How Energy Management is Leading ESG Reporting Conversations
Before the 2010s, investors paid little attention to environmental social and governance (ESG) reporting and sustainability data. The story in the 2020s is very different. Today’s investors are hungry for data on your company’s environmental sustainability impact, labor policies, energy efficiency, board composition, and more. They want to know about your corporate sustainability initiatives and your environmental footprint.
What is corporate ESG data reporting?
Environmental social and governance reporting, or simply ESG reporting, used to be in the world of idealist companies. These would typically be provided as an annual report and give an overview of how a company was doing in terms of its commitment to society, answering common sustainability audit questions. Topics could include social justice initiatives, greenhouse gas emissions, and business ethics.
We’ve recently seen a shift in these reports, though. Many companies, including many an international organization, are increasing their ESG commitments and want to report on them. Increasingly, these reports also include information about sustainability issues, including energy management.
The real-world business value of ESG reporting – a global reporting initiative
So why are we seeing this sudden reporting strategy in ESG? A lot of it has to do with the business impact.
Strong performance on environmental, social, and corporate governance metrics is key to keeping capital costs low and improving your firm’s valuation in the market. In other words, a better carbon footprint can literally increase your access to large pools of investor capital.
George Serafeim, a Harvard Professor and chairman of Greece’s National Corporate Governance Council is an internationally recognized authority on ESG investing. He and his research colleagues found that this pattern — ESG positives opening doors to capital — was not unique to equity markets, “but also in loan markets, where some banks are linking interest rates on loans to ESG performance.” One bank (ING) loaned $1.2 billion to Philips, the health tech company, in 2017 on the back of excellent ESG reporting metrics.
ESG reporting is tied to financial performance
As you can see, ESG reporting isn’t a superfluous exercise – the data analytics you provide are ultimately tied to financial performance.
With sustainable investing and reporting becoming more mainstream, it can actually hurt your company if you aren’t regularly reporting on energy management and other corporate responsibility initiatives. In a piece for Forbes, writer Patrick Rodd puts it best: “. . . while the future cannot be told, it is possible to face consequences such as losing clients and risking business health. These consequences would be a result of public scrutiny of its actions as a corporation.”
While voluntary, ESG reporting is important to financials, and energy management is one of the most important ESG topics to report on.
Climate-related financial disclosures
With energy management becoming a key focus of ESG reporting, it’s important that companies translate their data into climate-related financial disclosures. Many companies, even those with strong ESG performance, focus on non-financial information when reporting. However, as we’ve seen, non-financial information is not enough, especially as financial stakeholders see energy management data as crucial to ESG reporting and deciding whether to invest in a company.
Writing for the Journal of Accountancy, George Spencer identifies the following measures endorsed by the American Institute of Certified Public Accountants for accurate accounting when creating an ESG disclosure:
- Blend the management of ESG risks into the company’s overall risk management
- Set key performance metrics
- Implement effective internal control over the ESG data collection, processing, and reporting process
- Create board oversight of critical ESG issues
- Hire a CPA firm to conduct a readiness assessment’
These tips will help you tie together your ESG reports and financial statements.
Energy Management Talks Are Heating Up
Harvard Business Review opines that “energy is climbing up the corporate agenda” in recent years, in part due to the revolutionary changes in global carbon regulation, rising expectations about corporate sustainability, and the plummeting costs of renewable energy. Trends like these have made it possible to create value and reduce costs in entirely new ways. Moreover, they help companies to avoid negative impacts from bad press and the mounting pressures of a more ESG reporting-conscious public.
The same HBR piece shares the example of Microsoft, which became the target (among other cloud-computing leaders) of a Greenpeace offensive against “dirty data” and Silicon valley companies with poor environmental performance. This pressure — coupled with the advent of cost-effective clean-energy alternatives — convinced Microsoft to push energy management to the top of the agenda. Over a decade (from 2011 to the early 2020s), Microsoft endeavored to source 60% of all energy for its data centers from renewable sources: wind, solar, and hydroelectric power.
Other giant firms have followed suit, including Kellogg’s, which has already achieved an 8% reduction in absolute energy use (with ambitious plans for a 65% reduction in emissions by 2050).
The need for more energy data
As ESG disclosures and sustainability reports become more mainstream, we will need more energy data. Unfortunately, a lot of companies that are embarking on their first sustainability reports may not know where to find this data. A lot of executives tackling ESG strategy for the first time may be surprised to learn there are no global standards for qualitative disclosures on ESG issues, even though the fight to save our planet is a global initiative. Often they are looking for data such as leak rates or pounds of refrigerant used, but the data they need for their ESG story, even though of strategic importance, is not something the company is keeping track of.
These executives quickly realize that tracking energy, including refrigerant usage, is crucial to a business strategy that incorporates sustainability reporting. Knowing leak rates and how much refrigerant is used is crucial to understanding the environmental impacts that a company is having. For truly transparent reporting, company leadership will need to make tracking leaks and refrigerant usage a top priority – even if it hasn’t been a priority pre-ESG disclosure.
Stakeholders are expecting sustainability reporting
As ESG reporting goes from a niche interest to a global reporting initiative, stakeholders are increasingly expecting an ESG report from companies. They realize that ESG reporting is important in the fight against climate change and expect companies to disclose ESG information. Customers are making purchasing decisions based on ESG information, but other stakeholders including ESG investors are also looking for sustainability reporting.
Consider that in a report from Morgan Stanley, “ESG and the Sustainability of Competitive Advantage,” the writers note that ESG is growing in importance in whether they choose to invest in a business: “Our ESG analysis focuses on a company’s ability to sustain competitive advantage over the long term. In considering candidates for our portfolios, we assess companies’ ESG oriented strengths and vulnerabilities across several dimensions.”
