Before we understand which Report to implement via SAP Sustainability Solutioning, let us try to understand the basics of GHG and ESG Reports. And how to decide which report or both reports to be implemented for an organization.
Greenhouse Gas (GHG) Report:
Scope of Emissions:
Direct Emissions (Scope 1): Includes emissions from sources that are owned or controlled by the reporting entity, such as on-site combustion of fossil fuels.
Indirect Emissions (Scope 2): Encompasses emissions associated with the generation of purchased energy, like electricity.
Other Indirect Emissions (Scope 3): These result from activities or assets not directly owned by the reporting entity but impact daily operations.
Types of Greenhouse Gases:
Greenhouse gases (GHGs) trap heat in the Earth's atmosphere and contribute to the greenhouse effect, leading to global warming. The major GHGs are those that significantly contribute to this effect, while minor GHGs have a lesser impact. The major GHGs include:
Major Greenhouse Gases:
- Carbon Dioxide (CO2): The most prevalent greenhouse gas, primarily generated through the combustion of fossil fuels (coal, oil, and natural gas) and deforestation.
- Methane (CH4): A potent greenhouse gas, methane is released during the production and transport of coal, oil, and natural gas. Agricultural practices, livestock digestion, and the decay of organic waste also contribute to methane emissions.
- Nitrous Oxide (N2O): Emitted from agricultural and industrial activities, as well as during the combustion of fossil fuels and biomass.
- Water Vapor (H2O): While water vapor is a natural component of the atmosphere, it contributes to the greenhouse effect. However, human activities have a limited direct influence on water vapor levels.
- Ozone (O3): While ground-level ozone is considered an air pollutant, stratospheric ozone plays a crucial role in absorbing ultraviolet (UV) radiation. Ozone's presence in the lower atmosphere contributes to the greenhouse effect.
- Chlorofluorocarbons (CFCs): Synthetic compounds, once commonly used in refrigeration, air conditioning, and aerosol propellants. They have a high global warming potential (GWP) and are controlled by international agreements like the Montreal Protocol due to their role in ozone depletion.
- Hydrofluorocarbons (HFCs): Used as substitutes for CFCs in many applications, HFCs have a high GWP. They are commonly found in refrigeration, air conditioning, and foam-blowing processes.
Minor Greenhouse Gases:
- Perfluorocarbons (PFCs): Emitted during the production of aluminum, as well as in the manufacturing of semiconductors. PFCs have a high GWP and are considered potent greenhouse gases.
- Sulfur Hexafluoride (SF6): Used in electrical equipment, such as circuit breakers, SF6 has an extremely high GWP and a long atmospheric lifetime.
While water vapor is a significant component, it is typically not directly influenced by human activities and is often excluded from discussions about anthropogenic climate change. The focus is usually on anthropogenic emissions of CO2, CH4, N2O, and synthetic gases like CFCs, HFCs, PFCs, and SF6 due to their role in climate change and their potential for mitigation efforts.
Measurement Units: Emissions are typically measured in metric tons of carbon dioxide equivalent (CO2e) to provide a standardized measure for different greenhouse gases.
Regulatory Compliance: Companies may report following internationally recognized standards such as the Greenhouse Gas Protocol or comply with regional regulations.
Environmental, Social, and Governance (ESG) Report:
- Environmental (E): a> Renewable Energy Usage: Percentage of energy derived from renewable sources. b> Water Usage and Management: Details on water consumption and strategies for conservation.
- Social (S): a> Employee Diversity and Inclusion: Statistics on workforce diversity, inclusion initiatives, and equal opportunity practices. b> Community Engagement: Description of activities and initiatives that benefit local communities.
- Governance (G): a> Board Structure and Independence: Composition of the board of directors and the presence of independent directors. b>Executive Compensation Practices: Disclosure of executive pay structures and performance metrics. c>Ethical Business Practices, Anti-corruption Measures: Details on policies and measures to prevent corruption and unethical business practices. Supply Chain Sustainability:
Metrics and Key Performance Indicators (KPIs): Specific quantitative measures related to each ESG factor provide a basis for performance evaluation and benchmarking.
By examining these additional data points, stakeholders gain a more nuanced understanding of a company's environmental impact, social responsibility, and governance practices, contributing to a comprehensive assessment of its overall sustainability and corporate responsibility.
The decision to choose between a GHG (Greenhouse Gas) report and an ESG (Environmental, Social, and Governance) report depends on the specific goals, priorities, and stakeholders of a company. In many cases, companies opt to publish both reports to provide a comprehensive view of their sustainability and corporate responsibility efforts. However, here are some considerations to help decide between GHG and ESG reporting:
Choose a GHG Report When:
- Environmental Impact is a Primary Concern: If the primary focus is on assessing and communicating the company's carbon footprint and efforts to mitigate climate change, a GHG report is more appropriate.
- Regulatory Compliance: If there are specific regulatory requirements or industry standards mandating GHG reporting, it may be necessary to prioritize a GHG report to ensure compliance.
- Emissions Reduction Goals: When the company has specific goals related to reducing greenhouse gas emissions, a GHG report becomes a critical tool for tracking progress and demonstrating commitment.
- Investor Expectations: If investors and stakeholders are particularly interested in understanding the company's environmental impact and carbon management strategies, a GHG report may be more relevant.
Choose an ESG Report When:
- Holistic Sustainability Assessment: If the company wants to provide a comprehensive view of its overall sustainability performance, including environmental, social, and governance aspects, an ESG report is more suitable.
- Stakeholder Diversity: When the company has a diverse range of stakeholders, including customers, employees, investors, and the community, an ESG report addresses a broader set of concerns and interests.
- Risk Management: If the company recognizes the importance of managing not only environmental risks but also social and governance risks, an ESG report helps in demonstrating a proactive approach to risk management.
- Alignment with Global Standards: If the company aims to align with internationally recognized standards and frameworks for sustainability reporting, such as the GRI or ISSB an ESG report is more aligned with these comprehensive reporting frameworks.
Consider Both :
1. Integrated Reporting: Many companies choose to integrate GHG and ESG reporting into a single, comprehensive sustainability report. This approach provides a holistic view of the company's performance and aligns with the growing trend toward integrated reporting.
2. Stakeholder Consultation: Consult with key stakeholders to understand their expectations and priorities. This feedback can guide the decision on whether to emphasize GHG reporting, ESG reporting, or a combination of both.
Ultimately, the choice between GHG and ESG reporting should align with the company's strategic objectives, stakeholder expectations, and the broader sustainability landscape. Many organizations find value in providing a balanced and comprehensive view of their sustainability efforts by adopting an integrated reporting approach.
References
International Organization for Standardization. 2006. ISO14064-1:2006. Greenhouse gases – Part 1: Specification with guidance at the organization level for quantification and reporting of greenhouse gas GHG emissions and removals. Geneva: ISO.
