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Sustainability now: Modernizing the GHG Protocol · PwC's accounting podcast

0:00
SPEAKER_00: Thought leadership from PWC's national office.
0:10
SPEAKER_02: Hello, I'm Diana Stolts, and welcome back to PWC's Accounting Podcast.
0:15
SPEAKER_02: This is Sustainability Now.
0:17
SPEAKER_02: I'm especially looking forward to today's episode because we're taking a closer look at one of the most important developments shaping corporate climate reporting, the modernization of the greenhouse gas protocol.
0:29
SPEAKER_02: With me today is Paul Munter, member of the GHG Protocol's International Standards Board and former SEC Chief Accountant.
0:37
SPEAKER_02: Paul brings a unique perspective on how standard setters, regulators, and companies are working together to strengthen consistency and trust in the greenhouse gas reporting.
0:49
SPEAKER_02: Before we get started, just a quick note if you'd like to watch a video of this conversation, you'll find a link in our show notes.
0:58
SPEAKER_02: Well, thank you, Paul, so much for joining me today.
1:00
SPEAKER_02: I'm so happy to have you on the podcast.
1:02
SPEAKER_01: Pleasure to be with you.
1:03
SPEAKER_01: Looking forward to the discussion, Diana.
1:05
SPEAKER_02: Great.
1:06
SPEAKER_02: So the greenhouse gas protocol has been around for decades, but recently it's entered a major period of modernization with a new governance structure, technical working groups, working to modernize the standards, you know, maintaining the standards.
1:21
SPEAKER_02: So can you just give us, maybe taking a step back, what's the current landscape with the GHG protocol and why are these updates getting so much attention?
1:30
SPEAKER_01: Yeah, it's a terrific question.
1:31
SPEAKER_01: And as you say, the the GHG protocol itself has been around for two plus decades, uh, and and the standards themselves are anywhere from 10 to 20 years old.
1:43
SPEAKER_01: And and if you think back to, you know, you go back to 10, 15 years ago, you had the the GHG protocol standards themselves, but they kind of were in a bit of a vacuum, right?
1:54
SPEAKER_01: There weren't these other reporting frameworks in place in in various uh places around the world and the like.
2:02
SPEAKER_01: Uh and and then secondly, there's obviously been a lot of developments on the scientific front.
2:08
SPEAKER_01: Sure.
2:08
SPEAKER_01: Uh in terms of of what could be measured, how they're being measured, and and and I'll call them technological changes in terms of like the how the power grids operate and forms of renewable renewable energy and and all of that.
2:22
SPEAKER_01: And so as all of these things are kind of coming together, there's a need to make sure that the uh GHG protocol standards uh work with the other frameworks because many of them are kind of anchored in the GHG protocol measurement and reporting framework.
2:39
SPEAKER_01: Uh so make sure that there's uh what what you he referred to as as interoperability, but that also that it's scientifically sound, it reflects the the marketplaces in which uh companies are operating, and also can serve as a uh continue to serve as a sound basis where companies are putting in, you know, they're their own plans and they have specific targets that they're aiming to achieve as they as they work to decarbonize and make sure that those are reflective of uh scientific achievements that are available to companies.
3:15
SPEAKER_02: Right.
3:16
SPEAKER_02: Yeah, it makes me think about, you know, we think about financial reporting.
3:19
SPEAKER_02: Financial reporting has been around maybe modern financial reporting 100 plus years, and you think about all the time and developments, and then we could think about sustainability reporting and specifically the greenhouse grass protocol, you know, you have to keep pace with all that change.
3:31
SPEAKER_02: So, Paul, as a member of GHG Protocol's International Standards Board, can you start by explaining the board's role and how it fits into the GHG Protocol's new governance model?
3:42
SPEAKER_01: Yeah, happy to, and I guess I should I should note here that while I am a member of the uh independent standards board of the GHG protocol, I'm not here on behalf of the of the protocol.
3:51
SPEAKER_01: I'm not speaking on behalf of them, I'm here uh just in my in my individual capacity.
3:56
SPEAKER_01: But um the the uh GHG protocol um updated its governance structure uh a year and a half ago, give or take.
4:05
SPEAKER_01: And so the the way the standards are developed is you have uh obviously the the secretariat and people that secretariat are are leading uh the development of it, but uh being supported by technical working groups.
