What is ESG reporting? (And why is it important?)
First up: What is the Trakref and Darden Research Initiative for Compliance and Sustainability?
ESG reports are becoming more standard each year, so building on our trailblazing history of more than 25 years of refrigerant management, Trakref launched the Trakref and Darden Research Initiative for Compliance and Sustainability in partnership with the University of Virginia Darden School of Business.
This new initiative brings together Darden’s technology and the best minds from across the compliance spectrum to explore how the convergence of regulations and the drive to net-zero will improve ESG performance, transform global business — and what it all means for the future of society, as well as organizations can uncover and better capture their opportunities.
Why we decided to embark on this journey
At Trakref, we want to know our customers as best we can. We want to not only know how they’re working with refrigerants but also how that work influences the way they compile their ESG reporting and ESG performance. We want to understand the sustainability initiatives they’re working on, and convey our knowledge about best-practice ESG frameworks.
Sadly, we also know this: ask a lot of professionals with ownership of ESG factors the simple question “What is ESG reporting?” and you get a few blank stares. Maybe they’ve Googled it or been to some seminar. They figure it’s something they can outsource. They have more supposedly pressing business needs to get to first.
Honestly, there isn’t much awareness of EPA regulations and ESG disclosures; in our own research, we’ve found that less than 5% of companies surveyed have awareness of EPA regulations. We want to ensure that our customers have an excellent grasp of these regulations so they can create their best reports, and together, we can work together to decrease emissions and better the environment.
ESG reporting includes a need to report refrigerant emissions on a sustainability report (more on the frequency of that in a second) to truly capture a company’s environmental footprint. There are several frameworks, i.e. ESG Reporting Standards used for reporting. Typically when we talk about this, we mean either the Sustainability Accounting Standards Board (SASB) that broadly require reporting — or the Global reporting emissions, which has a specific section for refrigerants, GRI-305.
Every ESG initiative requires that the organization accurately account for refrigerant emissions and carbon emissions to properly target Net Zero Strategies.
Refrigerants include CFCs, HCFCs, HFCs, PFCs, and most facilities have a combination of 2-3 of these refrigerants. When any of this equipment is installed, operated, serviced, or retired there will be an associated leakage of refrigerant, which is classified as a Scope 1 fugitive emission. These are a crucial part of ESG reporting. Global emissions of refrigerants are projected to account for nearly 80 billion tons of CO2 by 2050. Project Drawdown has identified refrigerant management as the #1 way to curb emissions in their 2017 publication.
We know that regulations can be confusing, and standards can change by location and/or a specific corporate sustainability reporting directive. Let’s see what we can learn about “What is ESG reporting?”
What is ESG in general?
ESG metrics and ESG scores were originally seen as something only in the realm of more progressive companies. They wanted to explain how they were reducing emissions with sustainability reporting and show these results to stakeholders, including investors and customers.
Now ESG reports are more standard, and can be part of audited financial statements and general business practices. The main reason is climate change and impending threats there. Some will always claim the reason for ESG criteria being a bigger part of companies is “wokeness.” It’s not that. It’s more that customers want to see that the companies they buy from have sustainable practices, and investors now have knowledge of climate-related financial aspects. They know that these climate-related financial aspects have a real impact on the success of a business, and they want to see information on them.
So what exactly is an ESG report?
An ESG report explains the social impact that a business has, with a focus on its environmental, social, and corporate structures. These reports show corporate sustainability in both a quantitative and qualitative nature; as well as exposition, there is often detailed information about climate-related financials and the nature of the company’s carbon emissions. They answer sustainability audit questions in depth and detail.
As well as climate-related financial disclosures, these reports often set long-term goals. For example, a business might commit to having all-electric vehicles in their fleet by a certain year, or set a percentage of refrigerant leaks that they want to see reduced. They give a complete snapshot of where a business is as well as where they are going to give stakeholders the most accurate understanding of how they are doing with sustainability.
Usually these reports are annual
ESG performance isn’t something that is reported on whenever the company feels like it or finds time. Like other financial reports, ESG data is something that stakeholders expect to see on a regular basis. Many companies are releasing these reports on an annual basis.
You will periodically see these reports quarterly, but that’s not as common.
