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Sustainability now: GHG reporting trends and challenges · PwC's accounting podcast

• 0:00
  SPEAKER_00: Thought leadership from PWC's national office.
• 0:09
  SPEAKER_04: Hello, I'm Heather Horn, PWC's U.S.
• 0:12
  SPEAKER_04: Sustainability Technical Leader, and welcome back to PWC's Accounting Podcast.
• 0:17
  SPEAKER_04: This is Sustainability Now.
• 0:19
  SPEAKER_04: Today we're going to continue our discussion on greenhouse gas reporting, focusing on recent recurring themes we're seeing across the reporting landscape.
• 0:28
  SPEAKER_04: For this discussion, I'm happy to welcome back to the podcast Margin Lalewinsky, a PWC US partner, who's the chair of our global GHG Working Group, and Colin Powell, a PWC Canada partner, who's a member of the GHG Protocol Scope 3 Technical Working Group.
• 0:43
  SPEAKER_04: Both are working with clients daily on GHG reporting, are here to share the latest practical insights.
• 0:50
  SPEAKER_04: Before we get started, though, just one quick note if you'd like to watch the video version of this conversation, you'll find a link in the show notes.
• 0:56
  SPEAKER_04: Plus, you'll also find other GHG related episodes there as well, including my discussion with Colin on the latest happenings from his technical working group.
• 1:06
  SPEAKER_04: All right, with that, gentlemen, welcome.
• 1:08
  SPEAKER_03: Welcome.
• 1:09
  SPEAKER_04: Can't wait to hear these practical uh considerations you're going to give us.
• 1:14
  SPEAKER_04: I have a lot of questions here for you.
• 1:16
  SPEAKER_04: So let's jump in.
• 1:18
  SPEAKER_04: I'm going to throw a few in here too as well that you're not anticipating.
• 1:21
  SPEAKER_04: So let's just start very general, though, and I'll see where you want to go with this.
• 1:25
  SPEAKER_04: So as we think back probably to February around omnibus, and then during the period of time the first the Wave One ESRS reporters started reporting, I think we started to see a lot of shifts in the sustainability reporting landscape and a lot of GHG reporting questions.
• 1:42
  SPEAKER_04: So just from your own perspective, again, starting from the beginning of this year to now, what are you seeing that is continuing?
• 1:50
  SPEAKER_04: What are you seeing that's new?
• 1:52
  SPEAKER_04: And Colin, I'll go to you first.
• 1:54
  SPEAKER_02: Sure.
• 1:54
  SPEAKER_02: I think the omnibus is a good like milestone for a lot of our clients, but clients globally, um, where there has been almost a bit of a break given.
• 2:04
  SPEAKER_02: Um, and so where companies were trying to move really quickly where they had gaps or where they basically had nothing to report against uh ESRS, I think because they now have the time, there's a lot more consideration going into the accounting, right?
• 2:18
  SPEAKER_02: Um, how do we make sure that we're getting the right data?
• 2:20
  SPEAKER_02: How do we make sure the right processes and people are in place to calculate?
• 2:24
  SPEAKER_02: But then also a longer-term view now so that they can see, okay, well, in in two years when they are now going to be in wave two and like new wave two, um, can they actually track decarbonization in their in their inventories?
• 2:36
  SPEAKER_02: And so I think it's just given a bit of a break.
• 2:38
  SPEAKER_02: Um, there's a bit more of time to build capacity and then move towards eventual decarbonization where maybe if they were subject to CS triple D, like they could actually build a reasonable CTP.
• 2:50
  SPEAKER_04: Yeah, although interesting, because the break for many of those companies, they actually probably need to report in California, which we'll get to later.
• 2:56
  SPEAKER_04: So it's not that much of a break.
• 2:58
  SPEAKER_04: But Martin, how about from your perspective?
• 3:00
  SPEAKER_01: Well, so like I'm operating per malin in the United States, so California is the topic of a day.
• 3:05
  SPEAKER_01: However, as Colin mentioned, right now we can see that a lot of these frameworks sort of starting to come together and people spending more time thinking about interoperability.
• 3:14
  SPEAKER_01: Uh, because when you look at a global company's United States, obviously uh California is gonna be the first on their on their list, but they start seeing you know their Australian uh subsidiaries have to start reporting.
• 3:26
  SPEAKER_01: So ISSB, IFRS is coming into light.
• 3:30
  SPEAKER_01: A lot of questions about that.