4:20
SPEAKER_01: And so there are uh a number of technical working groups uh to support each of the various projects.
4:26
SPEAKER_01: The Independent Standards Board is responsible for ultimately approval of the work streams, the membership of the technical working groups, the uh conclusions that come out of those, et cetera.
4:40
SPEAKER_01: And then you have a steering committee on top of that that's responsible for uh ratifying uh the work of the Independent Standards Board that that's bubbling up from the technical working group.
4:52
SPEAKER_01: So it's a kind of a multi-steered multi-step process, and it and it's designed to ensure, one, that the standards uh are are grounded in scientific integrity.
5:04
SPEAKER_01: Uh secondly, that they also reflect uh, I'll call it a degree of pragmatism because ultimately they have to be applied and and you know is information available and and the like that companies that can can get their arms around.
5:20
SPEAKER_01: Right.
5:21
SPEAKER_01: Uh and as I was mentioning a moment ago, how is it that they're going to interrelate with with other frameworks and the like to uh achieve the goal of having standards that are providing meaningful measurements uh that actually uh can drive improvements in in climate behavior because it's a it's an interesting objective to have not only uh an important reporting framework, but also designed to try to drive improvements in managing climate risk and trying to reduce emissions that that obviously affect all of us.
6:02
SPEAKER_02: Right.
6:03
SPEAKER_02: It's interesting with sustainability reporting and greenhouse gas reporting.
6:06
SPEAKER_02: It has a slightly different objective, too, than when we think about traditional financial reporting as well, this really this driving behavior that you're highlighting.
6:14
SPEAKER_01: And you're right, Dana.
6:15
SPEAKER_01: That's that's really an important difference and something I have to remind myself of because if you think about uh like what FASB is doing, right?
6:24
SPEAKER_01: Their objective is not to drive a particular behavior, right?
6:28
SPEAKER_01: Their objective is that whatever the behavior is, that that be reflected fairly and in an unbiased fashion in in the finance statements, whereas here you do have an element of the process that is designed to try to drive behavioral changes as well.
6:46
SPEAKER_02: Right, right.
6:46
SPEAKER_02: And a lot of this with target setting of companies have done that, which I know you mentioned in your intro.
6:51
SPEAKER_02: So maybe building on that a little bit, Paul, you have a unique perspective too with your career experience, with the intersection of accounting, assurance, public policy.
7:01
SPEAKER_02: What drew you to this role and how do you think that impacts your perspectives?
7:05
SPEAKER_01: Yeah, really good question.
7:07
SPEAKER_01: So when I retired from the SEC uh uh a few months back, um I took a bit of time uh just kind of thinking about what else did I want to do, and candidly spent a lot of time saying no to things.
7:20
SPEAKER_02: Um always a good problem to have though, Paul.
7:23
SPEAKER_01: Yeah, indeed.
7:24
SPEAKER_01: And I've gotten much better at saying no and not feeling bad about it than than I was in the past.
7:29
SPEAKER_01: Um and at the same time, you know, the uh GHG protocol was still in the process of building out the Independent Standards Board.
7:38
SPEAKER_01: And so uh I had an opportunity to become part of it.
7:42
SPEAKER_01: Uh I first spent some time educating me on the governance structure and the process and the like, and and kind of where were they in their in their standard setting development, which we'll get more into.
7:55
SPEAKER_01: Um, and asking myself, well, are there are there things that I can actually bring to the table?
8:00
SPEAKER_01: And and as you say, I've got you know a lot of experience dealing with with standard setting, uh, regulatory rulemaking, uh assurance over uh information and the like.
8:12
SPEAKER_01: So there are certainly aspects of my background where I can be very helpful to their process and ensuring that they have uh a consultative process that uh allows for feedback uh to come in and consideration of that feedback and development of high quality standards.
8:33
SPEAKER_01: Um, candidly, there are other aspects, particularly in some of the scientific stuff that we get into, where um you know I have to rely much more on the on the scientific experts.
8:43
SPEAKER_01: Sure.
8:43
SPEAKER_01: Um but but in terms of of process uh and understanding what it takes to develop a high quality standard that you can get, I'll call it buy-in, but you get acceptance of, which is really critical.
8:59
SPEAKER_01: Uh I do think I have a lot of experience that are beneficial.
