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Sustainability now: GHG measurement made manageable · PwC's accounting podcast

• 0:00
  SPEAKER_00: Thought Leadership from PWC's national office.
• 0:07
  SPEAKER_04: Hello, and welcome to PWC's Accounting Podcast.
• 0:10
  SPEAKER_04: I'm Heather Horn, PWC US's sustainability technical leader.
• 0:14
  SPEAKER_04: And I'm so happy you decided to join us today for another episode of our video podcast series on sustainability reporting.
• 0:22
  SPEAKER_04: And as regular listeners will know, this is the first time that we've actually done a video podcast.
• 0:27
  SPEAKER_04: So if you're listening to the audio only version and you'd like to follow along and actually see what's happening, you should head on over to the show notes for a link to find us on video.
• 0:38
  SPEAKER_04: So for today's episode, this we are turning our attention to one of the primary places in sustainability reporting.
• 0:45
  SPEAKER_04: And that would be GHG emissions reporting, greenhouse gas emissions reporting.
• 0:50
  SPEAKER_04: And we're going to try today to give an overview of all of GHG emissions reporting.
• 0:56
  SPEAKER_04: So we'll see how that goes.
• 0:57
  SPEAKER_04: And for this episode, I'm happy to welcome back Martin Olawinsky, who is a partner in our national office, also serves clients, also serves as the chair of our GHG working group covering the GHG protocol ESRS, the ISSB standards, and pretty much any other that you can think of.
• 1:16
  SPEAKER_04: And so, Martin, it's always such a pleasure to have you on.
• 1:19
  SPEAKER_04: And thanks for joining me today.
• 1:20
  SPEAKER_04: All right.
• 1:21
  SPEAKER_04: So, Martin, as I said that we're going to try to cover the gamut of GHG admissions reporting today.
• 1:27
  SPEAKER_04: We'll see how that goes.
• 1:28
  SPEAKER_04: But you and I in the fall did a series, and we did bring down some other guests as well, but I think seven or eight episodes covering GHG reporting.
• 1:37
  SPEAKER_04: Now we're going to try to squish that into one 45-minute one.
• 1:40
  SPEAKER_04: So I thought what we could do is maybe give the highlights of overall what's involved from a reporting perspective, and then we'll dig in on one of the particular areas.
• 1:50
  SPEAKER_04: But I know when we were writing the sustainability reporting guide, we were trying to bring some order and method to GHG reporting.
• 1:57
  SPEAKER_04: And so we divided it into a five-step process.
• 2:00
  SPEAKER_04: So can you remind us of the steps?
• 2:02
  SPEAKER_04: And then, as I said, we'll dig in.
• 2:05
  SPEAKER_01: Yes, thank you, Heather.
• 2:06
  SPEAKER_01: So for all the uh listeners who listen to our podcast and read our SRG chapter seven, it should be a familiar process.
• 2:13
  SPEAKER_01: So, as you mentioned, we sort of identify uh and created this process to make it more understandable for everybody.
• 2:19
  SPEAKER_01: So the five steps comprise of logical steps, how to think about reporting emissions from the beginning to an end.
• 2:27
  SPEAKER_01: So the step number one is first understanding your reporting requirements.
• 2:30
  SPEAKER_01: So uh is it voluntary reporting, is it regulated reporting, who is requiring, and what are the uh specific requirements of how the emissions need to be reported.
• 2:41
  SPEAKER_01: Once you determine that, then you have to determine organization boundary, which basically these steps um um uh this during these steps you're trying to identify all the entities, activities, or uh operations that you're gonna consolidate uh in order to determine what need to report, what you need to report um for emissions reporting.
• 3:03
  SPEAKER_01: The third step is determination of operational boundary, which is basically identification of emission sources and classifying them into direct and indirect and between three scopes, scope one, two, and three.
• 3:15
  SPEAKER_01: Then once you have everything done, you have to measure emissions.
• 3:18
  SPEAKER_01: So for every source, material source that you identify.
• 3:21
  SPEAKER_01: And last but not least, you have to report them based on the requirements of framework that you identify as applicable to you in step one of the process.
• 3:29
  SPEAKER_04: All right, sounds so easy, Marcia, when you talk about it.
• 3:32
  SPEAKER_04: Obviously, not so easy.
• 3:34
  SPEAKER_04: Uh, but I thought for today, we've obviously talked a lot about all of these, but I know we've spent in particular a lot of time on various podcasts and webcasts talking about organizational boundaries and operational boundaries.
• 3:46
  SPEAKER_04: So, for purposes of today's episode, we're gonna jump in straight into measurement.
• 3:51
  SPEAKER_04: Maybe though, just as a quick reminder, you could tell us what we mean when we say scope one, two, and three, and then we'll go into measurement.
• 3:59
  SPEAKER_04: And I think one reason I really like this topic is measurement overall is basically the same among the standards, although there might be some differences in terms of how you report, but in terms of actually how you measure the emissions, there, you know, there's there's only so many ways you can measure.
• 4:16
  SPEAKER_04: So can you remind us, scope one, two, three?
• 4:19
  SPEAKER_01: Yes.
• 4:19
  SPEAKER_01: So um, let's say you already identify the reporting requirements, you know what's within your organization boundary, you identified uh direct and indirect uh sources of emissions, now you have to classify them between scope one, two, and three.
• 4:32
  SPEAKER_01: So scope one is all the direct emissions from sources that are owned or controlled by you.
• 4:39
  SPEAKER_01: So everything that you have usually on your balance sheet, uh uh including your financial statements.
• 4:45
  SPEAKER_04: Well, everything in your organizational balance sheet.
• 4:47
  SPEAKER_04: Exactly.
• 4:47
  SPEAKER_01: Yes, yes, that's uh that's probably the best the best term to use.
• 4:50
  SPEAKER_01: But again, the key element is owned or controlled by you and direct.
• 4:55
  SPEAKER_01: Scope two are indirect emission sources associated with uh or generated uh during the production of electricity, heat, and cooling purchased uh by your company.
• 5:07
  SPEAKER_01: So again, those are indirect emissions, so they are generated outside of your organization boundary, but um you you use the electricity um that caused uh during the generation, these electricity emissions are being um generated.
• 5:22
  SPEAKER_01: I say generated too much.
• 5:24
  SPEAKER_04: Well, also I think one thing about that that we should just highlight here is that it's always referred to as purchase electricity.
• 5:31
  SPEAKER_04: You did give the full definition, which includes heating and cooling, but again, sort of the shorthand there is purchase electricity.
• 5:38
  SPEAKER_04: So it's something to keep in mind.
• 5:39
  SPEAKER_01: And we we usually refer to this as a purchase electricity because this is by far the biggest emission source for scope two.
• 5:45
  SPEAKER_01: That's what everybody knows.
• 5:46
  SPEAKER_01: But I try to emphasize that every every time so people don't forget that it's not only electricity.
• 5:53
  SPEAKER_01: And then it leaves us with scope three, which is all the other value chain emissions that are generated uh by sources that are not controlled, owned or controlled by you.
• 6:04
  SPEAKER_01: So sources that I that are owned or controlled by others.
• 6:08
  SPEAKER_01: So we're talking about upstream and downstream emissions, for example, emissions generated during the production of goods and services that your company purchases and utilizes in their own processes, or emissions generated by your consumers when they use the products that you sold them, right?
• 6:26
  SPEAKER_01: So everything, again, indirect emissions outside of our organizational boundary, sources that are owned or controlled by others.
• 6:36
  SPEAKER_04: All right.
• 6:36
  SPEAKER_04: So, and hopefully anyone listening to this uh podcast has already at least basic understanding of those.
• 6:43
  SPEAKER_04: So let's again assume we've gone through those first steps.
• 6:46
  SPEAKER_04: Now I'm up to measurement.
• 6:47
  SPEAKER_04: What's the first step once I'm ready to start measuring my emissions?