• 3:31
  SPEAKER_01: Um they also have in the back of their mind ESRSs.
• 3:34
  SPEAKER_01: So a lot of people now in practice starting to think, okay, on a global level, what do I have to do to make sure that I cover all the bases and how do I do this in a more efficient way?
• 3:45
  SPEAKER_01: So again, our magic word we've been repeating for almost two years, interoperability.
• 3:50
  SPEAKER_01: But again, I'm starting to see it kind of uh those questions being raised in practice.
• 3:55
  SPEAKER_01: Um, another good example, like California, there is an exception that companies can report either just for subsidiaries in California or use the exception and report on a global basis.
• 4:06
  SPEAKER_01: And companies are asking those questions in real life.
• 4:09
  SPEAKER_01: Okay, what where should I go?
• 4:11
  SPEAKER_01: Well, I have Australia out there.
• 4:12
  SPEAKER_01: I might have something in other territories.
• 4:14
  SPEAKER_01: Maybe you should go straight to the global reporting level and cover my basis in different territories with the same inventory, which that raises, like we always always raise the point.
• 4:24
  SPEAKER_01: Well, make sure that you under, let's make sure you understand the differences in those frameworks and whichever decision you make, that it gives you the biggest coverage.
• 4:31
  SPEAKER_04: Well, just one tiny point of clarification because I don't want anyone to be confused, is it's not subsidiaries, subsidiaries in California, yeah, but it's US subsidiaries that are doing business in California.
• 4:44
  SPEAKER_04: So, or US businesses doing business in California.
• 4:47
  SPEAKER_04: And you can see another episode for that, but I just don't want the phone calls that I'm gonna get.
• 4:51
  unknown: What?
• 4:53
  SPEAKER_01: Very good clarification, and I fully agree.
• 4:55
  SPEAKER_01: Right.
• 4:55
  SPEAKER_01: The subsidiary is subject to reporting in California versus the global device.
• 4:59
  SPEAKER_04: A very good clarification.
• 5:01
  SPEAKER_04: So for all of this, and I think interoperability, I jotted it down, probably a whole other episode.
• 5:06
  SPEAKER_04: I'll have to go call in back and both you guys back here in the studio with me.
• 5:10
  SPEAKER_04: But just as we start thinking about reporting under any of these frameworks, materiality is probably one of the biggest questions that we have, and lots of different elements of materiality as well.
• 5:21
  SPEAKER_04: We can talk about minimum boundaries a little too.
• 5:23
  SPEAKER_04: But maybe, Martin, I'll start with you on this one.
• 5:25
  SPEAKER_04: So, from your perspective, how are companies approaching this materiality assessment?
• 5:30
  SPEAKER_04: And what are some of the questions that they're uh focused on?
• 5:34
  SPEAKER_01: So we start seeing more and more um kind of a practical question, how to apply the concept of materiality.
• 5:40
  SPEAKER_01: Again, because of my um involvement in US, I see most of these questions coming from direction of um California reporting and GEGG protocol materiality concepts.
• 5:51
  SPEAKER_01: Um we're getting those questions from two directions.
• 5:54
  SPEAKER_01: First, what materiality concept do I use to determine completeness of my inventory?
• 5:58
  SPEAKER_01: And second, how I apply the materiality to assess any potential misstatements, revisions, restatements, and things like that.
• 6:05
  SPEAKER_01: Um, and people are looking for some like specific percentage thresholds, right?
• 6:11
  SPEAKER_01: Like can I exclude everything below a certain threshold?
• 6:14
  SPEAKER_01: How do I think?
• 6:15
  SPEAKER_01: So about materiality taken as a whole.
• 6:18
  SPEAKER_01: So a lot of our education to our clients is kind of explaining that the concept of materiality is a little bit broader.
• 6:26
  SPEAKER_01: It's not only quantitative but also qualitative.
• 6:28
  SPEAKER_01: And you have to think about the nature of inventory, the industry you're in, and uh what factors you know the users of this information are considering.
• 6:37
  SPEAKER_01: So we're trying to provide educational materials and sessions to the clients to think about materiality a little bit more um, you know, broadly than just, okay, can I exclude everything that is under 10%?
• 6:49
  SPEAKER_01: Right.
• 6:49
  SPEAKER_01: Uh so there's a lot of questions from that, which is actually good because it means clients are really thinking now very hard about completeness of the inventories.
• 6:59
  SPEAKER_01: Right?
