What will businesses need to report on from a digital standpoint and how does this fit in with current, and potentially future, legislation in the UK, EU and worldwide?

This is part two of a three part series taken from February’s ‘Footprint Digital Presents…The Sustainable Future of Digital’. In this part, our host Carl and panelists Sophie, David, Bailey, Parry & Graham discuss actions that people can take for digital sustainability. 

About the Panelists:

Parry – Deputy CEO of What’s Possible Group
Bailey – Business Development Manager at Footprint Digital
David – Co-founder of Net Zero International
Sophie – Senior Associate at law firm RPC
Graham – Senior Partner Manager at Trustpilot

Sophie: What we’re thinking about here are the legal obligations on companies to report information publicly about their greenhouse gas emissions and about climate related risks and opportunities.

We’re seeing an awful lot of activity in this space at the moment – there are increasing amounts of corporate reporting obligations on companies but before we go through that in a bit more detail, what I thought would be helpful to start with is to take a step back and think about the context, to understand what is happening and what the government is trying to do from a reporting and policy perspective.

So, to set the legal framework, the UK had a legally binding net zero target under the climate change act. Not enough people know that! So that requires the UK government to get us to net zero by 2050, and when we talk about net zero what we mean is the carbon emissions, or the greenhouse gas emissions, that we produce are counterbalanced by those that we remove from the atmosphere. 

To get us to net zero, the government has to regularly publish net zero strategies setting out its plans and policies for reducing emissions. We also have obligations under international law to report on our progress under the Paris Agreement. So, that’s really the legal framework in which we’re having this discussion and I think it’s important to set that scene so we remind ourselves that these are legal obligations from the government. We’re not talking about something that’s discretionary here. 

So, we have binding obligations from the government, we also have scientific reports that are increasingly showing that to get to net zero by 2050 will require systemic change across the whole economy and all businesses will be affected. So, it’s really in that context that we’re seeing the government introducing much more regulation and including corporate reporting obligations.

From the reporting side of things, there’s two key themes that are helpful to pull out in our discussion around digital. 

The first is that climate related reporting is likely to become mandatory for many more companies. Currently in the UK, very large companies with more than 500 employees have to report their climate related risks and opportunities each year in their annual report. That would be things like describing what the risks and opportunities are, how they might impact your business.

What is the resilience of your company’s business model against various different climate scenarios, and also reporting on your company’s governance and risk management processes for climate risk. The government has recently indicated that it’s going to be rolling out that regime for smaller companies in the coming years and it’s indicated that it wants these kinds of climate disclosures to be mandatory across the UK economy by 2025. 

The second thing which is particularly related to digital is that scope three greenhouse gas emission reporting is likely to become mandatory whereas right now it’s voluntary.

Scope one is direct emissions related to resources that you control e.g. the emissions from the vehicles you own as a company. Scope two relates to indirect emissions that are generated through the energy that you purchase.

Scope three relates to indirect emissions which don’t fall within scope two and which occur anywhere within your value chain so it could be upstream emissions which are any products or services that you buy into your business so from a digital perspective that would include your servers, data centres, website hosting etc, and also downstream emissions so those emissions linked to products and services that you as a business sell on to consumers. 

Right now in the UK, certain listed and large companies have to report each year on their scope one and scope two emissions but scope three is only voluntary, albeit encouraged.

That’s where we’re likely to see the change. The International Sustainability Standards Board has recently published draft standards which set out mandatory scope three reporting. The government has indicated that it will be implementing those in the UK. It’s likely to begin with that it will be the very largest companies, but over time we’re expecting those obligations to trickle down to smaller organisations. 

David: In terms of scope three, there are 15 different elements. So, if you want to bid for a government contract of over £5 million, you have to report scope one and two, but also five of those elements of scope three. Scope three is huge, very few organisations are measuring all of their scope three but you can break it down. So the five that you have to report on currently are: 

  • Transportation + Distribution upstream and downstream (getting products and goods to your factory and then getting them out to consumers for example).
  •  Waste within your organisation 
  • Employee commuting (you are responsible for the emissions of your employees getting to and from work)
  • Business Travel. 

So the way to think about scope three is breaking it down because it is huge and you can imagine these large organisations with multiple suppliers, trying to report on the emissions of those full supply chains is incredibly difficult to measure.

This is being pushed by the government from a procurement perspective but we’re seeing this reporting being pushed by larger suppliers as well because your emissions sit on their scope three balance sheet. They want you to reduce your emissions because that helps them to reduce their emissions, too. 

Sophie: Exactly right, the ISSB’s draft standards set out 15 categories of scope three emissions and companies will be required to report emissions against each of those categories.

So, scope three is the hardest one to tackle, to know where the data is, how you can get ahold of that data from your suppliers, do your suppliers have the technical infrastructure in place to capture and provide that data to you, do you have the technical capability to take all of these data sources from different suppliers and collate them into a way that you can report under these legal obligations?

It’s really, really difficult and I think this is going to be a really big focus over the next five years so all companies should be thinking about how they’re going to start measuring this stuff.

David: There are two ways of measuring emissions, there’s actual consumption – so consumption of energy in kilowatt-hours or you can do it on spend. So if you know how much you spend on electricity there’s something called the greenhouse gas protocols and there’s a spend database that you can work through.

So, for example if you spend X amount on your servers you could give a rough estimation of the emissions of that server. What you’re better off doing is to go to the company providing you with that information and ask them to provide you with the data of the emissions around those servers for example, or any product or service.

What we’ll find increasingly is that collaboration is going to be important. We work with a couple of large organisations, a national bus company and a large property management company, and they have three year plans where we’re working with them to understand their emissions.

If you think of the normal business cycle, having a three year business plan to understand your full emissions by the end of 2025 makes sense. You’ll be doing things about it in the meantime but having a goal to simply understand your emissions is perfectly acceptable.

The way it’s worded in the Streamlined Energy and Carbon Reporting is ‘provide the information around scope one and two and those scope three that you are able to do’. Most companies at the moment put ‘it is not practical to do so’ in their reporting – that’s what Sophie is indicating will have to change and increasingly you’ll be asked to measure certain elements of scope three.

The five that have been picked for government contracts at the moment are generally the ones that you can get more data on. It’s starting to happen but it’s going to be a massive change for most organisations. 

Sophie: I think on that note about the challenge, there were a few reports recently from the ISSB because when they published their draft standards they opened it up for consultation so they received responses from all sorts of different organisations.

I think the concern about data accuracy and data availability on scope three was raised, so as I understand it, they are currently thinking about the ways they might try and address that, and whether that is a slightly delayed start date for scope three reporting just to enable these processes to be thought about, or whether there’s going to be some softer language around what kind of scope three data you need and the levels of effort you need to go to to be able to get that data, and maybe some guidance around what’s expected in terms of the quality of that data.