Comprehensive Emissions Accounting: A New Opportunity for Corporate Value Creation

Editor's Note:Donavan Hornsby is the Chief Marketing and Strategy Officer at Benchmark Gensuite, headquartered in Mason, Ohio. This article reflects the author's personal views.

As the Intergovernmental Panel on Climate Change (IPCC)latest reportcalls for collective global action to reduce greenhouse gas emissions, discussions around specific corporate emission reduction measures are intensifying.

Although many companies have announced climate transition plans, the latest data from the non-profit organization CDP (whose disclosure system helps entities manage environmental impacts) indicates that the proportion of these plans considered "credible" is too low. In short: merely accounting for emissions is not enough; companies must actually reduce emissions.

For a long time, the foundation of corporate action has often leaned toward regulatory drivers, such asthe upcoming U.S. Securities and Exchange Commission (SEC) climate disclosure rules, or to quell debates on environmental, social, and governance (ESG) issues, while overlooking the genuine corporate value that credible emissions accounting—and more importantly, emissions management—can deliver. Within the challenge lies opportunity.

While disclosure frameworks and climate plans provide useful guidance for companies, fulfilling these frameworks and plans is often not the top priority for CEOs and CFOs. The vast majority of executives recognize the value-added effect of sustainability initiatives and know that companies with good sustainability records can command higher valuations from investors. A company-wide approach to emissions tracking and management begins with understanding the environmental, health and safety (EHS), ESG, and sustainability issues unique to one's own operations, stakeholders, and broader brand. This initial step, though it may reveal some unpleasant realities, is crucial for enhancing corporate sustainability and value.

According toa CDP survey, the vast majority of surveyed companies failed to disclose information on board-level oversight, financial planning, and scenario analysis, thereby missing numerous opportunities to enhance business value. Climate risk scenario analysis helps improve financial planning by depicting the potential long-term impacts of future climate- and health-related events on a company. More companies and investors are recognizing its importance. However, while risk mitigation can deliver business value, the opportunities identified through a comprehensive emissions accounting approach can also create value.

Accounting for operational emissions and other internal sustainability risks (such as water scarcity and environmental degradation) enables companies to gain deeper insights into how these risks affect operational efficiency, health and safety outcomes, and other financial metrics of corporate performance. This comprehensive accounting will help outline a path to value creation opportunities.

Identifying and assessing value creation opportunities requires reliable data integration, analysis, and stakeholder engagement. Unfortunately, much of the needed data and functional collaboration remains constrained by disconnected systems and "patchworks" of spreadsheets. Shifting to a value creation mindset requires examining resource use and carbon footprint, which is most conveniently achieved through an integrated data management and reporting platform. Such platforms aggregate various data streams (such as energy use, greenhouse gas emissions, equipment inefficiencies, etc.) and help quantify potential investments and projects in terms of both sustainability metrics and financial metrics (which are essentially one and the same).

Take a semiconductor manufacturer as an example; the industry's operational energy andwater intensityhave begun to draw dissatisfaction from investors focused on sustainable investing. Suppose this chipmaker can access reliable emissions data from its water supplier network; a cloud-enabled emissions accounting system would then facilitate effective analysis.

For example, a company could compare the emissions profiles of different water suppliers and combine these findings with supplier spend analysis to determine priorities for Scope 3 emissions management. Subsequent supplier engagement would help the company assess whether its upstream emissions can be reduced quickly at an affordable cost, or whether it should seek reductions elsewhere.

Business value can also be realized when companies measure and track their direct and indirect contributions to non-emissions-related issues. Investors, current and potential employees, customers, and other stakeholders are more focused than ever on how companies address issues such as biodiversity, EHS, and sustainability. By implementing enterprise-wide software to collect and interpret data on value chain risks and trends, companies can provide concrete evidence of their seriousness in shaping their approach to sustainability.

In summary, it is crucial to shift the perspective on emissions tracking and broader EHS and sustainability management toward how much value it can bring to the business—this is also an important way to cut through the noisy headlines. Although the task may seem daunting, it is not unattainable as long as companies adopt an accurate and adjustable sustainability approach driven by data analytics.

Kudos to the growing number of organizations confronting these complex issues head-on. If they want to ensure this process benefits stakeholders and investors now and in the future, a mindset shift is imperative.