• 6:51
  SPEAKER_01: Um, so first of all, you identify the sources there because all this emission is.
• 6:55
  SPEAKER_04: Yes, I said that we were assuming that I had already done that.
• 6:58
  SPEAKER_01: Because measurement methodologies may be or oftentimes are specific to the source of source that that you identify and uh the emission source.
• 7:07
  SPEAKER_01: So um I'll start with maybe scope one because we're talking about direct emissions by sources that we own and control.
• 7:13
  SPEAKER_01: So it's more familiar.
• 7:14
  SPEAKER_01: Uh we control the data, so it's more familiar to our clients oftentimes.
• 7:18
  SPEAKER_01: So generally, when we talked about emissions measurement methodologies, methodologies, we distinguish two different kind of primary methods: direct measurement and indirect measurement methodologies.
• 7:29
  SPEAKER_01: Direct measurements are those are methodologies that measure emissions directly at source.
• 7:36
  SPEAKER_01: Usually require, they generally require um instrumentations, measurement devices, that you know, you install it at source when emissions is being generated, and they measure the directly the amount of emissions uh that the source is generating, right?
• 7:52
  SPEAKER_04: Hence direct measurement.
• 7:53
  SPEAKER_04: Exactly.
• 7:54
  SPEAKER_04: I'm sorry.
• 7:54
  SPEAKER_04: Where do we normally see this?
• 7:56
  SPEAKER_04: I'm sorry, I couldn't resist making that comment.
• 7:58
  SPEAKER_01: It is good.
• 7:59
  SPEAKER_01: Well, those those measurement methodologies are not extremely popular yet because of the technical difficulties or or challenges that companies are facing.
• 8:08
  SPEAKER_01: Usually we see them as a requirement by environmental agencies for some specific highly emitting sources where measurement at the source is uh is possible.
• 8:18
  SPEAKER_01: Like EPA in the United States, for example, requires for certain sources to have those kind of direct measurement um um techniques, right, to measure the emissions.
• 8:29
  SPEAKER_01: Usually they require the what is called continuous emissions monitoring systems, or SEMS, that as I say, they installed at the you know, directly at the uh emission source and measured it continuously as the source is emitting the uh GEG emissions.
• 8:43
  SPEAKER_04: Yeah, so you and I would have seen these when we're auditing power plants and industrial facilities offices, refineries, refineries.
• 8:50
  SPEAKER_01: So you can see this, right?
• 8:51
  SPEAKER_04: All right, so what would be probably much more meaningful to our audience, most of our audience, then would be, and even to be fair, companies that use direct probably use indirect for some of their emissions.
• 9:02
  SPEAKER_04: So what about indirect techniques?
• 9:03
  SPEAKER_01: So generally, again, this is most popular uh measurement or calculation methodology right now because of uh uh practical issues with application of SEMS or existing of uh a reliable uh technology to do this.
• 9:17
  SPEAKER_01: So most of our clients or for most of emission sources, you're gonna use indirect uh measurement methodologies.
• 9:23
  SPEAKER_01: Basically, this is the methodologies that rely on activity data, emissions factors, and global warming potential, right?
• 9:30
  SPEAKER_01: So you instead of capturing and measuring emissions, you're capturing and measuring activity data that results in emissions.
• 9:38
  SPEAKER_01: So, for example, when you take one of our scope one emission sources is combustion, right?
• 9:43
  SPEAKER_01: So uh in indirect measurement methodology, you're gonna measure or capture in any other way activity data, which is in our case fuels used or fuel that is being combusted.
• 9:54
  SPEAKER_01: And then you so you have a quantity of that fuel, then you're gonna apply emission factors to this combusted fuel and potentially global warming potential, depending on how the emission factor is being structured.
• 10:06
  SPEAKER_01: So that's why it is indirect because you don't measure emissions, you measure activity or capture activity data.
• 10:13
  SPEAKER_01: And it depends on the emission source, what the activity data will be and what type of emission factors you're gonna use.
• 10:19
  SPEAKER_04: Yeah, and actually one of the things I like best, um, well, I shouldn't say that's that's the overstretch.
• 10:24
  SPEAKER_04: One of the things I like in chapter seven is that we do have this equation written out in terms of the activity data, emission factors, and global warming potentials.
• 10:32
  SPEAKER_04: And I do think it's helpful to sort of think of those three components.
• 10:36
  SPEAKER_04: But as then I'm thinking, Martian, how to, I will say, apply that formula.
• 10:41
  SPEAKER_04: Where do companies go look for guidance on that?
• 10:44
  SPEAKER_04: Because obviously there's lots of different emissions factors, lots of global warming potentials.
• 10:49
  SPEAKER_04: You mentioned different sorts of activity data.
• 10:51
  SPEAKER_04: So, what do I do with that information?
• 10:53
  SPEAKER_01: Well, so it all depends on oftentimes I would start with what is your reporting requirement?
• 10:58
  SPEAKER_01: Because depending on that, you're gonna go to different places as to how to capture this activity data and where to look for emission factors, or even how to calculate, because this is what we what we uh provided in our chapter seven.
• 11:11
  SPEAKER_01: This is generic formulas.
• 11:13
  SPEAKER_01: I want to make sure that everybody understands, depending on the purpose of the reporting or regulatory agencies, this formula might be a little bit more complex, right?
• 11:21
  SPEAKER_01: Um, first I'll say look at what is your reporting requirement.
• 11:25
  SPEAKER_01: Again, I'm gonna, we are in the United States, I'm gonna defer to uh EPA that uh regulates certain uh industries in the United States.
• 11:33
  SPEAKER_01: They're gonna prescribe specifically what calculation formulas you should use, how to capture the activity data, what this activity data should be, and where to go for emission factors, right?
• 11:45
  SPEAKER_01: Let's say you if you report voluntarily based on GEG protocol, GEG protocol also has a guidance or various calculation tools.
• 11:52
  SPEAKER_01: They're gonna provide you the formulas or sources of emission factors that is very useful as you are preparing um your um your emissions data, right?
• 12:05
  SPEAKER_01: So it all depends on uh who is regulating you, what's the purpose of your reporting, what emission sources do you have?
• 12:10
  SPEAKER_01: Because again, as an example, I gave combustion.
• 12:14
  SPEAKER_01: That's fairly simple, whether this is stationary or mobile combustion, right?
• 12:18
  SPEAKER_01: This is a fairly simple and common source.
• 12:21
  SPEAKER_01: Once you start going to emission sources like you know, industrial processing, right, or uh vented or uh fugitive emissions, those calculation formulas might have way more input.
• 12:32
  SPEAKER_01: So your activity data might not be just, let's say, volume of fuel combusted, but might be more complex.
• 12:39
  SPEAKER_01: Emission factors might also not be only the standardized emission factors provided by publishing authorities, different governments or or other kind of bodies who do this.
• 12:49
  SPEAKER_01: It might require more calculations to uh to determine what this emission factor is.
• 12:54
  SPEAKER_01: In our um chapter seven, we define that as a uh tailored emission factors, but with again, it's a term that we coin, but is designed to encompass various calculation techniques that might be um required by different regulatory bodies or reporting frameworks.
• 13:13
  SPEAKER_04: Well, and I think Martin, key point here for most of our listeners, I would assume, is that you know the EPA or even the GHC protocol is is helpful, but really they are thinking about reporting under ESRS or the ISSB standards.
• 13:27
  SPEAKER_04: And for entities reporting under those standards, then there actually are requirements for what you should be using for emission factors as well as um the global warming potentials.
• 13:36
  SPEAKER_04: So even in those cases, there are specifications and companies should make sure that they're following those.
• 13:43
  SPEAKER_04: So I think that's a key point.
• 13:45
  SPEAKER_01: Exactly.
• 13:45
  SPEAKER_01: I would agree.
• 13:46
  SPEAKER_01: Um, that's why I started.
• 13:47
  SPEAKER_01: You have to understand that the first point, you have to understand what are the requirements, reporting requirements you you're subject to.