9:03
SPEAKER_02: That's great.
9:04
SPEAKER_02: Well, maybe we'll dive in now to some of the projects.
9:06
SPEAKER_02: So maybe starting the scope two guidance, I think we're recording this on October 21st.
9:10
SPEAKER_02: I think yesterday, October 20th, was was when it was released out for public consultation.
9:17
SPEAKER_02: So this is the the first major project under the ISB's oversight.
9:21
SPEAKER_02: Maybe from your perspective or the board's perspective, what are some of the key issues under consideration as this revisions, as these revisions are going through this conversation?
9:31
SPEAKER_01: And uh um as you say, uh when we're recording this, it was just released.
9:34
SPEAKER_01: It comment period runs till uh December 19th, I think it is.
9:38
SPEAKER_01: And uh, as we're just saying, any and all feedback is is more than welcome for sure to help uh improve the process and the like.
9:49
SPEAKER_01: Um there are kind of several things, at least to my way of thinking, and and again, this is kind of my view that I think are really important in in terms of the scope to guidance.
9:59
SPEAKER_01: Uh one is the question of boundaries.
10:02
SPEAKER_01: So in the you know, in the existing standard, you've got these choices of boundaries, whether you base it on what's labeled financial control or operational control, and even in financial control, you've got a choice of how you deal with affiliates and the like.
10:18
SPEAKER_01: And so that uh creates a challenge in terms of comparability when you've got different uh perspectives on what it is you're actually trying to capture within your sustainability inventory.
10:31
SPEAKER_01: So I think trying to provide better guidance that will enhance consistency, I think will be very helpful.
10:39
SPEAKER_01: And and to the extent that it can achieve greater alignment with what financial reporting I think is, at least to me, intuitively easier to understand.
10:50
SPEAKER_01: Yep if you say you're really talking about the same entity for lack of a better description, whether you're talking about emissions data or you're talking about financial statements or or what have you.
11:01
SPEAKER_01: So I think that's one key aspect of it that um I know I've personally spent a lot of time working on and understanding and and providing input on.
11:11
SPEAKER_01: Um then, of course, you've got the the difference between the location-based uh measurement versus the market-based measurement.
11:18
SPEAKER_01: And and I think that's really important and I think is reflective of you know how uh um particularly electricity markets have evolved over time.
11:28
SPEAKER_04: Right.
11:28
SPEAKER_01: And and again, you know, uh sources of of power generation, including obviously renewables and the like, that if you go back to when these standards were developed were very different.
11:41
SPEAKER_01: Um but it also is is trying to be uh mindful of the fact that uh the the energy market doesn't function the same way everywhere around the world.
11:52
SPEAKER_04: Yeah.
11:53
SPEAKER_01: So you know, the way our power grid works in the U.S.
11:56
SPEAKER_01: uh is very different than the way it works in in other jurisdictions.
12:00
SPEAKER_01: And so you have to be uh understanding of that so that the measurements are reflective of you know actual power usage, the source of the of the power itself, um, uh the degree to which companies have alternatives that they can seek out and and the like.
12:19
SPEAKER_01: So I think that's another really important aspect of this.
12:23
SPEAKER_01: And and then yeah, beyond that, of course, the um question of uh, you know, well, what do you capture and should there be exemptions?
12:33
SPEAKER_01: And if so, what do those exemptions look like?
12:36
SPEAKER_01: And again, personally, that's an area I'm really interested in the feedback on.
12:41
SPEAKER_01: Um I'll show you my bias, and I'm not a huge fan of exemptions.
12:46
SPEAKER_02: In any report.
12:46
SPEAKER_01: In any respect, yeah.
12:48
SPEAKER_01: So so I'm a little bit biased, but I'm certainly wanting to hear, you know, what are other perspectives?
12:52
SPEAKER_01: And and I understand, you know, why uh the exemptions are are being proposed, but you know, are they the right ones?
13:01
SPEAKER_01: Are they going to provide meaningful information and the like?
13:05
SPEAKER_01: So I think that's a another uh very important aspect of it.
13:09
SPEAKER_01: And then this is you have to look at this in the context of kind of the broader work stream where you've got the the other consultations that will be coming later on, uh and then you've got the development of guidance that will come after that, uh, all of which are obviously important.