• 6:59
  SPEAKER_01: That's the primary topic.
• 7:01
  SPEAKER_01: What should I be start start gathering if I haven't?
• 7:04
  SPEAKER_01: Um, how do I get this data?
• 7:06
  SPEAKER_01: Do I have any way to exclude certain things?
• 7:09
  SPEAKER_01: So, I mean, those are the questions we're getting currently.
• 7:11
  SPEAKER_02: Yeah, and sometimes the lens of decarbonization is on there too.
• 7:15
  SPEAKER_02: And we talk a lot about that with our clients of like what's important because the materiality is one thing from that concept of like what should we do in terms of completeness, but they're kind of like, where do we focus our efforts after that?
• 7:25
  SPEAKER_02: Um, getting better data quality, working through like what can actually be decarbonized in my inventory.
• 7:32
  SPEAKER_02: Um, so a lot of that is the discussion as we build like towards better.
• 7:35
  SPEAKER_01: And I think, Colin, you're covering a very interesting topic because that's another type of questions we receive, right?
• 7:40
  SPEAKER_01: When you once you build your build your inventory, where do you focus your efforts?
• 7:44
  SPEAKER_01: Because not everything is created equal, right?
• 7:46
  SPEAKER_01: You might have um really large emission sources that could be decarbonized very effectively, which generally we say this is when you should be focusing your effort, but you still have to find the data and and create the inventory even for those less material sources that taken together that could add up to something which is important to the user.
• 8:06
  SPEAKER_01: So we're also providing training how to apply the concept of materiality from estimation and measurement standpoint of view, how you should be focusing, maybe having more accurate data for really big sources and using some higher estimation methodologies for those less important or less material sources.
• 8:21
  SPEAKER_01: So, I mean, again, the whole concept of materiality is just broader than what I include versus exclude or what is an error, what is not an error in there.
• 8:28
  SPEAKER_02: It's a bit interesting.
• 8:29
  SPEAKER_02: I mean, the conversation we've had before around the technical working group, the movement on how to present your inventory, whether it's disaggregated or with different data quality, like that will become much more clear if you are a lot more of your uh emissions are done with like actual specific data rather as opposed to spend-based data.
• 8:47
  SPEAKER_02: Like it will be clear to the reader, to the investor that that is the case.
• 8:51
  SPEAKER_02: And there's also maybe a move to increase data quality over time.
• 8:55
  SPEAKER_02: And so there's a debate now whether that should be a shall in the GHC protocol of like there must be a progression of more of your inventory in the specific bucket rather than like the spend-based bucket, for example.
• 9:07
  SPEAKER_04: But that's where it's also interesting because in IFRSS2, they have for scope three their own sort of hierarchy of data.
• 9:14
  SPEAKER_04: And one thing I find very interesting there, and not to get too sidetracked on this on data, but they talk a lot about using direct data.
• 9:22
  SPEAKER_04: And I think inherently with scope three, you don't think about direct data.
• 9:27
  SPEAKER_04: And so, I mean, does that come up in the conversation or or for either of you, I guess?
• 9:32
  SPEAKER_02: It's come up a few times, mostly around nomenclature and the use of direct data.
• 9:36
  SPEAKER_02: What does that mean?
• 9:36
  SPEAKER_02: Yeah, what does that mean?
• 9:37
  SPEAKER_02: And then you know, you go into a rabbit hole of definitions and which is very, very important for a standard, obviously.
• 9:44
  SPEAKER_02: Uh, but I think the alignment will eventually be cool.
• 9:46
  SPEAKER_02: And it goes back to the interoperability piece.
• 9:48
  SPEAKER_02: Like, do the definitions align at the end of the day.
• 9:50
  SPEAKER_01: Yes.
• 9:50
  SPEAKER_01: Yeah, and what I see, it's um, and I think we talked about et cetera before, uh, a little bit of misconception that a lot of people who do not like or have challenges with implementing scope three reporting, they presume that all these data sources are click created equal.
• 10:06
  SPEAKER_01: Yeah, and unless you have data directed from your value chain partners, then you cannot report, which, as Colin mentioned, there are different methodologies to measure um uh scope three.
• 10:17
  SPEAKER_01: Overall, goal should be to get more as as much direct and primary data as possible, but there are other ways companies and combine their um inventories, and definitely there is a room for this to be a journey over time, right?
• 10:32
  SPEAKER_01: So can continue to increase the quality of the data, directness or primary nature of the data versus using the secondary sources.