• 13:53
  SPEAKER_04: Yes, that's why I'm always happy when you agree with me, too.
• 13:55
  SPEAKER_01: So I always agree with that.
• 13:57
  SPEAKER_04: All right.
• 13:57
  SPEAKER_04: So then Merchant, that was scope one.
• 13:59
  SPEAKER_04: And again, that was quite a quick uh trip through scope one, a lot more to it if you're actually measuring.
• 14:05
  SPEAKER_04: But then let's talk a bit about scope two, because there's definitely some subtleties when you're dealing with uh this indirect purchased electricity, heat, et cetera.
• 14:15
  SPEAKER_01: Yes, so um, on a high level, on simple note, um uh the formula to calculate scope two emissions is pretty much the same as for scope one.
• 14:23
  SPEAKER_01: You you need activity data, you need emission factory, you need a global warming potential.
• 14:27
  SPEAKER_01: What's easier for scope two uh is activity data is generally limited to uh purchase electricity, right?
• 14:34
  SPEAKER_01: Or um purchase heat or cooling, right?
• 14:37
  SPEAKER_01: In scope one, depending, it can depend on emission source, but in scope two, they are sort of prescribed, right?
• 14:43
  SPEAKER_01: And vast majority of like reliant share of scope two is it purchased electricity.
• 14:48
  SPEAKER_01: So, and you can get this data, activity data directly from generally from utility invoices, right?
• 14:54
  SPEAKER_01: Um, so um they usually provide your consumption data, and most of our clients use those to yeah, you can have meters too, I guess, right?
• 15:01
  SPEAKER_01: Yeah, where it becomes really uh so by definition, right?
• 15:04
  SPEAKER_01: Just want to make sure the scope two is indirect.
• 15:06
  SPEAKER_01: It has to be indirect, right?
• 15:08
  SPEAKER_01: Because it's indirect source, you cannot you know measure emissions directly because they're not generated by you, but your power provider or utility provider or heating and cooling provider, right?
• 15:18
  SPEAKER_01: So what's unique about scope two is emission factors.
• 15:23
  SPEAKER_01: I mean, not wouldn't say unique, but what's special uh about scope two is the source of emission factors and a type of calculation methodologies attached to those emission factors, right?
• 15:35
  SPEAKER_04: So, Martin, let me cut in because I actually had jotted down a note while you were just speaking, that we when we were talking about scope one, we jumped straight into the formula and started using terminology, emission factors and global warming potentials without really explaining.
• 15:49
  SPEAKER_04: And I think many of our listeners will know, but just to make sure, before you get into the details for scope two, when we talk about emission factors, what are we actually referring to?
• 16:00
  SPEAKER_04: And then I'll ask the same for global warming potential.
• 16:03
  SPEAKER_01: Well, so emission factors is basically a standardized factor that reflects the you know emission generating potential of activity, of one unit of activity, right?
• 16:12
  SPEAKER_01: So as I mentioned, let's stick to the combustion, right?
• 16:15
  SPEAKER_01: Combustion of fuels.
• 16:16
  SPEAKER_01: Emission factors represent the the number of emissions generated by combustion of one, let's say, gallon of uh gasoline or you know, one cubic meter of uh combustion of one cubic meter of uh natural gas, for that matter.
• 16:33
  SPEAKER_01: So there's basically standardized um um representation of this you know emitting ability or uh of of a fuel or source, right?
• 16:44
  SPEAKER_01: Or activity that that the uh that is coming from emission source.
• 16:48
  SPEAKER_01: So that's emission again, it's designed for standardization.
• 16:52
  SPEAKER_01: Uh as you can imagine, there is a presumption, oh actually it's supported by science, right, that similar uh fuel sources they generate the same number of emissions irrespectively when you combust them.
• 17:03
  SPEAKER_01: And the same applies to different emission sources.
• 17:06
  SPEAKER_01: So in order for companies to, in order for companies to uh in order to make the process of emissions reporting easier for companies, we have a various uh databases or or regulatory bodies who uh who publish those those emissions factors, which are calculated based on um, you know, given countries kind of a total emissions, or they might be calculated based on specific fuel uh sampling uh measured by those who publish those factors.
• 17:36
  SPEAKER_01: And again, it's having the emission factors allows companies to avoid need to go in and doing this themselves, right?
• 17:42
  SPEAKER_01: As long as they fit within the standardized activity type or uh emission source that the publishing body uh includes in their uh publish emission factors.
• 17:53
  SPEAKER_04: All right.
• 17:53
  SPEAKER_04: And then how about global warming potential?
• 17:54
  SPEAKER_01: Oh my goodness, I hate that one.
• 17:56
  SPEAKER_04: Oh, I was thinking I like this one.
• 17:58
  SPEAKER_04: I can picture the chart in our well, okay.
• 18:03
  SPEAKER_04: I'll do very simplistically, and then you can be more scientifically.
• 18:06
  SPEAKER_04: So when I think about this, basically global warming potential, you start with um CO2, and that's has a global warming potential of one.
• 18:16
  SPEAKER_04: So one unit of CO2, you say one.
• 18:19
  SPEAKER_04: But then when you start to get into different types of gases, they have much bigger global warming potential.
• 18:24
  SPEAKER_04: So even though it's like methane is actually much, much higher than CO2.
• 18:30
  SPEAKER_04: So even though the actual absolute amount may be much smaller, the impact on the environment and global warming is actually much higher.
• 18:39
  SPEAKER_04: And so what I really like about this is if you look in our guide, or you can look many places, there's actually a chart that says CO2 one, and then it goes down by type of gas till you get to these huge numbers for some of the certain types of gases.
• 18:53
  SPEAKER_01: But please.
• 18:54
  SPEAKER_01: Yeah, so so for me, it's like the how I that's why I said I it's it's kind of a very scientific language, but I try to simplify everything.
• 19:01
  SPEAKER_01: So for me, it's an essentially conversion factor to bring different gases.
• 19:05
  SPEAKER_01: And remember, we didn't cover it today, but we cover it in different episodes.
• 19:08
  SPEAKER_01: There are seven gases that uh are considered to be main GHG um gases.
• 19:14
  SPEAKER_01: And this is the conversion factor to bring the emissions um calculated for each of the gas to the same measurement unit, which is CO2E.
• 19:24
  SPEAKER_01: As you said, CO2 as the biggest kind of uh the gas with biggest impact on global warming, because this most common gas that that is at an atmosphere has a global warming potential of one.
• 19:35
  SPEAKER_01: But other gases have a much bigger potential to contribute to global warming.
• 19:40
  SPEAKER_01: As you mentioned, methane is like I think 27, right?
• 19:43
  SPEAKER_01: Or 26 or 27 times than CO2.
• 19:46
  SPEAKER_01: So in order to equal everything and convert it to the same measurement unit, CO2E, you were using these global warming potentials.
• 19:53
  SPEAKER_04: All right, I think that's enough science.
• 19:54
  SPEAKER_04: And if there's any scientists listening, we apologize.
• 19:57
  SPEAKER_01: So well, I'm gonna refer everybody to uh SRG7 when we have a very good definition of the side.
• 20:01
  SPEAKER_04: Yes, we do have good explanation.
• 20:03
  SPEAKER_04: Okay, so sorry, I actually cut in.
• 20:04
  SPEAKER_04: So just to like re-level set for our listeners, we were actually talking about so that the definitions of um emissions factors and global warming potential supply across the scopes.
• 20:16
  SPEAKER_04: But you were starting to get into some of the detail of why it's a bit different when we think about this for scope two in particular.
• 20:24
  SPEAKER_04: So now that we've given the background, go ahead.
• 20:27
  SPEAKER_01: Okay.
• 20:27
  SPEAKER_01: Um if you remember where we were.
• 20:29
  SPEAKER_01: Yes, uh, scope two measurement methods.