13:29
SPEAKER_01: So are there areas where where the uh GHG protocol should be thinking about developing more guidance in in this area or that?
13:38
SPEAKER_01: And I think that's another area where feedback can be really helpful in uh allowing the GHG protocol to modernize its standards and do it in a way that uh can achieve greater consistency and comparability and again interoperability with uh whether it's ISSB or ESRS or what's going on elsewhere, uh, to again kind of uh uh have a package of sustainability reporting that is informative to uh uh uh uh whatever the relevant constituents are that are going to be consuming that and and making decisions in part based on that information.
14:21
SPEAKER_02: Yeah.
14:21
SPEAKER_02: We've talked about feedback a number of times, and I think maybe to one of the points that you're bringing too, sometimes when we think about sustainability reporting and greenhouse gas reporting, it's a wider view than maybe what we typically think of when we think of financial reporting, where we're typically focused kind of on festors, you know, people making credit decisions, that type of thing.
14:38
SPEAKER_02: You know, whereas when you get into greenhouse gas reporting and these other sustainability frameworks, there are the stakeholders get much broader, uh, you know, people, society, different groups within those.
14:49
SPEAKER_02: And so as as the ISB is is thinking about this, and you've mentioned the importance of stakeholder feedback, how how do you help make sure that you're getting getting that quality feedback?
14:59
SPEAKER_01: Yeah, it's a really good question.
15:01
SPEAKER_01: And and obviously some of it is just the here's the document out there, come one, come all, respond.
15:06
SPEAKER_01: But some of it, you you're right.
15:08
SPEAKER_01: You have you have to be more proactive and and do outreach to make sure that you are getting input from you know as as many, not just as many in total, but as many different stakeholders as you as you possibly can.
15:22
SPEAKER_01: I'm um thinking back to uh experiences that you and I shared a bit at the SEC uh in work on the climate proposal, um, where you know uh the commission got you know tens of thousands of so many bots.
15:38
SPEAKER_01: Um but but even within that, it's trying to make sure, well, okay, where did they come from?
15:44
SPEAKER_01: And you've got obviously some from preparers, some from investors, uh, some from uh regulators, uh, et cetera.
15:53
SPEAKER_01: And and to your point, uh you need to think about it a bit more broadly, because we're not just focused on information that's gonna be decision useful for investors.
16:03
SPEAKER_01: Right.
16:03
SPEAKER_01: Some of it is, as we're talking about, the objective is to try to drive behaviors.
16:09
SPEAKER_01: Well, so how might management think about this in terms of the targets and goals that they're setting and the and the time horizon that they're gonna put in place to achieve those targets and goals?
16:20
SPEAKER_01: Um, to what degree does it facilitate voluntary adoption in advance of any kind of uh uh mandated reporting framework, for example?
16:31
SPEAKER_01: Um how does it interrelate with reporting frameworks in different jurisdictions?
16:38
SPEAKER_01: Because there's going to be, well, there are today, but they're even more so in the future, companies that find themselves subject to multiple reporting frameworks and and how do those things interplay with with one another?
16:49
SPEAKER_01: So it's really trying to sit back and think about it holistically uh and and evaluate whether the input that has come in does kind of represent the the entire spectrum of of key stakeholders.
17:05
SPEAKER_01: And and I guess it would say uh you know, there is no such thing as too much feedback.
17:10
SPEAKER_01: Right.
17:11
SPEAKER_01: Right?
17:11
SPEAKER_01: And like I say, you can go back to the SEC experience, even though it literally was tens of thousands of comment letters and spend a little you know a lot of time reading, evaluating, what have you.
17:24
SPEAKER_01: And obviously, you know, some of it's gonna be sportive, some of it's not, some of it's kind of you know, in between, but there's absolutely no such thing as too much feedback.
17:34
SPEAKER_01: All feedback, regardless of whether supportive or not, or suggestions, uh, is very valuable to developing a high-quality product.
17:45
SPEAKER_02: Right.
17:46
SPEAKER_02: Well, one other thing that we've touched on now a couple of times that you've mentioned is interoperability.
17:50
SPEAKER_02: So, as you said, we have the ISSB disclosure standards out there, we have the ESRS, the European sustainability reporting standards.
17:58
SPEAKER_02: Yep.
