ESG reporting software: What do you need (and need to know)?

ESG reporting software and 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, greenhouse gas (GHG) emissions are likely to be a large focus within your business and compliance strategy.

However, the often-overlooked subcategory of refrigerant emissions not only has an out-sized 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. This all will tie into what you need for ESG reporting software, data collection, better-quality ESG data, and overall ESG metrics to please investors and other stakeholders.

 

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 cannot 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.

That’s the first brick in the ESG reporting software wall, then: you need a way to clearly articulate all your ESG data, but especially leak rates, ESG risks, and clean, quality data that your risk management teams can work with.
 

2. What should your stance be 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.

As ESG initiatives and goals change globally, what you need is ways to both simplify data collection, but also generally improve data collection. That’s currently what what ESG reporting software lacks: it’s not simple, and it’s not clean. Trakref is both, which is why it’s one of the primary players in the ESG software space.
 

3. Promote a culture of compliance management and accurate 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 as you collect data.

The CFO or CSO (Chief Sustainability Officer) are the individuals typically signing off on filings for business ESG reporting in an audit committee structure. ESG data collection becomes crucial as ESG investing grows, and the ability to power an internal audit successfully, as well as collect data properly, is continually going to be massive for companies.

We’ve long said “data is the new oil,” but companies have been collecting all kinds of data for decades now, and we haven’t solved societal (or often business) issues with that data. What’s really important to the future?

Data quality.

Effective ESG reporting software focuses on data quality, reporting requirements, overall sustainability management, the ability to partner with regulatory bodies, and a robust reporting suite.
 

How ESG standards are shifting, and what that means for ESG reporting software

 

 
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 2022 was 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 and even incident management, 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.
 

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.
 

EU CSRD

The European Union Corporate Sustainability Reporting Directive (CSRD) is a new piece of legislation that was adopted by the European Union in 2017 and came into effect on December 31, 2021. It applies to large public-interest entities with over 500 employees that operate in the EU or have a significant impact on the environment or society. These companies are required to disclose certain information about their environmental, social, and governance (ESG) performance in their annual financial reports.

The CSRD requires companies to report on a range of ESG factors, including their environmental impact, social and employee matters, respect for human rights, and anticorruption and bribery measures. It also requires companies to provide a statement on the due diligence they have undertaken to identify and address any potential negative impacts they may have had on the environment or society.

The CSRD applies to both EU-based companies and non-EU companies with operations in the EU. Non-EU companies with operations in the EU will be required to comply with the CSRD if they meet the size and impact requirements. They will also be required to appoint a non-executive director to oversee the company’s compliance with the CSRD and report on the company’s ESG performance.
 
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Your ESG reporting software and ESG data needs a focus on fugitive emissions from 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).

 

Why are fugitive emissions so crucial in ESG data, ESG reporting, and ESG reporting software?

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.
 

What do ESG reporting standards look like now? (It does change frequently.)

 

 
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 ESG reporting process 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.
 

The absolute need for accountability in ESG initiatives

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.
 

Why Trakref is a best-of-breed for ESG reporting software

 

 
 
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.