• 20:31
  SPEAKER_01: So basically, we have two different methods to uh to measure scope two emissions, which one is called location-based, and the other is is called market-based uh method.
• 20:41
  SPEAKER_01: The reason for having two different methods, right, is because of an inherent nature of uh electricity, right?
• 20:48
  SPEAKER_01: So when you think about this, electricity can be uh generated from fossil fuel or nuclear or renewable sources.
• 20:57
  SPEAKER_01: And all of these kind of generated sources have a different emissions uh profile, right?
• 21:04
  SPEAKER_01: So uh as you can imagine, renewable sources generally do not generate uh scope one or generate emissions during the production of uh electricity, while fossil fuel like coal or natural gas generate quite a bit of emissions, right?
• 21:18
  SPEAKER_01: So, however, the purchasing, remember, scope two is a um indirect emission source related to purchase electricity.
• 21:26
  SPEAKER_01: You, as a purchaser of electricity, it's really difficult to say from what source the electricity is coming because you we all buy this from the same grid.
• 21:35
  SPEAKER_01: And when electricity is supplied to the grid, it's um like electrons are fungible, so you don't really know what you're buying.
• 21:42
  SPEAKER_01: You're buying from the same grid, everything is mixed.
• 21:44
  SPEAKER_01: So historically, there's only one method which is called location base, which basically you use the average grid emission factors to calculate your scope two emissions.
• 21:54
  SPEAKER_01: And the reason for that being because you buy from a grid.
• 21:56
  SPEAKER_01: And this grid is a mixture of multiple, you know.
• 22:02
  SPEAKER_01: Sources or renewable sources, fossil fuel sources, nuclear.
• 22:06
  SPEAKER_01: So what are you buying when you're buying from a grid, you're buying the mixture of those different sources which have a different emission potential emissions associated with them.
• 22:15
  SPEAKER_04: Yeah, so from a practical view, you really have no idea which electricity you're actually using, unless in some rare cases you might have direct connection to the power plant.
• 22:25
  SPEAKER_01: But as you mentioned, it might be on some big industrial uh factories which have a like a code generation.
• 22:31
  SPEAKER_01: Exactly, which they have a um uh power plants, you know, cross-defense.
• 22:35
  SPEAKER_01: But generally, a vast majority of of reporting entities they buy emissions from um um from the grid.
• 22:42
  SPEAKER_01: Hence, location-based reflects the emission factors, average emission factors of the grid.
• 22:48
  SPEAKER_01: So even you as a company today wanted to make some uh conscious choices as to what type of where to buy electricity, you wanted to buy electricity primarily from renewable sources, right?
• 23:00
  SPEAKER_01: Um unfortunately, location-based method does not would not allow you to reflect that, right?
• 23:05
  SPEAKER_04: Because it doesn't it's reflects the grid you're in, though, right?
• 23:09
  SPEAKER_01: So yes, but um yeah, so you're right.
• 23:11
  SPEAKER_01: I mean, you can always choose to build your factory in a more less kind of emission-intense grid.
• 23:17
  SPEAKER_01: But for most of our clients, the factor is already there.
• 23:20
  SPEAKER_01: For not many of their clients.
• 23:21
  SPEAKER_01: And they have no and they have no really impact on you know on the emission uh or grid intensity, right?
• 23:29
  SPEAKER_01: So location-based method does not really allow companies to fully rip, let me use the words, fully reflect choices that they're making to limit their uh emissions associated with purchase electricity.
• 23:40
  SPEAKER_01: However, therefore, for the longest time, for quite some time, uh GEG protocol would only indicate one or allow for one calculation method.
• 23:49
  SPEAKER_01: I think back in 2015, they introduced the other, which is called market-based method.
• 23:54
  SPEAKER_01: And just to clear up front, uh GEG protocol requires uh reporting entities to report emissions using both methods.
• 24:01
  SPEAKER_01: So, like you have to calculate and report both uh scope to emissions using both methods.
• 24:08
  SPEAKER_01: But in in few, in short words, market-based method basically allows companies to reflect or take into account the choices they make as it relates to the source of a purchase of electricity.
• 24:21
  SPEAKER_01: So basically, as opposed to use the emission factors which are specific to the contractual arrangements that you have to purchase electricity.
• 24:28
  SPEAKER_01: Again, you still get the same electricity from the grid.
• 24:31
  SPEAKER_01: However, that method allows you to, if you let's say sign a purchase power agreement with renewable generator, it allows you to reflect the emission factor associated with this specific generation.
• 24:44
  SPEAKER_01: It also allows you to consider um other instruments like renewable energy credits.
• 24:49
  SPEAKER_01: If you don't buy have a PPA, you can also buy the credit by itself and reflect it in your calculations.
• 24:57
  SPEAKER_04: Yes, I have some theoretical issues with this particular calculation, but I do understand why that we have it in place.
• 25:05
  SPEAKER_04: So, and this is not the episode for it.
• 25:07
  SPEAKER_04: In fact, I think we have a much more detailed episode where we we talked quite a lot about this if you're interested.
• 25:14
  SPEAKER_04: All of that said, you mentioned GHG protocol requires you to report both market-based and location-based.
• 25:20
  SPEAKER_04: So does ESRS, but how about ISSB?
• 25:24
  SPEAKER_01: So ISSB requires uh calculation and reporting uh scope to emissions using location-based.
• 25:31
  SPEAKER_01: However, so it doesn't require market-based, but it requires disclosure of information about contractual instruments that company acquired.
• 25:38
  SPEAKER_01: So PPAs, RECs, or or other, you know, uh this type of instrument.
• 25:44
  SPEAKER_01: So again, it's slightly different.
• 25:46
  SPEAKER_01: You don't have to have a two calculation, but you still have to provide the information to allow users to understand those choices that you're making.
• 25:54
  SPEAKER_01: And one thing I want to make because recently we've seen one question.
• 25:57
  SPEAKER_01: The fact that you have to report emissions using both methodology, uh, it means that you have two numbers to report.
• 26:03
  SPEAKER_01: You should not be adding them.
• 26:04
  SPEAKER_04: I'm being facetious, but Oh, that's a good reminder that would give you much bigger number.
• 26:09
  SPEAKER_04: Yes.
• 26:09
  SPEAKER_01: So like those are the same emissions that are measured differently differently.
• 26:13
  SPEAKER_01: So I think most of our viewers would not kind of uh come up with the idea to add them up, but just to clarify.
• 26:20
  SPEAKER_04: Although you do have to add up scope one, two, and three to get to your total.
• 26:23
  SPEAKER_04: And so I do think it can get a bit confusing.
• 26:25
  SPEAKER_01: That's why I wanted to kind of uh uh emphasize that that those are again the key point, those are the same emissions or associated with the same activity, they're just calculated differently.
• 26:34
  SPEAKER_01: So that's why you would never add the two numbers together.
• 26:37
  SPEAKER_04: So, Marchin, I don't, again, we did, I think, two full episodes talking about scope one and scope two, but something actually, Carl, you and I were on together today.
• 26:46
  SPEAKER_04: One of the things that came up as a place where we are also getting a lot of questions is the quality criteria or what types of contractual instruments are sort of allowed to be included in these calculations.
• 27:00
  SPEAKER_04: So, can you talk about maybe those criteria at a very high level?
• 27:04
  SPEAKER_04: And then I think we have some best practices that we see that companies should be considering in using these instruments and then reporting.
• 27:13
  SPEAKER_01: Yes.
• 27:13
  SPEAKER_01: So when you look at the scope through calculation guidance issued by GEG Protocol, it outlines specifically what type of instruments you could be using in this in the calculations and specific quality criteria that you have to meet in order to be able to use it, right?
• 27:31
  SPEAKER_01: And let me maybe back up why, right?
• 27:33
  SPEAKER_01: So the main worry um of GEG protocol, which I kind of uh I agree with you.
• 27:39
  SPEAKER_04: I definitely agree with it is double counting.