The rise in importance of ESG performance
McKinsey and Company’s Robin Nuttall noted in a podcast that “Consumers are now demanding high standards of sustainability and quality of employment from businesses” (listen to the podcast here).
He also notes that ESG reporting is crucial for top-line growth, including breaking into new markets and expanding in existing ones. This means companies can no longer regard the environment as a niche interest. They must not only be talking about it but continually showing the data to customers through reporting.
It’s not just customers on the “ESG reporting important” train.
ESG funds received about $51 billion from investors in 2020, more than double the amount invested in 2019 (CNBC). Many of these dollars are coming from younger investors who are interested in seeing companies tackle social issues, including environmental causes.
With stakeholders demanding more reporting on ESG issues, these reports will continue to be integral for companies to produce regularly.
What’s the ultimate value of ESG reporting?
Socially responsible investing, so business operations good + societal good, simultaneously.
These reports provide useful information for your business. By doing the work to compile the data that you’ll need for a report and fitting that data within ESG reporting frameworks, you’re assessing any risk that you have. There may be aspects of your company related to sustainability that need attention, like the number of leaks in your refrigerant and your contributions to greenhouse gas emissions.
The sustainability performance of your company, which should absolutely be a part of your company’s strategic objectives, can improve by incorporating ESG disclosures into your reporting arsenal.
ESG reporting obviously boosts sustainability
You might find from ESG initiatives and the data you collect that you have faulty equipment that is leaking and needs to be repaired. Or you may find that you’re wasting money on fuel instead of using renewable energy like electric cars in your fleet. Reporting on this data will not only hold you accountable but show where there is room for improvement in your company. You can uncover parts of your company that can be improved on from a sustainability angle.
The various ESG reporting frameworks
Unfortunately, there are no specific answers or reporting frameworks that are “approved” – every business does things differently. Reporting frameworks that you’ll usually see have a mix of qualitative and quantitative data, and this data tells the story about how a business is fighting climate change and working to be more sustainable. The frameworks used to arrange this data is up to each individual company to determine.
Typically, though, you want to include:
- A summary of greenhouse gas emissions
- Use of renewable energy
- Use of green buildings
- An overview of the business’s approach to climate change
- Technology being used by the business
- Energy management overviews
While there may be no specific reporting frameworks to use, seeing what your predecessors have done can inspire ideas for organizing your data.
ESG performance as a competitive advantage for supply chain and more
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.”
There are battles going on within the Securities and Exchange Commission right now around Scope 1 and Scope 3 emissions and reporting, and how companies should best represent their environmental impact across a supply chain. Those will be borne out in time, and the definition of a “comprehensive ESG report” will evolve as the ESG space always has.
The general goal of all of this isn’t political contributions or indoctrination; it’s good report data and making sure that investments remain sustainable for the long-term.
You absolutely need to include refrigerant emissions in environmental impact data
Data points should include information about leaks, equipment maintenance, climate-related financial disclosures, and adherence to regulations. Much of this information can be found in Trakref, making it easy for our users to compile this data.
Other information, such as energy usage and use of fossil fuels, is also relevant to include and is what stakeholders are looking for when they read your report.
What’s the role of the CFO in the new world of Environmental Social and Governance?
ESG initiatives need to be translated into financial metrics and used as input for strategy and investment decisions. CFOs are the fiduciary leader in corporate governance, making them the ideal fit for overseeing governance ESG data and reporting.
Furthermore, silos around creating these reports are crumbling. Sustainability is no longer its own separate issue, relegated to just one area under corporate governance; there may even be a task force on climate or another committee in the organization working together on this issue.
Companies have realized that sustainability issues and financial performance are intertwined. ESG data is incorporated into investment analysis, and companies know that environmental and social initiatives contribute directly to economic performance. CFOs and other market-facing executives need to be ready to answer hard questions from stakeholders, and they need to be able to demonstrate their knowledge of companies’ force on climate-related issues.
The SEC and ESMA also have new requirements, with ESMA’s requirements including double materiality. These requirements involve business financials that are in a CFO’s purview. This means CFOs can’t ignore sustainability reporting or see them as part of someone else’s job – they must become extremely familiar with it, and their jobs must expand to include it.