17:59
SPEAKER_02: And both of those have the GHG protocol is mentioned, both those standards and and form the basis, I would say, for their GHG emissions disclosures.
18:07
SPEAKER_02: But I think is maybe we've we've talked around a little bit.
18:11
SPEAKER_02: There are still some slight differences between those standards.
18:14
SPEAKER_02: How does the GHG protocol think about interoperability between at least these major frameworks?
18:19
SPEAKER_02: And to your point, there's even reporting in other jurisdictions that varies as well.
18:24
SPEAKER_01: It's it's it's an important part of the of the thought process.
18:28
SPEAKER_01: And to that regard, you you have the members of the Independent Standards Board that we're talking about earlier, but then you have uh a number of observers that participate in the meetings and uh you know get to bring their perspectives and the like when it comes time to vote.
18:45
SPEAKER_01: You know, it limited it to the members of the of the ISP, but you've got the ISSB as is is an observer, uh Frag uh is an observer from from Europe.
18:56
SPEAKER_01: Uh you've got then you've got these um groups that are uh I guess you call them information repositories, right?
19:03
SPEAKER_01: It's like SPTI, for example, um and CDP that are uh uh in some respects are data accumulators that that become really very helpful sources of information in terms of what's going on in the marketplace, what can and can't be captured and the like that that help uh the GHC protocol think through where where do you have to make practical cuts on on things uh and still have have meaningful information.
19:35
SPEAKER_01: So that becomes a really important part of the of the process.
19:39
SPEAKER_01: Now you you you can't be you know completely beholden to one particular view or another, but you need to be informed about, you know, if you make this decision, what does that do to interoperability?
19:54
SPEAKER_01: Right.
19:55
SPEAKER_01: Right.
19:55
SPEAKER_01: It's kind of like um, you know, when you're thinking about like financial reporting questions that come up and you're doing consultation, you know, you always want to know whether those kinds of questions have been answered before, and if so, what the answer is, you might or might not land in the same place.
20:12
SPEAKER_01: We need to understand how it's gonna interplay, right?
20:16
SPEAKER_01: So same kind of thing here is you've got to understand how how will it interplay with these other frameworks.
20:22
SPEAKER_01: And you've got, in addition to ISSB and and FREG, you've got things like CARB going on, of course.
20:27
SPEAKER_02: Yes.
20:27
SPEAKER_02: Um The California Air Resource Board, which is the California regulations.
20:31
SPEAKER_01: California regulations, yes.
20:33
SPEAKER_01: Yes.
20:33
SPEAKER_01: And and you've got other jurisdictions that are adopting their their own frameworks, many of which are, you know, somewhat aligned with ISSB, but with important differences here and there.
20:45
SPEAKER_01: Um particularly on things like scope three, where you're starting to see some of these differences uh arise uh as well.
20:54
SPEAKER_01: So understanding that becomes really important because as you mentioned a moment ago, uh the measurements, the scope one, two, and three are really the foundation for most, if not all, of these other reporting frameworks.
21:11
SPEAKER_01: So it becomes really important to make sure that you've got frameworks that you know can be operationalized, can be measured and reported on a consistent basis, and can reflect uh real substantive differences in terms of how emissions uh are working in one jurisdiction versus another.
21:33
SPEAKER_02: Right.
21:34
SPEAKER_02: All really important points.
21:35
SPEAKER_02: Well, maybe, Paul, you mentioned you know scope one, where we've talked about the scope two project and we have scope three.
21:42
SPEAKER_02: So as you've mentioned, beyond scope two, there's there they're gonna update the corporate standard, they're gonna update the scope three standard.
21:49
SPEAKER_02: What kind of clarifications or changes can you highlight there for us?
21:54
SPEAKER_01: So again, this goes back to the the fact these standards have been around quite a while, right?
21:58
SPEAKER_01: So I think There's kind of three categories of things that are that are kind of under under consideration.
22:07
SPEAKER_01: One is there's clearly been scientific developments in 10, 15, 20 years.
22:14
SPEAKER_01: And so, you know, you you think about it from the standpoint of well, you you want to use the best measurement attributes available.
22:23
SPEAKER_01: Um, and what might be the best measurement attributes today might look very different than what they looked like 10, 15 years ago.