• 27:41
  SPEAKER_01: So when you think about um when you think about mark electricity market, right?
• 27:46
  SPEAKER_01: Obviously, as we said, you're buying electricity from the grid, it is what it is.
• 27:50
  SPEAKER_01: But then how and who reflects contractual arrangements can differ.
• 27:55
  SPEAKER_01: Because you can have a very simple, you know, easy, very often what what could happen is you buy the electricity from a grid based on the purchase power arrangements that has you know um renewable attributes attached to this.
• 28:09
  SPEAKER_01: Currently, there is a market that allows to detach those attributes and selling them separately.
• 28:14
  SPEAKER_01: So you could end up in a situation where a company that buys the actual electricity reports it as a renewable electricity in the calculation, and then whoever bought the separate detached, you know, renewable attributes could also claim this.
• 28:27
  SPEAKER_01: So the main kind of a goal of GEG protocol was to provide certain level of criteria to ensure that these claims are valid and there's no double counting, that two parties do not claim the same attribute and say that they um they they use them to demonstrate they reduced emissions in the market-based calculations, right?
• 28:46
  SPEAKER_01: So when we talk specifically about uh just to kind of demystify those instruments, right?
• 28:52
  SPEAKER_01: So first we're talking about energy attribute attribute uh certificates, right?
• 28:56
  SPEAKER_01: In US, most often we see renewable energy certificates.
• 29:00
  SPEAKER_01: So those are specific certificates that certify that energy or power, electricity was generated from renewable sources, wind, solar, uh, and similar.
• 29:09
  SPEAKER_01: Then you have your normal contracts um to purchase electricity, like uh PPAs, which may or may not have uh you know embedded renewable uh attributes in them, right?
• 29:21
  SPEAKER_01: Then you might uh the next kind of uh type of this uh contractoral instruments are um supplier-specific emission factors.
• 29:29
  SPEAKER_01: So you can get those specific factors from your suppliers and they calculate using the specific generational mix of that suppliers.
• 29:37
  SPEAKER_01: Then you go to residual mix, so you know, um emission factors in the grids after consideration of you know use of uh renewable attributes.
• 29:47
  SPEAKER_04: And I'm just laughing because I think for most of our listeners, we probably already lost them, you know, a few points ago.
• 29:54
  SPEAKER_04: But I mean, actually, this is critically important because these residual mixed factors actually do address the issue we both have with this, which is this double counting.
• 30:04
  SPEAKER_04: So again, this is probably a lot of detail, but it is a very important point.
• 30:08
  SPEAKER_04: We don't have these factors in the US, though.
• 30:10
  SPEAKER_01: Yes, we don't.
• 30:11
  SPEAKER_01: So uh, but in Europe, there's a quite a few markets when you can obtain those factors.
• 30:16
  SPEAKER_01: Um, in US, because we don't have residual factors, a lot of people, when they calculate the reminder of non-renewable, they use location-based factors, which is also allowed, but uh by um by protocol, but it is lower priority on their chiarkey uh list, right?
• 30:34
  SPEAKER_01: And then so those are types of instruments that, as we mentioned, they all have to meet specific criteria.
• 30:38
  SPEAKER_01: And then all these criteria are designed to ensure that there's a credibility to that market and to this calculation.
• 30:45
  SPEAKER_01: So, first of all, uh, those instruments have to really convey the renewable rights to you, right?
• 30:50
  SPEAKER_01: There has to be a mechanism to track them and retire them, right?
• 30:55
  SPEAKER_01: You have to have a timely retirement.
• 30:57
  SPEAKER_01: You have to have a process of identifying that they are generated in a market which is as close as possible to where you consume the energy.
• 31:05
  SPEAKER_01: Because imagine you can theoretically be consuming power, electricity in the state of Texas and buying uh renewable or EACs from China, right?
• 31:14
  SPEAKER_04: Yes, although to be fair, Texas has a lot of renewables.
• 31:17
  SPEAKER_04: So maybe our example should have been.
• 31:19
  SPEAKER_01: Well, but like if you already they are above, like that's that's why you have a quality criteria.
• 31:24
  SPEAKER_01: So you're trying to bring those this and again, you when you think about it, it's logical.
• 31:29
  SPEAKER_01: You wanna have this actual generation as close as possible to when you consume.
• 31:34
  SPEAKER_01: So when you're buying energy from the grid, you at least part partially you're buying this this renewable energy that you have uh certificates for, right?
• 31:42
  SPEAKER_01: So so I think and a timing, right?
• 31:45
  SPEAKER_01: You wanna you wanna make sure that a timing of generation of um renewable energy is as close as possible to when you actually consume it as a user of this electricity.
• 31:56
  SPEAKER_01: So again, as an example, you're not buying and claiming renewable energy certificates from like 10 years ago, right?
• 32:03
  SPEAKER_01: Right?
• 32:03
  SPEAKER_01: Somebody has it somewhere hanging hanging in their in a, you know, uh in a closet and then like, here you go.
• 32:08
  SPEAKER_01: Uh so it's all about creating credibility.
• 32:11
  SPEAKER_01: As you mentioned, there's a lot of you know, pros and cons having the market-based methodology.
• 32:16
  SPEAKER_01: It has specifically to do with the nature of energy.
• 32:20
  SPEAKER_01: There's a lot of opponents they're thinking that really it doesn't represent reality.
• 32:25
  SPEAKER_01: So GEG protocol designed those criteria to minimize this criticism and ensure as much credibility as possible.
• 32:32
  SPEAKER_04: Yeah, and I think disclosure obviously is important everywhere, but particularly here.
• 32:37
  SPEAKER_04: A couple maybe wrap-up points on that before we move on.
• 32:40
  SPEAKER_04: Is first of all, you mentioned that these are the GEG protocol quality criteria from the scope to guidance.
• 32:46
  SPEAKER_04: Uh, that actually is also those specific quality criteria are also in ESRS, where they reference using that.
• 32:52
  SPEAKER_04: So definitely consideration.
• 32:54
  SPEAKER_04: And then that doesn't matter for companies reporting in accordance with um IFRS S2 because they have this other reporting, but they also have some very specific disclosure requirements about quality of their contractual instruments.
• 33:07
  SPEAKER_01: Yes, I would agree.
• 33:08
  SPEAKER_01: You still agree.
• 33:09
  SPEAKER_04: Excellent.
• 33:10
  SPEAKER_04: All right, so definitely more, and I think this topic you and I both are very passionate about.
• 33:14
  SPEAKER_04: So we we could uh definitely go further.
• 33:17
  SPEAKER_04: But why don't we move on then to scope three?
• 33:19
  SPEAKER_04: And scope three is very complicated and probably again could be a few episodes of its own.
• 33:26
  SPEAKER_04: But do you want to give a you know, sort of high level what we should be thinking about, particularly when we start thinking about these scope three categories?
• 33:34
  SPEAKER_01: So um as I mentioned before, right, scope three is indirect emissions occurring in the sources which are owned and controlled by other companies.
• 33:42
  SPEAKER_01: So basically emissions in your value chain, upstream and downstream.
• 33:47
  SPEAKER_01: So um, and we have scope three standard uh outlines 15 categories of these of those emissions.
• 33:53
  SPEAKER_01: As an example, category one is uh, you know, emissions generated during the production of uh uh goods and services that you purchase.
• 34:01
  SPEAKER_01: Category 11 is emissions generated generated by products that you sold to your customers when they use those products, right?
• 34:09
  SPEAKER_01: Then you have emissions associated with transportation of goods and services to your uh doors, um, uh the business travel, waste of the products that that you um sell.
• 34:20
  SPEAKER_01: So there's 15 categories, and then why it's important, because they are designed to capture the first of all, the emission sources that are you know allow that allows you to identify emission sources that are more most impactful to you and they grouped within logical kind of a groupings.
• 34:38
  SPEAKER_01: And second, it also impacts how you're going to be measured, how you're gonna be collecting the data, how you're gonna measure those emissions.