The risks and opportunities of Environmental Social and Governance
Being transparent about your company’s risks and opportunities through sustainability reporting is ultimately the best path forward. Not only is it expected by stakeholders, but it shows where you are on your climate journey and how open you are about ESG data and the future of our world.
In the world of refrigeration, you’ll be able to see what equipment needs updating and how you can reduce the number of leaks you have. This is ultimately good for your business. So while it may be scary to show where you currently are, it also gives you a solid roadmap of how you need to move going forward.
How to incorporate ESG factors into your own reporting and internal rules
Involve the CFO. Break down the silos. Explain that Environmental Social and Governance is here to stay. It’s the new world of business and investing. Business leaders need to care, and they need to make sure their data is right and that they’re following any global reporting initiative or generally just knocking their ESG reporting out of the park.
What about non-financial reporting?
Summarizing a company’s impact on the environment as a whole through exposition can be a crucial part of a report. There are also data points, like those that can be found through Trakref, that are important to include. After all, refrigerant emissions are the top contributor to climate change. Making sure information about them is included in a report can make it more robust and ensure that you’re including an accurate snapshot of your company’s impact on the environment.
How Trakref looks at “What is ESG reporting?”
As the CFO’s role in external reporting, assurance, and operational controllership changes, Darden and Trakref are teaming up to better understand these trends.
We chose to work with Darden because of their hands-on approach to research and business. We wanted to have a partner who would be willing to dive deep into ESG reports and what companies need to know to meet ever-changing expectations.
Rapidly evolving regulations and market expectations continue to blur the boundaries between what is required and what is available, and we understand that companies need to move with speed to design a future that will include ESG reporting factors. That approach requires new tools and new ways of thinking. Rapid progress will depend on the ability of companies to leverage existing resources while new ones are being built.
Trakref, with its strengths across refrigerant, f-gas management, service process guidance, and compliance success in the HVAC/R industry, as well as its continuing commitment to reduce refrigerant emissions, is the ideal partner for Darden to create breakthrough research and thought leadership programs that can help companies seize the opportunity to both report on and reduce harmful emissions of high GWP refrigerants.
How does TrakRef help with Scope 1 emission management?
Many companies are still just catching up on understanding the significant carbon emissions caused by refrigerants. Scope 1 emissions reporting, ESG reporting in general, or social cause reporting. They don’t know how to do it properly, and it falls into poorly-managed, poorly-contextualized processes that use old tech.
Ideally, what you want from any refrigerant management and Scope 1 emission reporting tool is:
- A way to see and understand the data
- Task management
- Some level of automation
- Clear reporting capabilities
There are more bells and whistles that help out, but those are the core things you need to effectively report Scope 1 emissions.
Here’s what TrakRef can do:
Refrigerant tracking: Trakref provides a centralized platform for tracking refrigerant use across an organization. This includes tracking the amount of refrigerant used, the location of each refrigerant-containing device, and the dates of any maintenance or service activities. By tracking refrigerant use in this way, Trakref can help organizations identify opportunities to reduce their refrigerant use and associated emissions.
Emissions calculations: Trakref can calculate an organization’s refrigerant-related emissions based on the type and amount of refrigerant used, as well as other factors such as equipment age and efficiency. These emissions can then be reported as part of the organization’s overall Scope 1 emissions.
Leak detection: Refrigerant leaks are a common source of emissions in many organizations. Trakref can help organizations detect and address refrigerant leaks quickly, reducing the amount of emissions released into the atmosphere.
Compliance tracking: Trakref can help organizations stay compliant with regulations related to refrigerant use and emissions, such as the Environmental Protection Agency’s (EPA) Refrigerant Management Program. By staying compliant with these regulations, organizations can avoid fines and penalties and demonstrate their commitment to sustainability and environmental responsibility.
Reporting: Trakref provides a range of reporting capabilities, including reports on refrigerant use, emissions, leak rates, and compliance. These reports can be used to inform decision-making and to demonstrate progress in reducing emissions and improving environmental performance.
Overall, Trakref can be an important tool for organizations looking to manage their Scope 1 emissions related to refrigerant use. By providing a centralized platform for tracking refrigerant use, detecting leaks, and calculating emissions, Trakref can help organizations reduce their environmental impact and meet their ESG goals.
Managing and developing ESG and EHS content for Trakref since early 2023.