22:31
SPEAKER_01: Um, in in part because of scientific advan advancements, and also in part in terms of how the market mechanisms are actually working.
22:40
SPEAKER_01: So it so it's trying to provide guidance on that, number one.
22:45
SPEAKER_01: Uh number two is acknowledging the fact that interoperability is far more important than it was back then.
22:54
SPEAKER_02: Right, because more and more companies are hofting to report under these multiple regimes.
22:58
SPEAKER_01: Exactly.
22:58
SPEAKER_01: So how does that fit into the the the broader landscape and trying to get feedback on that?
23:06
SPEAKER_01: And then the third is well, even if you understand the the and I'll call it the basic metrics and how the market works, is well, you probably really need some additional guidance on the reporting itself, uh just to make sure there's there's clarity.
23:24
SPEAKER_01: So for example, uh you might have two companies that have targets that they want to achieve.
23:31
SPEAKER_01: Uh one might be achieving it through actual movement to more renewable energy as a way to achieve the target.
23:41
SPEAKER_01: The other might be trying to achieve it mostly through like environmental credit offsets as their mechanism.
23:48
SPEAKER_01: Um and I'm not here to say you know, one's better or not, uh, but those are different approaches to trying to achieve decarbonization and making sure that whatever the approach is that management is taking, that there is transparency that the stakeholders can understand and be able to evaluate.
24:10
SPEAKER_02: Right.
24:11
SPEAKER_02: I think that's critically important.
24:12
SPEAKER_02: Maybe one thing that we haven't touched on yet, Paul, is what is the timeline for all these projects?
24:18
SPEAKER_01: So as you said, the the scope two uh is out for consultation now.
24:23
SPEAKER_01: Uh the corporate standards and the scope three, the uh objective is to get those out for consultation early in in 2026, um, with again a roughly same time front, a couple months um period for comments to try to push those forward to completion.
24:42
SPEAKER_01: Now, one of the big questions that uh is at play, and and you were telling me you were looking at all the the questions.
24:50
SPEAKER_01: There's lots of questions.
24:51
SPEAKER_01: Lots of questions.
24:52
SPEAKER_01: Um but one is questions about transition.
24:55
SPEAKER_01: You know, how long should the transition period be?
24:58
SPEAKER_01: Um, what kind of accommodation should there be to facilitate transition and the like?
25:05
SPEAKER_01: And so that's gonna be a really important consideration.
25:08
SPEAKER_01: If if the uh protocol is able to achieve this timeline, there's still the huge question of, okay, so when do we think that ought to go live?
25:17
SPEAKER_01: And and what do we think that should look like?
25:20
SPEAKER_01: And should everybody go at the same time, or should it be like in a lot of regulatory, right?
25:26
SPEAKER_01: It's bigger companies first and then and then smaller companies.
25:29
SPEAKER_01: So those are, I think, really important pieces to the puzzle uh that that will need to be answered.
25:38
SPEAKER_01: And that's again another area where uh feedback is going to be immensely important.
25:42
SPEAKER_02: Right.
25:43
SPEAKER_02: And probably companies will have to think about how that impacts their targets and other information that they've reported historically.
25:48
SPEAKER_02: So again, to your point, there's so many considerations, not just one, but there'll be a lot.
25:53
SPEAKER_01: And it's it's um you know, all of this interrelates because you mean when you think about scope three, right?
26:00
SPEAKER_01: It's not just you, but it cascades through your value chain.
26:03
SPEAKER_01: Right.
26:04
SPEAKER_01: So as you think about uh phased adoption, well, what does that do to your ability to get information that will allow you to be able to uh measure scope three?
26:17
SPEAKER_01: Yeah.
26:17
SPEAKER_01: And inevitably what that means is the quality of the information inevitably will will improve over time.
26:25
SPEAKER_01: Yeah.
26:26
SPEAKER_01: Because you're gonna have to be relying probably more on estimation early on as uh the the the uh standards kind of cascade throughout your value chain.
26:38
SPEAKER_02: Yeah, that's a great point.
26:40
SPEAKER_02: So maybe staying on that point a little bit, Paul, what should companies be doing now to think about these potential changes?
26:48
SPEAKER_01: So I think um uh a couple of things.
26:50
SPEAKER_01: Obviously, uh want to encourage folks to think about responding and providing input first and foremost.
