ESG Reporting, Fugitive Emissions & New Standards of Accountability
Table of Contents:
- ESG Directors: Do Your Due Diligence on Refrigerant Emissions
- Shifting ESG Standards in 2022
- Hone In On Fugitive Emissions of Refrigerants
- ESG Reporting Standards
- Mobilize Around Accountability to Investors & ESG Reporting Excellence
- Benchmark Better With Trakref
ESG Reporting: Do Your Due Diligence on Refrigerant Emissions
If you’re in an ESG (environmental social and governance) leadership role for business models, either as a consultant or in-house expert, GHG emissions are likely to be a large focus within your business strategy. However, the often-overlooked subcategory of refrigerant emissions has an outsized impact on the environment, but is currently less recognized and not as well understood by many underwriters and approvers in sustainable investing and others looking at sustainability issues. The time has come to conduct deeper environmental and social safeguarding due diligence within the realm of refrigerant GHGs for your undertaking’s business model.
Here are three key focuses to keep in mind for an ESG report and ESG practices.
1. Refrigerant Emissions Are a Leading Climate Threat
For the climate, the magnitude and significance of refrigerant emissions — and fugitive emissions in particular — is enormous. Consider that just 1 pound of leaked CFC gas (the original refrigerant) has an equivalent ozone-depleting potential to 10,900 pounds of CO2. That’s approximately what an average passenger car emits in a whole year, clearly making this not just a refrigerant issue but a human rights, human capital, and corporate social responsibility issue. Such risks as ozone depletion and bad air quality come into play as more refrigerants are leaked into the atmosphere.
While CFCs haven’t been manufactured or used in new equipment since 1995, there are still massive quantities of CFC gas in storage. MIT estimates that emissions from stored CFCs alone have a total global warming potential of 9 billion metric tons.
Even if the world and business relationships were on track to meet pledges for elimination of GHGs by 2030 under the Paris Climate Accord — and according to the COP26 last year, we’re not — CFCs and their brethren (HCFCs, HFCs) represent an existential threat. The stockpiles of CFC gas canisters alone have enough warming potential to exceed Paris Climate targets. Add to that the reality that the average annual leak rate for refrigerants in the U.S. is 25%, and you begin to see the trouble we’re facing.
Environmental, social, and governance (ESG) directors would be remiss to ignore all of the potential environmental impacts and risks associated with refrigerant emissions in their work with member countries, donors, and other relevant units of the ATI. Leaks from obsolete equipment and stockpiled cylinders deserve increased attention in ESG reports and urgent focus for operational improvements in compliance practices. ESG stands as an important element of a business’s operations.
2. Take an Informed Stance on Recycling and Destruction
Trakref advocates for destruction over the recycling of used and obsolete refrigerant gasses. This is an informed stance based on decades of research that show reclamation and recycling do not work to prevent harmful emissions.
In the United States over the past 27 years, refrigerant leaks and fugitive emissions have amounted to a net impact on the atmosphere of more than 20 billion tons of CO2. Members of our team that once evangelized reclaiming and recycling have seen this play out, and the evidence is clear:
Recycling unintentionally results in a return of harmful refrigerants into use and, ultimately, in 100% emission into the atmosphere.
Re-use and high rates of unintentional venting add up to the complete emission of recycled refrigerant over time — and by and large, recycled refrigerant is of a more harmful variety than the refrigerant manufactured for use in today’s equipment. Short-lived pollutants such as CFCs, HFCs, and other refrigerants are responsible for up to 45% of current global warming. Destruction is the only reasonable solution.
Efforts are already underway worldwide to destroy end-of-life refrigerants. Tradewater, a seller of GHG reductions as carbon offset credits, made it into National Geographic for their international CFC destruction project. By advising nations, organizations, and relevant stakeholders on the high environmental impact of refrigerant venting, it’s still possible to dramatically curb ozone depletion before it’s too late.
3. Promote a Culture of Compliance & Accurate ESG Disclosures
ESG and sustainability reporting guidelines have undergone an overhaul that’s really just warming up for capital markets. With the SEC more closely monitoring and standardizing closures than ever before, public and private companies alike must put renewed emphasis on ESG issues. ESG criteria are no longer just about business ethics and providing unregulated qualitative disclosures – it is required and must be quantitative, just like financial reporting and other annual reports. Carbon emissions — including those from refrigerants — are now on the front line of ESG reporting and compliance. Accurate information is needed for strong ESG performance.
