ESG REPORTING FOR HVAC/R OWNERS AND OPERATORS

Non-Financial Data Reporting Requirements

Table of Contents

👉 EU Taxonomy for Sustainable Activity

👉 ESG Reporting

👉 Changes in Regulatory Reporting Requirements

👉 The FTC Green Guides

Refrigerant Reporting Requirements

Emissions reporting falls under into one or more of four (4) categories:

• • US Securities & Exchange Commission (SEC) – The SEC’s rule proposal aims to harmonize emissions reporting, ensuring data is comparable and transparent for shareholders, investors and the public.
  • California – A suite of bills centering around The Climate Corporate Data Accountability Act, would mandate disclosure of GHG emissions data.
  • CSRD & SFRD – are both part of a wider set of regulations that promote sustainable finance and sustainable economic activities in the European Union.
  • Voluntary Disclosures – This type of ESG reporting is central to building trust – with investors, customers, employees, partners, and regulators efforts are usually focused around CDP or GRI.

SEC’S Latest Planned Climate Disclosure Rulemaking

In March 2022 – the SEC moved forward with rule-making to make certain climate information required for publicly traded companies. (Expected release October 2023)

All of these must be attested by a third party.

This would require  some publicly traded companies to begin reporting as early as 2024.

• • Scope 1 Emissions – Direct emissions from operations owned and controlled by a company.
  • Scope 2 Emissions – Indirect emissions from the generation of purchased or acquired electricity, steam, heating, and cooling consumed by a company.
  • Scope 3 Emissions – All indirect emissions not reported in Scope 2.

California’s SB-253 / SB-261 (passed legislature September 2023)

These represent a suite of requirements for companies with $1 billion or more in revenue and have active operations in California to report Scope 1, 2, and 3 emissions to the state of California (ARB). Assurance of the results will be required.

This would require some publicly traded companies to begin reporting as early as 2026.

Requires companies to disclose climate related financial risk and measures to reduce and adapt to the reported risk.

The EU Taxonomy for Sustainable Activities came out of the European Green New Deal, which looks to fight climate change through a series of policies.

Its three main are:

1. No net emissions of greenhouse gases by 2050
2. Economic growth decoupled from resource use
3. No person and no place left behind

The taxonomy defines what a “Sustainable Economic Activity” is.

For a business activity to be considered a sustainable economic activity, it must:

• Climate change mitigation
• Climate change adaptation
• The sustainable use and protection of water and marine resources
• The transition to a circular economy
• Pollution prevention and control
• The protection and restoration of biodiversity and ecosystems.
  

Not significantly harm any of the above environmental objectives

Be carried out in compliance with the minimum safeguards that align with OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights

Comply with technical screening criteria by European Commission

Be carried out in compliance with the minimum safeguards that align with OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights

Comply with technical screening criteria by European Commission

European Securities and Markets Authority

ESMA is the European stock market. Companies that are registered with ESMA are already required to report the following information:

1. Strategy Governance and Resilience
Individual companies must show how their governance standards work toward being resilient in the face of climate change.

2. Double Materiality
Companies must measure their impact on the climate in both carbon and financial health.

3. Topic Selection Process
Companies must know what topics related to environmental obligations need to be worked toward.

4. Targets and Goals
Companies have to have concrete goals related to sustainability.

All of this information that governments are now requiring fall under the umbrella of ESG (environmental, social, and governance) reporting.

More and more companies are putting these reports out as governments require information in
them.

ESG reports typically:

1. Are released as an annual report.
2. Explain how a company is contributing to the environment and its attempts at being more sustainable.
3. Explain governance and how they are tackling environmental issues from a higher-level perspective.
4. Created by the executive suite.

Trakref’s research shows:

1. About half of companies have an ESG report while the other half do not.
2. About a quarter of them are using third-party review.
3. There is a blend of frameworks used.

ESG Frameworks Overview

Changes to ESG Reporting in EU

Sustainable Finance Disclosure Regulation (SFDR)

All of your products are impacted – not only those with an ESG focus. All products will need to disclose the likely impacts of sustainability risks on the returns of the product (or explain why such risks are not considered relevant).

Taxonomy

The EU taxonomy or Green Listing is a classification system established to clarify which investments are environmentally sustainable, in the context of the European Green Deal.

The aim of the taxonomy is to prevent green-washing and to help investors make greener choices.

Changes to California Regulations

The two bills (253 & 261) mandate the public disclosure of greenhouse gas emissions (GHG) and climate-related financial risk by companies doing business in California that meet different revenue thresholds-results are expected to change slightly before signature. 

Green washing is the process of conveying a false impression or misleading information about how a company’s products are environmentally sound.

Green washing involves making an unsubstantiated claim to deceive consumers into believing that a company’s products are environmentally friendly or have a greater positive environmental impact than they actually do.

Green washing can convey a false impression that a company or its products are environmentally conscious or friendly.

• No broad, unqualified general environmental benefit claims like ‘green’ or ‘eco-friendly.’ Broad claims are difficult to substantiate, if not impossible.
• Should qualify general claims with specific environmental benefits.
• Qualifications for any claim should be clear, prominent, and specific.
• When a marketer qualifies a general claim with a specific benefit, consumers understand the benefit to be significant. As a result, marketers shouldn’t highlight small or unimportant benefits.

Specific FTC Requirements regarding Offsets (or insets) 

• Marketers should disclose whether the offset purchase pays for emission reductions that won’t occur for at least two years.
• Marketers should not advertise a carbon offset if the law already requires the activity that is the basis of the offset.
• Marketers should have competent and reliable scientific evidence to support carbon offset claims. They should use appropriate accounting methods to ensure they measure emission reductions properly and don’t sell them more than once.

Claims related to refrigerant 

Unqualified claims about renewable material may imply that a product is recyclable, made with recycled content, or biodegradable. One way to minimize that risk is to identify the material used clearly and prominently, and explain why it is renewable.

Marketers should qualify renewable materials claims unless an item is made entirely with renewable materials, except for minor and incidental components.