26:57
SPEAKER_01: So I think that would be really useful.
27:00
SPEAKER_01: And and inevitably, uh as companies themselves start to think about it, they'll think about their own processes and where are areas where we might need to put processes in place.
27:12
SPEAKER_01: You don't want to actually go lock stuff down yet based on proposals, of course.
27:17
SPEAKER_01: But you need to start thinking about it and uh uh what kind of data we'll need to capture and where might that data come from and the like.
27:26
SPEAKER_01: And I think the other thing to think about is how does it relate with the the target goal setting and management of the of your strategy, but also how does it fit with your broader corporate reporting strategy?
27:43
SPEAKER_01: Um while while again the the objectives are a little different than they are for financial reporting, it's still important that companies at the end of the day are gonna be telling a consistent story, whether it's you know in the financial statements or or the the annual report or it's in these other communication documents.
28:02
SPEAKER_01: So who is it that's gonna have responsibility for it?
28:05
SPEAKER_01: How will those, whoever that is, interact with the the finance team and those kind of things to make sure that you do have a consistent approach to how you're trying to manage climate risk and uh communicate the your management of the climate risk.
28:27
SPEAKER_02: So, Paul, you know, as I've gotten more involved in sustainability reporting, we've seen a shift to where sustainability reporting used to be more disconnected, I would say, from from the finance function as we've seen, and we're seeing it come together a little bit more.
28:42
SPEAKER_02: I think a lot of that is driven by more of this coming under required regulatory reporting.
28:47
SPEAKER_02: Sustainability reporting is continuing to mature as we've touched on.
28:50
SPEAKER_02: So, how do you think about how finance teams and sustainability teams can work together more effectively?
28:56
SPEAKER_01: Yeah, so I I think it's exactly what you're describing is you have to make sure that you're working together.
29:02
SPEAKER_01: Now, you know, who has ownership of it certainly can differ depending upon the org structure and uh uh approach to risk management and the like.
29:12
SPEAKER_01: But they have to be in close concert with one another so that they understand you know what what one is trying to do and what the objectives are, and they understand terminology.
29:24
SPEAKER_01: I mean, I I I can recall a conversation I had, and this was you know a few years back when I was still at the FCC, and I was uh in in a meeting with with some audit committee members, and they were talking about the company's sustainability reporting and using terms like commitment, right?
29:42
SPEAKER_01: Yeah.
29:42
SPEAKER_01: And you start getting into the conversations, and they would say, Well, we don't really mean commitment in the same way we mean it in the finance data, but it's really more aspirational.
29:52
SPEAKER_01: Well, well, the words are words are really important.
29:55
SPEAKER_01: Um and so again, making sure that you're you're uh communicating the same message uh throughout your different communication challenge channels.
30:06
SPEAKER_01: Uh so I don't think it's it's critical necessarily that finance have ownership of that, but you do have to have a lot of communication and engagement between them so that you are telling the same story.
30:20
SPEAKER_01: The the other thing I'm I'm kind of reminded of uh uh a statement we did when when we we were both at the SEC, uh and it was a statement about the approach to risk management, right?
30:33
SPEAKER_01: And and and how that needs to interplay with, in particular, we're talking about financial reporting.
30:38
SPEAKER_01: But you can't view you know risk management in a silo here and reporting there.
30:44
SPEAKER_01: You've got to have uh an overall approach to risk management, and uh you you can't think about just this piece of of risk and this piece of risk.
30:53
SPEAKER_01: You gotta have an overall strategy for risk management.
30:57
SPEAKER_01: So you know if you're talking about your manage of climate risk, well, how does that fit in with your other strategic goals and objectives and the like?
31:05
SPEAKER_01: So I think that all has to uh integrate within the company's risk management processes.
31:14
SPEAKER_02: And when we think about this too, when companies are disclosing what is their strategy to address many of these climate risks, it might be entering into new products, making significant capital investments, all these things which you know ultimately would be part of your financial statements.
31:26
SPEAKER_01: Yeah, absolutely.
31:27
SPEAKER_02: So maybe as we're talking about this integration and thinking about, I would say, kind of broadly governance too, how do you think about the role of boards and audit committees in overseeing emissions reporting?
31:38
SPEAKER_01: Good question.