The CFO or CSO (Chief Sustainability Officer) are the individuals typically signing off on filings for business ESG reporting in an audit committee structure. Accurate ESG data for sustainability reports is more crucial today to financial planning for the business than it was even ten years ago. Everyone from stockholders to direct investors, regulators, customers, and employees will be using this information to make informed decisions to invest (or not), remain loyal to the brand, and assign value to the company.
This increased interest in ESG disclosures incentivizes regular, detailed reporting as well as a culture of transparency and compliance with refrigerant management regulations. Organizations are more often punished for failure to report than for the leak rates themselves. According to current regulations, you can still leak up to 20% of refrigerants (or 10% of A/C gasses) without penalty. Get leadership on board with operationalizing compliance and disclosing ESG data in as complete a form as possible.
Shifting ESG Standards in 2022
Since about 2020, the landscape of environmental and corporate governance has undergone a dramatic evolution for financial market participants who are looking to manage risk. With 2019 updates to the Montreal Protocol, the AIM Act of 2020, and phase 2 of AIM beginning in late 2021, there is a key focus on draw downs and phase outs. Increased refrigerant tracking has come sharply into focus.
SEC Rulemaking for Climate Related Financial Disclosures
March of 2022 on the whole has been a historic month for legislation and rulemaking that will affect the future of environmental, social, and corporate governance activities. The SEC announced a series of proposed rule changes on March 21, 2022 that would greatly standardize the format and contents of ESG reports, just like it does for financial statements — a uniformity that’s long overdue. Publicly traded companies would be required to make climate disclosures under this proposal, which passed in a vote of 4-1, making ESG reporting a key part of a company’s performance.
This non-financial reporting directive would require registrants to include more specific climate risks disclosures in their periodic reports and registration statements. All climate-related risks that are reasonably likely to have a material impact on their businesses, results of operations, or financial condition are relevant and included. In other words, climate related disclosures are now stakeholder documents, just like financial documents. What was considered non-financial information is now considered financial, and environmental performance is now relevant. Expect Scope 1, 2, and 3 emissions reporting to be required starting in January 2024.
California SB 260
California has long been on the leading edge of climate-related guidelines and served as a model for ESG and sustainability. The latest amendments to the state’s regulations for HFC refrigerants redefine “new air conditioning equipment,” among other significant changes. Take note of these, as California has often led the way on broader perspectives or legislation that could soon impact the rest of the United States. Keep an eye on SB 260, which recently passed the senate, and addresses all three scopes of emissions.
Washington HB 1050
Washington state has also introduced new regulations designed to reduce greenhouse gas emissions. Their HB 1050, which passed last year, has spurred the Department of Ecology to create initiatives for reducing and controlling HFCs in air conditioners and refrigerant equipment. While more clarity is needed on the difference between “refrigeration” and “air conditioning” in the state’s new rulings, the changes are indicative of a broader push to standardize and promote effective refrigerant management.
Ensure that you’re staying up to date on these changes as well as nationally (and internationally) recognized best practices while reviewing or appraising proposed transactions for environmental sustainability. Follow the Trakref blog for regular updates and coverage of the latest developments in refrigerants and ESG reporting.
Hone In On Fugitive Emissions of Refrigerants
Whenever refrigerant escapes unintentionally in the course of maintenance, service, or due to a leak, it falls into a category we call “fugitive emissions.” These are reported as part of Scope 1 emissions, and amount to a sizable climate risk that you are required to disclose. The Global Reporting Initiative (GRI) defines it this way:
Fugitive emissions: these are emissions that are not physically controlled but result from intentional or unintentional releases of GHGs. These can include equipment leaks from joints, seals, packing, and gaskets; methane emissions (e.g., from coal mines) and venting; HFC emissions from refrigeration and air conditioning equipment; and methane leakages (e.g., from gas transport).
NOTE: There is no limit on system size. Refrigerant emissions reporting must account for all emissions activity, large and small. Many companies choose to use compliance records for emissions reporting, but this can be inherently inaccurate and problematic since compliance only requires maintenance records on systems 50 LBS and larger (in the US).
The Role Fugitive Emissions Play in Making ESG Reporting Important
Fugitive emissions have fast become a hot topic for an ESG task force, the refrigerant industry, external stakeholders, and other stakeholders. Refrigerant emissions are responsible for almost 600 million tons of equivalent CO2 per year — triple the total CO2 emitted from all passenger air travel in the U.S. Careful tracking and accounting of fugitive emissions is easily one of the most impactful ways to help prevent ozone depletion and promote a sustainable development.
However, many companies and organizations are more or less “winging it” with fugitive emissions. Accidental leaks and unforeseen mishaps often fly under the radar and go unreported, which has not only climate-related consequences, but financial and legal consequences for the organization. Estimates are also inherently inaccurate, and should be replaced with carefully selected ESG factors or, even better, proper tracking (since factors, too, can have shortfalls).