• 34:44
  SPEAKER_01: So these 15 categories are very important.
• 34:46
  SPEAKER_01: Again, I'm not gonna go through all of them.
• 34:48
  SPEAKER_01: SRG7 has them has them listed.
• 34:50
  SPEAKER_01: And it which is what is important, the regulatory framework like ESRSS and IFRS S2, they all defer to scope 3 standard for identification and definition of these 15 categories.
• 35:01
  SPEAKER_01: So all these standards require reporting scope 3 emissions um um grouped within these 15 categories.
• 35:09
  SPEAKER_01: Um, but again, why it's important, depending on a category, your measure measurement methodology will be different.
• 35:14
  SPEAKER_01: Your data, activity data that you need to gather is going to be different.
• 35:18
  SPEAKER_01: And challenges with gathering this data is going to be different.
• 35:21
  SPEAKER_01: Like for me, again, scope three measurement, what's unique and challenging by definitions, you using the data that oftentimes you do not control, right?
• 35:31
  SPEAKER_01: Like scope one, you control the data that is needed to um to um calculate emissions.
• 35:38
  SPEAKER_01: Scope two, to some extent, because you do have those um um utility invoices.
• 35:42
  SPEAKER_01: Scope three, it's not always the case, right?
• 35:45
  SPEAKER_01: So underlying primary data is usually you know uh controlled by the value chain partners, but there are some different uh measurement methodologies that allow you to find workable solutions, put it that way.
• 35:57
  SPEAKER_01: Because we oftentimes hear a criticism of scope three, which I'm not saying it's not valid, that it's very difficult to gather all the inputs and data to calculate from your value chain partners, which is true, it's a factual.
• 36:11
  SPEAKER_01: But scope three standard provides and a calculation guidance, they provide different kinds of methodologies to measure whereby you might not necessarily have to gather all this information directly from your from your value chain partners.
• 36:24
  SPEAKER_01: You can up, you know, use the data that you might be, you know, within your control as well.
• 36:29
  SPEAKER_01: Again, so it might be less precise, but there are various methodologies that you can use.
• 36:34
  SPEAKER_04: Yeah, and I think this is where when you the the basic equation is the same for calculations, so the activity data, emission factors, and the global warming potentials, but the actual formulas that are used for scope three, I mean, we have whole different lists of them in in our guide.
• 36:51
  SPEAKER_04: Now, Marchin, you mentioned these categories, and I think one of the things that's difficult for people who are relatively new to this is people often just use the category names instead of saying what they relate to.
• 37:02
  SPEAKER_04: So I highly recommend that people uh learn those.
• 37:06
  SPEAKER_04: But you also mentioned the fact that you're using different measurement techniques depending on the category.
• 37:12
  SPEAKER_04: But no matter what technique you're using or which category, I think one of the other things people struggle with is, you know, when we talk about the value chain, you have your first ring, you have your second ring, and it kind of goes on and on and on.
• 37:24
  SPEAKER_04: And then when you think about emissions, there's so many different potential sources of emissions that it's just it's like mind-boggling in some ways what you might need to measure.
• 37:34
  SPEAKER_04: And so, in order to address that, the scope three standard includes this idea of minimum boundaries, which basically lets you all say put a fence around all of this expanding web of value chain emissions.
• 37:49
  SPEAKER_04: So I know there's a lot of issues with minimum boundaries.
• 37:52
  SPEAKER_04: We're gonna go into those in more detail in next week's episode.
• 37:55
  SPEAKER_04: So it's a I guess preview, but can you at least explain the concept of minimum boundaries?
• 38:00
  SPEAKER_04: Um, so you know, again, to kind of complete this conversation today.
• 38:04
  SPEAKER_01: We're a really good team because I was supposed to start with this and you simply forgot.
• 38:09
  SPEAKER_04: That's okay, I don't mind.
• 38:10
  SPEAKER_01: Good catch.
• 38:11
  SPEAKER_01: So, as you mentioned, that's you know, the um scope 3 standard outlines specifically 15 categories.
• 38:17
  SPEAKER_01: And as part of a definition of each category, it specifically prescribed what type of activity should be included and how far you should go within your value chain.
• 38:27
  SPEAKER_01: As an example, for category one, which is emissions generated during the uh production of uh of um goods and services that you're purchasing and using within your organizational boundary, are what is called cradle-to-gate emissions.
• 38:42
  SPEAKER_01: So all the emissions generated from the uh extraction of minerals that are needed to produce the goods or service all the way through the production of the goods and services and transportation to your gate.
• 38:57
  SPEAKER_01: So you're capturing value chain emissions, that's why it's called from cradle to gate, right?
• 39:03
  SPEAKER_01: So everything upstream of your company, right?
• 39:06
  SPEAKER_01: And the same applies to the all the capital goods that you reflect in category two.
• 39:13
  SPEAKER_01: But then you have other categories which this boundary is much smaller.
• 39:17
  SPEAKER_01: For example, transportation, right?
• 39:19
  SPEAKER_01: Category four, if I'm not mistaken.
• 39:21
  SPEAKER_01: This is emissions associated with upstream transportation.
• 39:24
  SPEAKER_01: So you like when you're using transportation service that provides goods and services all the way to your to your door, um, the um you have to capture, calculate the emissions generated during the the provision of the service.
• 39:40
  SPEAKER_01: So when you have a, you know, if you use a uh, let's say a truck that combusts gasoline, you're gonna report the emissions generated during combustion of this gasoline when they when they when this truck is providing the transporting goods to your to your to your gate, right?
• 39:57
  SPEAKER_01: So you don't go all the way to the production of uh of this fuel within this category.
• 40:02
  SPEAKER_01: You only focus on those kind of a scope one and two emissions associated with with the transportation service.
• 40:08
  SPEAKER_04: Yeah, but even that margin is interesting and I think a good lead into our next topic.
• 40:13
  SPEAKER_04: Well, so first of all, just a reminder, as I said, there's a a lot more to minimum boundaries.
• 40:18
  SPEAKER_04: We'll talk about that next week.
• 40:19
  SPEAKER_04: But I love your example of the truck because let's say that truck is carrying materials for you and materials for someone else.
• 40:27
  SPEAKER_04: Well, then, you know, not all of the emissions from that truck should accrue to you.
• 40:32
  SPEAKER_04: But I think this is where it can start to get very complicated very quickly with scope three emissions calculations.
• 40:39
  SPEAKER_04: So without giving a complete lesson in scope three, because I think the scope three standard and the scope three measurement guidance, probably in total 300 or so pages, maybe a little less.
• 40:49
  SPEAKER_04: Um, what are some of the highlights that you would give in terms of what people should be thinking about?
• 40:54
  SPEAKER_01: Well, so um, first of all, you have to understand all the activities within each category and which are relevant to you.
• 40:59
  SPEAKER_01: So in a scope three standard and uh also ESRSs and IFRSS to they provide guidance how to think about what's relevant to you, which emission sources you should be reporting.
• 41:10
  SPEAKER_01: But the key is to understand for each category what are those emission sources, which because that will drive what type of activity data you need to calculate those emissions, right?
• 41:20
  SPEAKER_01: Um and it also um determines again what is the minimum boundary.
• 41:26
  SPEAKER_01: So do you have to the car example is pretty good.
• 41:28
  SPEAKER_01: Let me expand on it a little bit more.
• 41:30
  SPEAKER_01: As I said, you just reporting scope one to emissions generated during the service itself.
• 41:37
  SPEAKER_01: Optionally, you could also generate report emissions or be required to report emissions uh generated during production of the car that is delivering services.
• 41:45
  SPEAKER_04: This is where minimum boundaries are.
• 41:46
  SPEAKER_04: That's important.
• 41:47
  SPEAKER_01: So that's important to understand to know what exactly you should capture.
• 41:51
  SPEAKER_01: You don't have to category four, you're actually not required to go and figure out what are the emissions associated with general production of the car.
