Manage Through the Alphabet Soup of Climate Risk Regulation and Reporting
Various elements of voluntary frameworks are now being incorporated into a range of climate-related regulations, but with one key distinction: the stakes are higher for greenwashing.
Companies must take note of these mandatory climate disclosures and ensure that they are in compliance to avoid significant consequences.
Several countries have implemented or are considering national, regional, and local legislation on carbon pricing, emission reduction incentives, and environmental taxes and exemptions.
Illustrative only, may not reflect all changes.
The variations in climate regulations require multinationals to collect, aggregate and report data across legal entities, geographies, systems, internal departments, and external parties.
These include public companies and large private organizations, those impacted by carbon border taxes or obtaining incentive funding with "green" conditions and clawback penalties, and companies affected by several other scenarios.
At a minimum, companies must have crucial features in their toolkit.
Hierarchies and legal entity structures
Legal entities and hierarchies should be easy to implement in the software to allow companies to integrate new platforms into their workflow and structures and report across jurisdictions.
Financial statement alignment
Alignment to financial statements is a crucial requirement in most new climate legislation. Software that can record climate data in line with your financials will simplify report filings.
Multiple carbon price options
The software should be able to apply various types of internal and external carbon prices to help companies to better manage their carbon risks and identify opportunities to reduce emissions.
Units of measurement
Depending on the country, companies will use the metric or imperial measurement system and, in some cases, both. The software should be able to manage conversion across mass, volume distance, and energy units.
Methods and calculations
Each regulatory agency uses variations of the IPCC framework. Therefore, the software must recognize country-specific methods and classifications to generate jurisdictionally compliant reports.
Precise use of GWP factors
Often overlooked in generalized literature but present in scientific papers and in regulations is the use of specific AR values. In most cases, the software must calculate multiple AR values if more than one jurisdiction is involved.
Opportunities and cost implications in climate legislation require companies to develop new governance, measuring, and monitoring capabilities to stay compliant and competitive across jurisdictions.
Increasing climate regulation complexity
As the world continues to grapple with the pressing issue of climate change, governments around the globe are introducing new regulations to curb carbon emissions and promote sustainability.
The result is an increasing number of multi-country climate regulations and disclosure requirements that are placing significant pressure on companies to adapt their people, processes, technology, and data.
What should firms do?
To succeed in this new regulatory landscape, companies must adopt a comprehensive approach to compliance that covers every aspect of their business.
Technology:
Companies that invest in the right technology to collect and analyze data, streamlining their processes to ensure compliance is embedded throughout their organization, are ensuring that their people have the skills and knowledge they need to stay up to date with regulatory changes.
Scalability and flexibility:
Companies must also ensure that their technology solutions are scalable and flexible, so they can adapt to new reporting requirements as they arise. This may involve investing in cloud-based solutions that can be easily updated or modified to meet changing regulatory requirements.
Data management:
Along with technology solutions, companies must also ensure that their data management processes are up to par. This means establishing clear data governance policies and procedures, including data quality controls, data security measures, and data privacy protocols. This ensures that data is accurate, consistent, and secure, while also protecting sensitive information from unauthorized access or disclosure.
What does success look like?
Ultimately, the technology and data components of compliance with multi-country climate regulations and disclosure requirements are critical to success in this new regulatory landscape. By investing in the right technology solutions and data management processes, companies can not only comply with regulatory requirements but also improve their sustainability performance and gain a competitive edge in the marketplace.
Overcoming the challenge
For companies to make credible climate-related disclosures, a series of company-wide interconnected capabilities are necessary.
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