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Unlocking value: How GHG emissions assurance boosts confidence and reduces costs

Each passing year, often as part of a larger environmental, social and governance (ESG) strategy, a growing number of organizations embrace the task of measuring and disclosing greenhouse gas (GHG) emissions. Whether driven by impending regulatory mandates, mounting stakeholder expectations, or internal commitments to sustainability, this trend is unmistakable. As the demand for GHG emissions reporting intensifies, so does the call for independent, third-party assurance to uphold the integrity and reliability of the underlying data.

Current GHG emissions assurance landscape

Currently (and unsurprisingly), large organizations are spearheading the adoption of third-party assurance over GHG emissions data to strengthen the credibility of their disclosures. However, due to increased stakeholder expectations and regulatory requirements, the imperative for middle-market organizations to embrace GHG emissions assurance is on the very near horizon.

Certainly, there exists a degree of reluctance around undertaking third-party GHG emissions assurance; for some business leaders, allocating resources to scrutinize non-financial data is challenging to accept. It’s easy to see the value in attaining third-party assurance over quantitative reporting like annual financial statements—the level of financial rigor this undertaking conveys to investors, creditors and stakeholders is plain to see. However, for many organizations, especially private enterprises, leaders have struggled to calculate a motivating return on investment when it comes to assurance over non-financial data—until now. In light of recent booms in GHG emissions-related regulatory mandates and increased pressure from investors and stakeholders, the demand for GHG emissions data reporting and assurance continues to intensify.

Benefits of assurance over GHG emissions data

Organizations are increasingly directing resources towards third-party GHG emissions assurance for many reasons, stemming from both internal and external pressures.

External reasons for enlisting a third party to provide assurance over your GHG emissions include:
  1. Regulatory compliance: GHG emissions disclosure and reporting regulations, such as those announced by the U.S. Securities and Exchange Commission (SEC), are on the rise and particularly target public companies and government contractors. However, private companies, though not directly bound by SEC regulations, are indirectly impacted as players within the supply chain of public companies who, driven by their reporting obligations, require data from their suppliers, often accompanied by assurance. In light of this, as the SEC advances GHG emissions reporting requirements, other standard-setting bodies like the Carbon Disclosure Project (CDP) are also advocating for third-party assurance of GHG emissions data. Other GHG emissions reporting mandates such as California SB 253 and the European Union’s Corporate Sustainability Reporting Directive (CSRD) also feature third-party assurance requirements. In short, both public and private companies are facing mounting pressure to seek third-party GHG emissions assurance. The regulatory landscape is poised for expansion, not contraction, meaning organizations would be wise to begin their compliance efforts sooner rather than later.
  2. Organizational credibility: GHG emissions assurance enhances trust and credibility in the marketplace, showcasing that organizations don’t just prioritize the right actions but execute them effectively as well. Consequently, assurance from an independent third party draws the interest of prospective investors and business partners while further solidifying trust among customers and other pivotal stakeholders. Moreover, ESG rating agencies tend to accord additional recognition to organizations who secure assurance over their GHG emissions data.
  3. Cost of capital: An organization’s adherence to regulations and commitment to enhancing its market position correlate both directly and indirectly to financial advantages. There is a growing trend among investors to seek out environmentally conscious companies, underscoring the significance for organizations to not only promote but also substantiate their dedication to disclosing accurate and independently verified GHG emissions. This commitment holds particular weight as billions of investment dollars are directed towards such initiatives, both nationally and globally.
Conversely, the internal benefits of seeking GHG emissions assurance include:
  1. Improved practices: Engaging an independent third party to provide GHG emissions assurance enhances an organization's data reliability, empowering leadership to make better-informed decisions. Armed with trusted and verified data and a sustainability mindset, business leaders can confidently adjust strategies, allocate resources optimally and make strategic investments.
  2. Risk assessment: GHG emissions risks and, more broadly, ESG risks, are intricately linked to an organization’s financial health, long-term vision and reputation. Undergoing third-party GHG emissions assurance can aid an organization in pinpointing sustainability and governance-related vulnerabilities and opportunities. This proactive approach enables an organization to mitigate potential risks before they pose significant harm.
  3. Organizational consistency: Data used in performing financial statement audits typically originates from an organization’s enterprise resource planning (ERP) system and often benefits from robust, well-established controls around logical access and change management. GHG emissions data, however, may be collected from various internal departments or external vendors, each exhibiting differing levels of proficiency in data tracking and internal controls; while some data providers maintain strong controls, others may lack adequate measures. Given the diverse sources of GHG emissions data across business segments, third-party assurance is often necessary to evaluate data quality, completeness and accuracy.

Types of assurance

Currently, almost all GHG emissions assurance engagements performed provide either reasonable or limited assurance.

  1. Reasonable assurance: This is the pinnacle of assurance, typically attained through an examination or financial statement audit. It's important to note that this level of assurance doesn't equate to absolute assurance, but rather involves conducting procedures aimed at significantly reducing audit risk—the risk of issuing an incorrect opinion—to a level deemed acceptable.
  2. Limited assurance: A lower level of assurance provided through a review engagement, which involves procedures less rigorous than in an examination. In a review, the auditor's opinion is expressed in a negative manner, stating that nothing has come to the auditor’s attention to indicate the subject matter is materially misstated.