• 10:39
  SPEAKER_01: But I just want to make sure everybody understands you you always have a data to to to calculate emissions.
• 10:46
  SPEAKER_01: It's just a matter of what is the nature of the data, how precise it is.
• 10:48
  SPEAKER_01: But uh the GEG protocol allows for different methodologies, which gives people room to select and assess what data they have and how they want to measure that.
• 10:57
  SPEAKER_04: Yeah, I mean, uh Colin, there's an interesting comment you made on the decarbonization, because then I also start to think about this materiality and how it intersects with targets.
• 11:07
  SPEAKER_04: Because if a company, at least in some cases, you see, well, companies said we're gonna be net zero.
• 11:14
  SPEAKER_04: And they haven't, that was done maybe a few years ago, maybe it wasn't done too scientifically.
• 11:20
  SPEAKER_04: And so now when they say, okay, we're net zero, but then you're starting to identify all the different sources.
• 11:27
  SPEAKER_04: Well, in that context, it seems difficult to say, well, I'm gonna leave out these emissions.
• 11:32
  SPEAKER_04: They're not material because you've just said that you're gonna be net zero.
• 11:35
  SPEAKER_04: So I don't know, how do you think about that type of a scenario?
• 11:38
  SPEAKER_02: It's nuanced.
• 11:39
  SPEAKER_02: I mean, and then you have things like the SPTI boundary where you don't have to include a lot of scope three emissions if it if it doesn't meet the criteria.
• 11:45
  SPEAKER_02: So, I mean, it's a nuanced conversation.
• 11:47
  SPEAKER_02: I think the the net zero conversation has shifted in the last couple of years.
• 11:51
  SPEAKER_02: So hopefully you'll see a bit more of a practical approach.
• 11:54
  SPEAKER_02: And I think you will, and I we've seen this already on targets, and that changes the boundary that is considered, but also the contextual like piece around disclosure of like what it doesn't mean to be net zero for that particular company.
• 12:06
  SPEAKER_02: I think will be the part of the conversation.
• 12:08
  SPEAKER_02: Yeah.
• 12:09
  SPEAKER_04: Yeah.
• 12:09
  SPEAKER_04: Are you guys seeing then a higher level of knowledge with the clients that you're interacting with in terms of this terminology, these issues, materiality, these topics, or it it still depends?
• 12:22
  SPEAKER_02: It varies, I think.
• 12:23
  SPEAKER_02: It depends on the sector, uh, for sure.
• 12:25
  SPEAKER_02: Uh in Canada, especially around the regulated industries where they've been reporting this for years and years, there's a lot more knowledge.
• 12:32
  SPEAKER_02: But those who are starting to get pressure from different parts of their value chain, I think there's just a willingness to to engage in this, but a willingness to learn and knowledge that they still have a lot to learn.
• 12:42
  SPEAKER_02: I think that's important.
• 12:43
  SPEAKER_04: Yeah.
• 12:44
  SPEAKER_01: Well, we see way more focus on acquiring specific knowledge, right?
• 12:48
  SPEAKER_01: So, as Colleen, as you mentioned, US too, we had certain industries that were reporting emissions for quite some time some time.
• 12:55
  SPEAKER_01: But this is not, it wasn't like GEGG protocol based.
• 12:58
  SPEAKER_04: No, it's that you're using like continuous emissions modeling.
• 13:01
  SPEAKER_04: Exactly.
• 13:01
  SPEAKER_01: So a lot of folks now starting to okay, converge.
• 13:04
  SPEAKER_01: And uh because we have those regulatory drivers that are based on the different methodologies and protocols, we see more and more kind of a drive to okay, let's make sure we understand what are really really the requirements, you know, what are the differences between different frameworks.
• 13:19
  SPEAKER_01: So um, and we see more different people getting involved in the emissions reporting process, right?
• 13:25
  SPEAKER_01: Because of the regulatory nature of that.
• 13:27
  SPEAKER_01: So I do see kind of a lot of more training, requests for training, educational sessions, and more people within organizations getting involved and asking questions and getting themselves educated.
• 13:39
  SPEAKER_01: So I think it's a good drive.
• 13:40
  SPEAKER_01: Um there's a lot to know, though.
• 13:43
  SPEAKER_04: I think that's the challenge.
• 13:45
  SPEAKER_01: We've been doing this for a while, and I'm still discovering something new in the protocol, and it's changing as well, and regulations are changing.