• 41:58
  SPEAKER_01: You're just focusing on this, on this, um, on the service itself.
• 42:02
  SPEAKER_01: So that's a starting point.
• 42:04
  SPEAKER_01: Then obviously, the key would be data.
• 42:07
  SPEAKER_01: What data you should be gathering for each category in order to measure um uh emissions.
• 42:14
  SPEAKER_01: And this is what leads you to different measurement techniques and methodologies.
• 42:18
  SPEAKER_01: So, scope three standard and calculation guidance, they provide various methodologies and they differ depending on a category of how to calculate emissions.
• 42:28
  SPEAKER_01: We in our uh SRG7, we focus on three that are most kind of a common use, but I just want to make sure it doesn't the three and only, right?
• 42:36
  SPEAKER_01: I mean, each category you have to study really carefully because you might have a different reiteration of the methodology, you know, different twists to how you apply that, or different methodology itself.
• 42:46
  SPEAKER_01: But when you look at the three most prevalent that we outlined first is supplier-specific method.
• 42:51
  SPEAKER_01: So this is the method when you actually obtain the emission information from your value chain partners directly, right?
• 42:56
  SPEAKER_01: So that's the most challenging probably, because if you imagine a large organization and you have, let's say, 2,000 suppliers, for example, or addition an additional 2,000 of other value chain, let's say downstream value chain partners, gathering all the emission factors from those suppliers might be challenging, right?
• 43:16
  SPEAKER_01: At least currently.
• 43:17
  SPEAKER_01: There's market, you know, the development of a market, and let's call it emission factor market, is not kind of uh it's not as well developed.
• 43:26
  SPEAKER_01: Not everybody produces it.
• 43:28
  SPEAKER_01: So, but we have a lot of clients who, at least for the largest suppliers, let's say, or largest value chain partners, they actually have a process to uh to obtain those specific factors specific.
• 43:41
  SPEAKER_01: And they basically represent the actual emissions generated in association with goods or service you purchase from those suppliers, right?
• 43:48
  SPEAKER_01: Then you have the average data method, which is quite popular uh because you use uh you use the activity data, which specifically represents um.
• 44:00
  SPEAKER_01: Emission generated activity.
• 44:01
  SPEAKER_01: So let's let's say number of goods that you purchased from your suppliers, right?
• 44:06
  SPEAKER_01: So that's gonna be your specific activity data that you need to use.
• 44:10
  SPEAKER_01: But then instead of getting emission factors direct directly from your from your suppliers, you're gonna use some market averages.
• 44:17
  SPEAKER_01: And there's a lot of uh providers of those emission factors.
• 44:21
  SPEAKER_01: Again, let's say you're buying cars or you're buying steel, right?
• 44:25
  SPEAKER_01: There are databases that you can use and find the emission factors, average emission factors to produce steel and deliver it to the gate of a purchaser in certain markets, right?
• 44:37
  SPEAKER_01: So again, those are not emission factors specific to the piece of steel that you're buying, but it represents more market averages.
• 44:45
  SPEAKER_01: Again, it's not as precise as supplier uh specific, but it at least usually reflects the actual activity associated, number of goods that you're purchasing and so on and so forth.
• 44:57
  SPEAKER_04: Yeah, and I think, Martin, that's where if you're buying steel, maybe this could work a little bit better than if you're buying some more custom or unique type of product.
• 45:07
  SPEAKER_04: That's where it can get much more complicated.
• 45:09
  SPEAKER_04: But again, I think one of the things that's important here for companies is that the more precise you can be, particularly if you have goals related to uh emissions reductions, then the easier it is going to be to measure those.
• 45:22
  SPEAKER_04: But I know there's still a few more methods that we have to do.
• 45:24
  SPEAKER_01: Well, I want to just the hybrid is a combination of two, and we we see it quite often too when companies use part of their uh emissions are calculated using supplier specific, and the other part is average method, right?
• 45:37
  SPEAKER_01: But then, and the last I want to highlight is a spend-based method, where it's sort of probably least precise when you calculate emissions based on a dollar spend that that then that you have.
• 45:48
  SPEAKER_01: So you do not have information about quantity of goods and services that you purchased or any other quantity of activity that you have.
• 45:55
  SPEAKER_01: Instead, you use dollar values that you spend.
• 45:58
  SPEAKER_01: Again, least precise, but oftentimes a lot of our clients, they do not, their system is not designed to capture volumetric data, especially when you talk about multiple emission sources within your value chain.
• 46:09
  SPEAKER_01: For some of them, you may, for others, you don't.
• 46:12
  SPEAKER_01: So there is a the spend-based method that allows to use a common denominator, which is currency spent on purchase of goods, which all our clients have that data because it resides in their general ledgers.
• 46:24
  SPEAKER_01: They use it for financial reporting.
• 46:26
  SPEAKER_01: And there's uh emission factors that basically calculate average sector or market emission factors based on the spend.
• 46:33
  SPEAKER_01: There's multiple organizations who calculate that, use annual studies or periodic studies to update that.
• 46:39
  SPEAKER_01: Those emission factors are calculated based on industries within the geographical um regions, countries, you name it.
• 46:47
  SPEAKER_01: And again, least precise, but at least in this case, you you cannot argue you don't have a data, right?
• 46:53
  SPEAKER_01: Because everybody has this data, right?
• 46:55
  SPEAKER_01: And and there's a lot of criticism, yeah, but that's not very precise.
• 46:59
  SPEAKER_04: Well, well, and I think this goes back to the point I was actually just making about precision.
• 47:04
  SPEAKER_04: And I I smiled when you talk about volumetric data, because I was actually presenting uh to a client with one of our advisory partners maybe like a month ago, and he told this anecdote that I just thought was great, which was talking about a company that was putting in a new ERP.
• 47:20
  SPEAKER_04: So it's nothing to do with sustainability reporting, but at the same time, there they were preparing for ESRS and they didn't have, in this case, was actually their they didn't have a good way of tracking their electricity data.
• 47:33
  SPEAKER_04: So it goes back to scope two, but nonetheless good here.
• 47:36
  SPEAKER_04: He they figured out somehow between these two products that they could add one field to the ERP, have that data input at the same time, and then they would capture all the volumetric data that they needed through a systematic approach.
• 47:50
  SPEAKER_04: And that's again, it's just interesting.
• 47:52
  SPEAKER_04: You know, one field could could sort of transform reporting in that area.
• 47:56
  SPEAKER_04: So I just think it's interesting that there is, you know, you can move from this um this dollar data, spend data to activity data in some cases.
• 48:07
  SPEAKER_01: So which is that not only that that applies also to scope one and scope two.
• 48:12
  SPEAKER_01: We have a lot of clients that might be gathering the um invoice, uh invoices for electric purchase electricity, but do not capture the actual electricity consumption.
• 48:20
  SPEAKER_01: Right.
• 48:21
  SPEAKER_04: That's what they were adding to this in this case.
• 48:23
  SPEAKER_01: You see, usually with intense uh emissions-intense industries, a lot of times the clients are tracking very carefully the quantity of fuel being combusted or you know, megawatts of uh electricity being utilized because you know it oftentimes they use it to calculate the performance indicators, and that's how they track the efficiency of their business.
• 48:44
  SPEAKER_01: But when you have this uh entities operating with less intense, where maybe that's not your primarily operational uh you know, operational efficiency indicator, you might not be tracking this data in your system.
• 48:55
  SPEAKER_01: And I see it all the time that clients you know complain about the grueling nature of having to sit down at the end of the year and call the utility providers, go to websites, try to find all this data.
• 49:06
  SPEAKER_01: Again, it exists, but like you have to start collecting it.
• 49:10
  SPEAKER_01: And as you said, we see more and more clients, even within the scope uh one and two uh worlds, put it that way, um, they start to kind of think about this.
• 49:19
  SPEAKER_01: Well, it's only one field.