Energy management is a huge part of how companies contribute to the environment. Information about your energy usage, including refrigeration information, should be part of your ESG criteria. External stakeholders and other stakeholders will be looking for it as it continues to lead the dialogue in sustainability reporting.
ESG reporting as annual reports
ESG and other sustainable reporting are no longer seen as something that should just be disclosed every once in a while. As energy management is leading the conversation in ESG reporting and other climate-related financial risks, stakeholders are looking to see information on a regular basis.
Good tracking of your energy usage, especially refrigerant usage, is crucial to meeting investors’ expectations and meeting reporting standards. As you’re thinking through ESG practices, consider what information about refrigeration you want to have in an annual report of voluntary ESG data. Maybe you want to focus on reducing the number of leaks, or maybe you want to talk about how your equipment is more eco-friendly than competitors. Whatever you decide to focus on, presenting energy-related ESG data in an organized way on an annual basis is crucial to making stakeholders happy.
Refrigeration is one of the major ESG factors
When presenting ESG information, many companies choose to focus on things other than refrigeration. They may focus on fleets or corporate travel, but even with energy being an important factor in ESG reports, reporting standards haven’t fully adopted refrigeration as something to regularly report on.
At Trakref, we think refrigeration should be added to these reporting standards, and that we should regularly be talking about it in our conversations about energy usage. As Project Drawdown has stated, it’s the most important aspect of tackling climate change. To leave it out of our reporting standards is a missed opportunity.
As reporting standards continue to focus more on energy and businesses consider the sustainable development goals that they want to work on, refrigeration should be a part of it.
ESG initiatives you can take
As energy management continues to lead the conversation on ESG reporting, what ESG objectives are your company focusing on? Is it a large part of your company ESG report, or is it just a side note in your sustainability reporting?
When entering into conversations about ESG reporting, be sure to advocate for the importance of tracking energy, including refrigerants. While other elements of fighting climate change are important, such as going to electric fleets or cutting down on corporate travel, as HVACR professionals, we know that refrigeration can have a huge impact on climate change. As mentioned, it’s one of the top contributors to it. If you want to better your ESG reports and the way that you’re talking about climate change and its impact on human rights, a great place to start is focusing on refrigerants.
Tracking Is a Cornerstone of the C-Suite Conversation
Many executives who take a newfound interest in ESG reporting and sustainability are shocked to discover that their companies are unable to report on ESG metrics and refrigerant tracking with any certainty. Most of these things have been sparsely tracked for decades, if at all. Firms often don’t have a clear picture of how much energy they use, how much CO2 or refrigerant they’re sending into the atmosphere, or how much they’re really spending on energy.
The truth is that beyond the most energy-intensive industries, the majority of companies have viewed energy as a simple, ubiquitous, and largely invisible commodity. You flip a switch, and systems come on. This is a perspective that is beginning to change as data continues to prove the tangible profit in purposeful, responsible energy management.
ESG software that simplifies energy, emissions, and refrigerant management can turn the tables and arm you with investor-quality data. When you have the tracking tools to report and manage sustainability metrics like energy consumption or refrigerant leaks, you can prove the value of ESG efforts to investors and save incredible sums of money in the process.
Supermarkets, for example, have an average refrigerant leak rate of 25%. With careful tracking and management of emissions, a reduction to a 10% leak rate is a real possibility. Such an improvement would save:
- $360,000.00 in refrigerant costs
- $10,000.00 in extra labor costs
- $730,000.00 in lost energy efficiency
Figures like that are pushing energy and emissions management into corporate sustainability conversations. They could also open a supermarket up to prestigious recognitions such as GreenChill certification.
ESG reporting leads to risk mitigation
Not only is tracking energy and refrigeration, and ultimately using it for sustainability reporting, good for your relationship with stakeholders – it’s also a good way to mitigate risk. Poor documentation of energy and refrigeration can lead to fines from the EPA. If you’re doing the documentation for your ESG reporting, though, you won’t have to worry about that. You’ll have all the data you need if you need to answer any questions in the future.
Building a task force
As you consider what you want to talk about in terms of energy management and refrigeration in your reports, consider building a task force internally. This can help everyone get on the same page and know what data points are important in a materiality assessment. It also gives your audit committee structure.
Increasingly, we’re seeing that people on these task forces are not just facility managers. Many times, C-suite executives are interested in being a part of the conversation. As you build out your team, figure out who has the best knowledge both of refrigerant and energy, but also of being able to talk to stakeholders and convert information into financial data.
You may also want to consider third party assurance to make sure your data is as accurate and compliant as possible.
As your start your ESG reporting journey and join a global network of people reporting on sustainability, you may think that there is a standard reporting framework to use when reporting on energy management – but even with organizations like the Sustainability Accounting Standards Board and International Sustainability Standards Board working to create various standards, that’s not the case. Different business models have their own way of reporting and creating an ESG framework, even if there are some common similarities.
The best way to decide what works for your company is to read as many reports as possible. You’ll see what works for businesses similar to yours and what angles you may want to take. Then incorporate what you like and discard what you don’t. You’ll create a framework that works for the conversation you want to have.
Track Performance, Improve Sustainability, Achieve ROI
If you’re wondering how much of a difference efficient energy management can make for your corporate ESG strategy — and your bottom line — get in touch with Trakref. We’re a software corporation and environmental software provider that has been in the regulatory compliance software and environmental compliance calendar software space for years. We invite you to schedule a free 15-minute conversation with one of our refrigerant geeks and learn more about the ROI of accurate record-keeping and reporting.
We are refrigerant geeks with proven techniques to manage leaks in our HVAC/R and refrigerant management software.