• 13:51
  SPEAKER_01: So my kind of always advice to people is like treating like any other accounting rule.
• 13:57
  SPEAKER_01: It's not static, it's constantly changing.
• 13:59
  SPEAKER_01: If the rule is not changing, practice in the market might be changing, interpretations might be changing.
• 14:04
  SPEAKER_01: So it's always evolving, and you have to just embed it in your daily practice.
• 14:08
  SPEAKER_01: You know, it's never gonna get stale, you just have to continue educating yourself.
• 14:11
  SPEAKER_01: That's why all accountants have CPE requirements, right?
• 14:14
  SPEAKER_01: I mean, and we laugh about this, but that's this type of reporting, you know, if we go, will go fully in regulatory directions over time, that's gonna be required, right?
• 14:24
  SPEAKER_01: People will have to continue educating themselves and stay um, you know, on top of uh standard uh setting changes.
• 14:31
  SPEAKER_01: Like look at the GEG product.
• 14:32
  SPEAKER_01: What it is they're gonna be revising or re-looking at this every five years, right?
• 14:36
  SPEAKER_04: It's like a full-time job.
• 14:39
  SPEAKER_01: So um, so but I think more and more people start realizing that, and organizations are driving a lot of their kind of members to continue to educate themselves.
• 14:48
  SPEAKER_01: So I think it's a good trend.
• 14:49
  SPEAKER_04: So even with this sort of backdrop of okay, increasing knowledge, education, or otherwise, I mean, obviously, we're still seeing, I'll say, pitfalls, issues in identifying sources, making sure your inventory is complete and otherwise.
• 15:05
  SPEAKER_04: So, what are the common issues that you're seeing that companies are still grappling with?
• 15:09
  SPEAKER_02: I think one of the key ones is resourcing, like the ability to have people who can do this, understand the data that's required, understand the processes that need to be put in place.
• 15:19
  SPEAKER_02: Um, just the understanding still, I think in some circles that this is a side part of their job.
• 15:25
  SPEAKER_02: The sustainability is like, oh, I have to report, and I, you know, this is such a slug and I have to put so much into this.
• 15:31
  SPEAKER_02: And as opposed to like the shift to more strategic thinking, where understanding your greenhouse gas inventory is like a risk mitigation procedure, um, cost avoidance, cost reduction, like the advantages of it are are yet to be, I think, totally taken advantage of.
• 15:45
  SPEAKER_02: Um, and so getting getting that resourcing in place, getting that budget in place internally is is hard to get.
• 15:51
  SPEAKER_02: But ultimately, it is you need to show that value.
• 15:53
  SPEAKER_02: Um, and and we know it's there.
• 15:55
  SPEAKER_02: I think it's just like getting it further throughout the organization.
• 15:58
  SPEAKER_04: Yeah.
• 15:58
  SPEAKER_04: And I think March, and when I've had you on before, you've talked about completeness and just that, you know, you have clients that you go back the next year and they say, Oh, we identified this other source of emissions.
• 16:10
  SPEAKER_04: I mean, are you still seeing some of that?
• 16:12
  SPEAKER_01: Or I mean, that to me, kind of what I'm seeing when you look at a GEG protocol and foundations of this, a lot of the GEG protocol definitions and uh concepts were derived from financial reporting, right?
• 16:23
  SPEAKER_01: So I'm always repeating to my clients before you start reporting emissions, make sure you have a full understanding of what you do and what decision you're making for financial reporting.
• 16:31
  SPEAKER_01: Because if it's not gonna repeat itself or like mimic itself like you know one-to-one, it's gonna drive some of the decisions and conclusions for your emissions reporting as well.
• 16:42
  SPEAKER_01: So I where I see certain level of challenges is making this connection, right?
• 16:47
  SPEAKER_01: I mean, what is included in my consolidated financial statements?
• 16:51
  SPEAKER_01: What type of arrangements do I have, right?
• 16:53
  SPEAKER_01: What type of data am I using?
• 16:55
  SPEAKER_01: Right?
• 16:55
  SPEAKER_01: That's another thing.
• 16:56
  SPEAKER_01: It's like to produce a financial statement, is the one set of data might be used and use the different data to produce your emissions, which might you might think, well, it's all coming from the same systems, but it may and it does result in different outcomes.
• 17:10
  SPEAKER_01: So when I'm talking to my clients, I'm always striving, make sure you understand what data is available, what decisions you made for financial statements, and how it impacts your emission reporting.
