under the CSRD, California climate laws, and SEC climate rules.
  • Improved controls and validation processes: Advanced carbon accounting software helps ensure emissions data is accurate and meets regulatory standards. AI can detect anomalies in emissions data, identifying irregularities or errors that may indicate inaccuracies or reporting issues; flag unusual spikes or drops in emissions data, prompting further investigation to ensure accurate reporting; and help companies automatically select and apply the correct emission factors for various activities, thereby improving the precision of their GHG calculations.
  • Facilitating Scope 3 reporting: Obtaining data from corporate supply chains is a significant challenge because this data is not readily available. Tracking primary data and blending it with spend-based estimates is also complex. Technology enables companies to integrate primary data into their reporting, more accurately reflecting actual emissions and informing action, while also enabling more companies in the value chain to calculate their own emissions so they can share primary data with you.
  • Advanced trend analysis: AI tools can quickly analyze emissions data, covering both a company's own carbon footprint and cross-industry data, enabling CFOs to model and identify actionable emission reduction opportunities. Technology-driven benchmarking also helps identify actionable competitive opportunities.

CFOs cannot wait for ESG regulations to be finalized before taking the necessary steps to ensure compliance readiness. Incorporating technology from the outset will ensure that the mechanisms you build are efficient, effective, and reliable.