31:39
SPEAKER_01: Um and and you know, one of the things that uh you you see is in some organizations, whatever's new, that gets dumped on the audit committee's agenda, right?
31:50
SPEAKER_01: Yeah.
31:51
SPEAKER_01: Um and you know, it may or may not make sense.
31:53
SPEAKER_01: I think it depends upon one, what's the regulatory environment, which is different from one jurisdiction to to another.
32:01
SPEAKER_01: Uh it certainly depends upon how the company's risk management processes work, uh and uh how do those flow up to the board?
32:13
SPEAKER_01: And and uh the I'll I'll just call it the general approach to governance.
32:18
SPEAKER_01: Uh so I think there's not a one size fits all, definitely.
32:23
SPEAKER_01: Uh but uh those things have to uh have to mesh together.
32:29
SPEAKER_01: So there there has to be a governance process so that whether it's the board or the audit committee or maybe it's the risk committee or some other combination of those that at the governance level they understand what is management's approach to risk and management of identification and management of risks.
32:54
SPEAKER_01: How does management see these various functions interrelating and how does that uh flow into corporate reporting broadly and and making sure that there is connectivity within the organization?
33:10
SPEAKER_01: And and when you when you get into governance and and you deal a lot with governance issues, um yeah, you have to be very careful when you're in a governance position that there's a difference between oversight and responsibility for doing it.
33:24
SPEAKER_01: Um and oversight uh cannot be just passive either.
33:29
SPEAKER_01: So there's so there has to be a proactive element, but that means understanding what the process is, evaluating whether that process makes sense for where the company is and and where it's trying to go, and obviously providing input for improvements to the process.
33:45
SPEAKER_01: And I think those are really key parts of governance responsibility here.
33:51
SPEAKER_02: Yeah.
33:51
SPEAKER_02: Well, Paul, this has been great.
33:52
SPEAKER_02: We've covered a lot today, so maybe just a couple last questions.
33:56
SPEAKER_02: Maybe looking ahead, what does success look like for the ISB and the GHG protocol over the next few years?
34:04
SPEAKER_01: So I I I think obviously completing these projects and and uh developing high-quality standards that can serve as the foundation going forward for these other reporting frameworks and and information repositories is very critical.
34:22
SPEAKER_01: I think beyond that uh there will be a need for additional guidance as uh uh markets evolve and the like.
34:31
SPEAKER_01: Uh and then I think the other couple of things, there's a couple of other work streams that are in in earlier stage uh dealing with land use and the like, and there's obviously a lot of scientific development going on there, uh, whether it's just land use itself or or forest uh forestation and the like that are really important to kind of fitting into the the broader picture of decarbonization strategies.
35:00
SPEAKER_01: Uh so I think there's there's a lot to do, not just in terms of finalizing these suites of this suite of standards, but to supporting the reporting on an ongoing basis, to being responsive to scientific developments, uh including some of these other aspects that I think are going to be reportant to having a fair depiction of what a company's climate strategy is actually going to do to help achieve decarbonization objectives.
35:36
SPEAKER_02: Right, making sure that they have a comprehensive reporting around it.
35:39
SPEAKER_02: Right.
35:40
SPEAKER_02: Very interesting.
35:41
SPEAKER_02: Well, any final thoughts, Paul, as we wrap up here today?
35:44
SPEAKER_01: Um other than just to reiterate a couple of messages, more input is better.
35:49
SPEAKER_01: Yeah.
35:49
SPEAKER_01: So certainly welcome, welcome input, looking forward to uh seeing the response that that uh we get to the current proposal and to the to the proposals coming after that.
36:01
SPEAKER_01: Uh certainly looking forward to the opportunity to continue to contribute to the process.
36:06
SPEAKER_01: I've I've uh learned a lot and and am enjoying that and getting into some of the other areas that was kind of on the periphery before uh has been very enjoyable, but also thinking about again, how do all of these pieces fit together so that uh consumers of information can kind of understand the entire picture uh and as companies that are telling their story, they can tell the entire story in a cohesive and transparent way.
36:42
SPEAKER_02: Well, great.
36:42
SPEAKER_02: Well, thank you so much, Paul, today, for sharing your insights and what's going on at the ISB, and it was great talking with you.
36:49
SPEAKER_01: Thanks, Dana.
36:50
SPEAKER_01: Great to be with you.
36:58
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