Most organizations beginning their GHG emissions assurance journey opt for limited assurance, which serves as a valuable initial stage and often satisfies current regulatory requirements. However, as more organizations demonstrate their ability to meet the standards of limited assurance, the bar is projected to rise, with reasonable assurance eventually becoming the norm. While limited assurance remains a viable objective, organizations stand to benefit by initiating their journey now rather than waiting for reasonable assurance to become standard practice.

It’s important to note that it is often not expected that an organization leap directly into an assurance engagement. Instead, many organizations opt to first undergo a readiness assessment. This preliminary step allows organizations, with the direction of a third party (usually their future assurance provider), to evaluate their current data collection processes, identify gaps and identify remediation strategies. By first completing a readiness assessment, an organization is better prepared for a future GHG emissions assurance undertaking.

Benefits of leveraging a CPA advisor

Many firms provide assurance services over climate disclosures. However, as GHG emissions reporting is often included in financial statements and increasingly falls under the remit of the accounting function, selecting a CPA firm to conduct your GHG emissions assurance review can have many benefits.

  1. Value accounting standards: Regulators and investors are placing greater value on accounting standards to guide climate disclosures as these robust standards encourage consistency and comparability. Reporting against these accounting standards requires practitioners who are steeped in accounting best practices.
  2. Improved systems and controls: CPA firms are well positioned to support enhanced reporting to meet these assurance standards and partner with their clients' accounting teams to build out climate reporting. This includes improving systems and controls aligned with existing accounting procedures.
  3. Deep assurance and ESG knowledge: At Baker Tilly, we approach assurance engagements from a financial accounting and sustainability reporting lens, yielding a comprehensive review for disclosures that will be subject to regulatory review and increased stakeholder scrutiny. We staff our assurance engagements with a CPA team with deep assurance knowledge, including members of our ESG and sustainability team with a robust background in GHG accounting and sustainability reporting frameworks.

Benefits of leveraging technology

As the demand for reporting and assurance of GHG emissions data continues to intensify, organizations should look to optimize their carbon accounting reporting processes to increase efficiency and improve the effectiveness of assurance processes. Leveraging technology for GHG emissions data collection and auditability aligns with the principles of transparency, accuracy, efficiency and compliance, making it a favorable approach for assurance processes.

Preparing an organization’s GHG emissions and environmental data for third-party assurance is made easier and streamlined by a technology platform like Sustain.Life. A technology platform that houses GHG emissions data means always-on access to verifiable data and methodologies. Organizations are encouraged to look for a platform that is always up-to-date to facilitate compliance with new climate and carbon accounting regulations.

A carbon accounting platform also helps eliminate long internal and external feedback loops. A strong tech platform should enable companies and auditors to collaborate in real time to complete GHG emissions verifications and validations. Additionally, the functionality to select the exact data to share with auditors to view, across clients or locations, should be available.

But even if an organization has a carbon accounting platform in place, preparation is key when auditing an inventory of GHG emissions.

There are three activities an organization should undertake to streamline the assurance process:
  1. Take time to gather and organize the data: As auditors request samples of underlying data and the sources used to develop the GHG emissions inventory—monthly utility bills, fuel receipts or spending data from the accounting department—an organization should make sure to have documentation for each GHG emission source. Sustain.Life’s pre-built integrations automatically attach utility bills and invoices to every line item emissions output for streamlined documentation. For companies without integration systems, it allows the upload and linkage of documentation directly to a GHG emission calculation. That means fewer steps for the organization and its auditor during the assurance engagement.
  2. Create methodology documentation: Commonly referred to as an inventory management plan (IMP) or basis of preparation, this type of documentation outlines steps taken during the inventory process—where datasets came from, what estimation methods were employed, and details about decisions. Sustain.Life’s audit and verification features expose the emission factors, dataset resources and calculation pathways for emission figures, which means the quantitative portion of the IMP is optimized. 
  3. Conduct an internal audit: Reviewing all aspects of an organization’s GHG emissions inventory is time and resource-intensive, especially when trying to catch and correct common mistakes like incomplete data or incorrect measurement conversions before the assurance process begins. Sustain.Life’s carbon footprint calculators and carbon accounting platform eliminate risks from human calculation errors and automatically notify users of any data gaps or missing documentation. 

Sustain.Life’s audit and verification features simplify the carbon audit process for clients and third-party auditors. Organizations get instant, organized access to the key data required for verification. Every GHG emission source output is accompanied by source data, documentation, emissions factor and calculations required by auditors, expediting the verification process. For auditors, that means no more chasing clients for supporting documentation from disparate systems and sources—they get full transparency in a comprehensive sustainability reporting software solution. 

The road to GHG emissions assurance

Assurance over GHG emissions data is poised to revolutionize corporate reporting. Looking ahead, GHG emissions data will hold little meaning for key stakeholders such as investors, customers and board members if it is not verified by an independent third party.

Even if your organization is not currently prepared for third-party assurance, forward-thinking business leaders are proactively strategizing for the future. Envision your sustainability roadmap within the context of your broader business strategy, whether it pertains to accessing capital or complying with regulatory requirements. Explore how third-party GHG emissions assurance can bolster your organization’s reputation, financial performance, operational efficiency and ESG-related ratings in the long run.

To discuss how Baker Tilly can assist with this process–either by preparing your organization to undertake GHG emissions reporting for the first time, by assisting with data sources and data validation, or by performing third-party assurance – contact us today.

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