With new mandatory climate reporting arriving in Australia, you need to build robust reporting processes that compliment your existing Financial reporting.
You may have taken steps in this direction:
So, you’re ready to start reporting and building a transition plan to decrease emissions. Simple, right? Well, not before you’ve made a few key decisions. A greenhouse gas inventory measures the amount of heat-trapping gases released by human sources within a defined boundary over the course of a year.
Defining your inventory would be easy if everything in the inventory lay in a neat little box, but of course it doesn’t. We’ve outlined starting questions you’ll need to ask yourself below.
When it comes to GHG reporting, an organisational boundary concerns who controls your company’s actions and responsibility for its emissions. These include:
There are options for choosing an organisational boundary.
Sectors tend to favour one approach over others, depending on the technical nuances of their impact. For example, the finance industry considers financed emissions (e.g. loans, bonds, project finance), facilitated emissions (capital markets issuances) and insurance-associated emissions (including re/insurance).
Which boundary you choose, changes the amount you report. If you have an affiliated company, you could report 0% of emissions under financial control, while with equity, it will be based on the ownership %. You need to disclose clearly.
You should also be aware of other organisations that you share a boundary with. When two companies share a joint venture and use different organisational boundaries, this could lead to under or double counting. When reporting independently, this may not necessarily have a major implication as long as there is transparency. But in mandatory reporting, or emissions trading, this can make an impact.
First, you need to understand Scopes 1, 2 and 3. Direct and indirect emissions that all your operations produce are covered under scopes 1 and 2. As Scope 3 makes up the majority of many mid-sized organisations emissions, and it’s harder to track than Scope 1 and 2. You’ll need to itemise assets or machinery you own, which you lease, and which you lease out.
Scope 3 reflects total emissions your company is responsible for, so you’ll need to decide what that means for you. If you hire rental equipment, are you responsible for the emissions caused by the transportation people take to get to your rental centres? Does a contractor having to buy new equipment to take on a new job for you get counted under your scope 3?
If you change boundaries you need to report in future years how you changed your methodology, and why. If this is material it can include recalculating your base year.
The base year is based on as far back as you have control and have reliable data. In your reporting you need to disclose the reasons for variations. When you set targets for emissions reductions, this is relative to you what your base emissions year. There could be reasons for variation to your plans - for example 2020, 2021, may have decreased but they were far from ‘normal’ years - while 2023 and 2024 might see significant growth. These changes would not trigger a recalculation of your base year.
However, when organisational boundaries change materially (for example you acquire or sell off an asset) this may trigger a recalculation of your base year. The threshold for materiality could be 10% of your base year for example. Your recalculation policy can also be triggered by outsourcing or insourcing which are a form of structural change. Other recalculation triggers include methodology changes and identifying cumulative errors.
To make these decisions with confidence, organise a planning workshop with Getting to Zero today.
1. What is a greenhouse gas inventory, and why is it important? A greenhouse gas inventory measures the amount of heat-trapping gases released by human sources within a defined boundary over the course of a year. It's crucial for organisations to accurately track and report their emissions to comply with new mandatory climate reporting requirements in Australia.
2. What are organisational boundaries, and how do they affect reporting? Organisational boundaries determine who controls a company's actions and responsibility for its emissions. Options include financial control, operational control, and equity share approaches. Choosing the right boundary impacts the amount of emissions reported and requires clear disclosure to avoid under or double counting.
3. What are operational boundaries, and why are they important? Operational boundaries encompass Scopes 1, 2, and 3 emissions, covering both direct and indirect emissions from an organisation's operations. Understanding these scopes is essential for accurately assessing emissions and deciding what factors should be included in reporting.
4. What is the significance of the base year in emissions reporting? The base year serves as a reference point for emissions reductions targets and allows organisations to track changes in emissions over time. Variations in emissions relative to the base year must be disclosed in reports. Material changes in organisational boundaries may trigger a recalculation of the base year.
5. How can organisations ensure confidence in their emissions reporting decisions? Organisations can benefit from planning workshops with experts like Getting to Zero to make informed decisions about their greenhouse gas inventory design. These workshops provide valuable guidance on boundary definitions, base year selection, and methodology changes to ensure compliance and accuracy in reporting.