It’s crucial that you promote active, regular, and detailed accounting of all refrigerant leaks and maintenance, as well as the translation of this data into economic terms that will be more familiar and persuasive to executives and non-technical members of the team. Helping leaders to understand fugitive emissions is one of the most powerful forms of technical expertise you can provide in terms of environmental and social impact assessments and tracking of sustainability risks.
Check out this free handout for a quick rundown of the key details to know.
ESG Reporting Standards
As you’re deciding how to report on fugitive emissions, it’s important to choose the right standards to show principal risks related to climate change and energy efficiency. Which one is right, though? The reporting framework you choose will depend on your company’s corporate ESG data reporting and what standards you are being asked to provide.
Some examples of standards include those put out by the Sustainability Accounting Standards Board, the International Sustainability Standards Board, and the Global Sustainability Standard Setter. The GHG Protocol Corporate Accounting and Reporting Standard is probably the most well known, since it is what many government entities and member firms require for reporting. There are also voluntary standards to be aware of if you want to really impress investors and go beyond what is required.
Make sure you do your research and settle on a standard that will both work for your company and fit in with compliance regulations. Also be sure to know if you will need third party assurance for your reporting – with the SEC’s new rules, you will.
Mobilize Around Accountability to Investors & ESG Reporting Excellence
The financial impact of ESG and sustainability initiatives can no longer be ignored. One of the clearest paths to galvanizing public and private support for sustainability efforts is to establish the clear relationship between ESG and monetary value.
ESG funds received roughly $51 billion from investors in 2020. This was more than double the amount invested in 2019, and it’s going up by leaps and bounds every year. Excellence in ESG reporting is a clear value-add to businesses and organizations that sustainability investors seriously. If your aim is to mobilize technical and financial support to enhance the environmental and social sustainability of operations, start with the bottom line.
HBR has reported that investors and banks are more willing to offer capital investments and loans to companies with strong performance in ESG reports with detailed data analytics. Robust ESG reporting, in other words, can easily become a financial competitive advantage. This is a major driver of the increased role of the CFO in the reporting process, a development Trakref is exploring more deeply in our research initiative for compliance and sustainability in partnership with the Darden School of Business.
One important collateral benefit is that organizations will be encouraged to improve their sustainability performance as a result of their reporting efforts. The more refrigerant leaks and fugitive emissions that are identified in the report, the easier it becomes to implement fixes, reduce identified risks, and improve operational compliance. Stakeholders will be keen to consult on best practices, relevant regulations or guidelines, and recent ESG developments (such as the new financial/material concept of Double Materiality) when the financial impact is made clear.
Benchmark Better With Trakref
Refrigerant management has been identified by Project Drawdown as a cornerstone solution for minimizing climate change. You can help your stakeholders to realize improvements in ESG activities related to refrigerants with a platform for streamlined ESG reporting, consistent collection of ESG data, and easy access to on-site refrigerant tracking solutions.
Trakref provides an intuitive, cloud-based refrigerant management system that simplifies the workflow, making it easier to create an internal culture of awareness and urgency around tracking fugitive emissions. Some of the benefits of Trakref include:
- Streamlined ESG Activities: Our built-in workflow ensures uniformity across all refrigerant tracking activities, from inventory tracking to managing equipment service histories, providing proof of ESG performance, and more.
- Increased System Up Time: With improved asset awareness and system health indexing, empowering a more thorough approach to preventative maintenance
- Friendlier Environment: Trakref helps to reduce refrigerant-related risks while also minimizing reliance on key resources (paper, time, trucks) and promoting a happier, more comfortable working environment.
- Protects the Climate: It’s difficult to understate the potential impact of refrigerant leaks in depleting the ozone and warming the climate. Clearer tracking, management, and reporting of refrigerant ESG data helps organizations keep this critical risk under control.
Benchmark better and understand both the internal successes and areas that need work with a comprehensive refrigerant management system including three individual ESG solutions: Trakref V3, Trakref Pro, and SF6 Compliance With Trakref. Together, these three facets of our ESG software will help you protect our environment from harmful refrigerants. Book a free 15-minute consult with our team to learn more and see our platform in action.
We also invite you to join our community of ESG and sustainability-minded professionals. We post environmental, social, and corporate governance information regularly on our blog and share webinars and open mic events through the Refrigerant Geek Academy.
If you’re interested in attending an upcoming event or webinar, reserve your spot now at the bottom of this page.
We are refrigerant geeks with proven techniques to manage leaks in our HVAC/R and refrigerant management software.