• 49:21
  SPEAKER_01: This data is I have this data, I just didn't capture it in a system that would allow me later more effectively and efficiently to use it in emissions calculator.
• 49:30
  SPEAKER_01: So that applies to all emission sources, and we see that slowly as a trend because everybody realized it's easier to do it up front because you can benefit from this on an ongoing basis as opposed to having this bolt-on process at the end of the year trying to manually capture this data, right?
• 49:45
  SPEAKER_01: So and there's other benefits from having this data too.
• 49:48
  SPEAKER_01: As we said, like, you know, even our firm can benefit from analyzing our energy efficiency because that translates into dollars, right?
• 49:56
  SPEAKER_04: Yes, well, this room we're in is freezing.
• 49:58
  SPEAKER_04: So maybe they could we could save some electricity by having less air conditioning.
• 50:03
  SPEAKER_04: So, Martian, and we have literally only skimmed the surface of measurement and clearly, particularly with scope three, there's a lot more we could talk about.
• 50:13
  SPEAKER_04: However, we have been talking for 50 minutes.
• 50:15
  SPEAKER_04: So I think our audience has probably had close to enough.
• 50:19
  SPEAKER_04: And obviously, we have other episodes and we can continue along on this as well.
• 50:24
  SPEAKER_04: But I do want to kind of pull things together and bring it to a close by maybe even we were just talking about some recommendations, but you know, I know one of the things we talk about is data quality.
• 50:35
  SPEAKER_04: If you want to give some recommendations there, or just more broadly, I know you have a lot of experience working with clients in measurement.
• 50:42
  SPEAKER_04: What are some of the final words of wisdom?
• 50:45
  SPEAKER_01: Um, I'm always advising my clients, first of all, document your policies as it relates to uh measurement methodologies to start with, right?
• 50:54
  SPEAKER_01: So you want to make sure that it's very clearly and clear and prescriptive so everybody across your organization knows what these methodologies are because that drives the how you collect the data.
• 51:04
  SPEAKER_01: And if you're subject to regulatory requirements, almost every framework requires you to disclose your measurement methodology.
• 51:11
  SPEAKER_01: So you're already kind of taking care of that upfront.
• 51:13
  SPEAKER_01: Second, document your process, right?
• 51:16
  SPEAKER_01: Especially as we expand and report more and more, like we companies started with scope one and two.
• 51:21
  SPEAKER_01: Now everybody has to, if they're subject to this uh reporting uh regulate regulatory reporting requirements, they have to start reporting scope three.
• 51:30
  SPEAKER_01: Document your process as to where the data comes from, uh, make conscious decisions.
• 51:35
  SPEAKER_01: It you don't have to have it like fully perfect and get supplier-specific data for everything, right?
• 51:41
  SPEAKER_01: Use the methodologies available to you, focus on you know, maybe larger sources, but the starting point is decide where you, you know, what data you're gonna be using and document your process because that's gonna go a long way, right?
• 51:55
  SPEAKER_01: Um, and again, don't believe the hype that everything has to be 100% perfect based on the data from your supplier, measured like almost with a you know um uh scope.
• 52:08
  SPEAKER_01: And that's not the world of emissions, right?
• 52:10
  SPEAKER_01: Everybody, including regulators, understands that we are in a process of development.
• 52:15
  SPEAKER_01: Um, we are growing.
• 52:16
  SPEAKER_01: And a lot of good clients that I have that have a good process, they see it as a continuum, right?
• 52:22
  SPEAKER_01: They see it's like we trying to improve every every year, quality of our data, accuracy of our calculation methodologies.
• 52:31
  SPEAKER_01: You can get everything at the same time.
• 52:32
  SPEAKER_01: You can make it kind of a you know multi-year process and have this approach of continuum of improving quality of the data.
• 52:40
  SPEAKER_01: And over time, especially as we see these regulatory requirements, more and more your value chain partners are going to be producing this data.
• 52:48
  SPEAKER_01: So it is going to be much bigger availability of the data on the market.
• 52:51
  SPEAKER_01: So um, again, to me, it's a playing that's smart up front, don't shooting for the what's the what's the word for the moon?
• 52:57
  SPEAKER_01: Yes, not shooting for for the moon.
• 53:00
  SPEAKER_01: Um, think about this as a multi-year journey and a process.
• 53:03
  SPEAKER_01: Um but whatever you do, make sure it's properly documented.
• 53:07
  SPEAKER_01: That's auditor speaking in me.
• 53:08
  SPEAKER_04: So yes, although it's interesting to hear you say that, you know, it doesn't have to be completely precise, but I think even when you're talking about that, you still have to have a good method, you still have to have an approach you're using.
• 53:20
  SPEAKER_04: It's just that your approach may not be going all the way back to the source data.
• 53:25
  SPEAKER_01: Exactly, because again, all the measurement approaches have embedded certain levels of precision in them.
• 53:30
  SPEAKER_01: Some are more precise, the others are less precise.
• 53:33
  SPEAKER_01: And that's what I'm talking about.
• 53:34
  SPEAKER_01: If you select certain measurement methodology, you have to be collecting this data precisely and accurately, right?
• 53:40
  SPEAKER_01: What I was referring to is the measurement methodologies because they all they are on the spectrum, right?
• 53:44
  SPEAKER_04: Yes.
• 53:45
  SPEAKER_04: Well, and I think that maybe the thing I would pair with it is disclosure because it's very important for then the users of your information to understand what sources you're using, what techniques you're using, and otherwise.
• 53:55
  SPEAKER_01: Where do your data is coming from?
• 53:56
  SPEAKER_01: Is it primary?
• 53:57
  SPEAKER_01: Is it secondary?
• 53:58
  SPEAKER_01: So it's it's all very important having really clear and and very transparent disclosure.
• 54:03
  SPEAKER_01: I think in in our world it's uh it's majority of your success, right?
• 54:07
  SPEAKER_01: Yes.
• 54:08
  SPEAKER_04: So, well, anyway, obviously, even for a wrap-up, we could keep going, but I'm going to stop us here.
• 54:12
  SPEAKER_04: But Martin, as always, such a pleasure to talk to you.
• 54:15
  SPEAKER_04: Thanks so much for joining me today.
• 54:16
  SPEAKER_04: Perfect.
• 54:16
  SPEAKER_01: Thank you, Heather.
• 54:17
  SPEAKER_04: And to our listeners, thank you as well for joining us today.
• 54:20
  SPEAKER_04: We appreciate you being on and enjoying this conversation, hopefully.
• 54:25
  SPEAKER_04: Uh, I did give a preview earlier, but next week we will be talking again about emissions, digging into some of the really more difficult issues that we dealt with in this first year of reporting for ESRS and some of the things that came up.
• 54:41
  SPEAKER_04: Um, so hopefully that will be helpful to you no matter where you are on your reporting journey.
• 54:45
  SPEAKER_04: And then in addition, this entire series, we've covered all different types of topics, including an overview of all the different standards.
• 54:53
  SPEAKER_04: We have an episode talking about the omnibus regulation and what may be coming from that and others.
• 54:58
  SPEAKER_04: So highly encourage you as well to check those out.
• 55:01
  SPEAKER_04: And if you want to make sure you get all of our information, you can subscribe to our newsletter at viewpoint.pwc.com.
• 55:09
  SPEAKER_04: And so I hope you uh follow us and subscribe.
• 55:12
  SPEAKER_04: So thanks again for joining us today.
• 55:14
  SPEAKER_03: That's our show for today.
• 55:17
  SPEAKER_03: Tune in next week for more fresh episodes.
• 55:20
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• 55:22
  SPEAKER_03: Follow the PWC Accounting Podcast wherever you listen to your podcasts.
• 55:27
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• 55:37
  SPEAKER_03: From Thought Leadership at PwC, I'm Heather Horn.
• 55:41
  SPEAKER_03: Thanks for tuning in.
• 55:48
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