• 17:21
  SPEAKER_01: Because the one thing you want to do, you want to make sure that you're consistent in terms of theoretical boundaries or theoretical kind of concepts that you're not contradicting yourself in financial reporting and emissions reporting.
• 17:33
  SPEAKER_01: Sometimes there might be perfect reason for that, right?
• 17:36
  SPEAKER_01: But you need to make sure you understand to even make that informed decision.
• 17:39
  SPEAKER_04: Yeah, and I think, I mean, one of the themes we have, and on the letter we're writing right now to FREG uh on the amended ESRS is around the importance of connectivity with financial statements and making sure if there are differences, you're disclosing them.
• 17:52
  SPEAKER_04: I do think this is an area that can get very tricky very quickly because of the fact that for financial reporting, you know, estimation of emissions for paying your, you know, uh emission costs for these high emitting industries, estimation is well understood.
• 18:08
  SPEAKER_04: You use that.
• 18:09
  SPEAKER_04: If you look to the GHG protocol and these other frameworks, then if you get new information, you're supposed to be updating your inventories.
• 18:15
  SPEAKER_04: So I think just working through some of what does that mean?
• 18:19
  SPEAKER_04: And if you're updating your GHG report or your sustainability statement and not making changes to the financials and they're presented in the same place, I don't want to get us too sidetracked, but some of these are truly nuanced issues that I think companies are going to need to spend more time thinking about.
• 18:35
  SPEAKER_01: Well, and and a lot of this header is really like really on a practical level.
• 18:40
  SPEAKER_01: I'll give you one example.
• 18:41
  SPEAKER_01: For example, companies reporting scope two emissions and have a lot of real estate, leased real estate, least offices and things like this.
• 18:48
  SPEAKER_01: Um if you don't understand how your leasing arrangements are, you know, really work and structured, who is paying for utility bills, where the information is coming from, you can't really determine, you know, uh calculate the complete inventory of scope to emissions.
• 19:02
  SPEAKER_01: I have clients who, okay, we're gonna take everything which is in our AP system that we pay to utilities, and that's our scope to emissions.
• 19:11
  SPEAKER_01: Well, what if you have some leased properties when it's embedded in your lease payments, right?
• 19:15
  SPEAKER_01: So that's what I'm saying.
• 19:16
  SPEAKER_01: Those are simple fact patterns, but you have to have understanding.
• 19:19
  SPEAKER_01: And the companies that operate through a lot of leased real estate when they are lessees across the globe, it's not as easy to have a full understanding what we do in Malaysia versus Australia, and let's say uh in European countries.
• 19:34
  SPEAKER_01: Yeah.
• 19:37
  SPEAKER_01: But uh, but like this, this is again those are very simple concepts, but like until you start thinking about it, right?
• 19:43
  SPEAKER_01: Because naturally you go, well, I have all utilities bills in my system.
• 19:47
  SPEAKER_01: I'm gonna just use this, take the uh consumption, and calculate scope too.
• 19:51
  SPEAKER_01: Well, it might be the correct way to approach it, but not necessarily.
• 19:56
  SPEAKER_01: So that's what I meant when you know companies have have to have full understanding how their business is operated, how the financial statements are prepared, and where the data is coming from.
• 20:06
  SPEAKER_04: So I can't leave a discussion on materiality without at least mentioning minimum boundaries.
• 20:10
  SPEAKER_04: Now, Colin and I spent time talking in our uh other recording about proposed changes, but let's stick to minimum boundaries now.
• 20:18
  SPEAKER_04: And then just to re-level set, maybe we'll just talk about GHG protocol and ESRS, because that's where we've seen most of the reporting.
• 20:26
  SPEAKER_04: And under GSG protocol, obviously you have the specified minimum boundaries.
• 20:30
  SPEAKER_04: And then under ESRS, we've said that you can apply the GHG protocol minimum boundaries much more complicated.
• 20:36
  SPEAKER_04: Please go look at our SRG.
• 20:38
  SPEAKER_04: So, with sort of that backdrop, are you guys seeing, how are you guys seeing people look at these minimum boundaries, use the minimum boundaries, understanding of the minimum boundaries?
• 20:48
  SPEAKER_04: And again, I know you're focused on the future, but what do you think about the current state?
• 20:52
  SPEAKER_02: I mean, I I haven't seen much ambition to go beyond the minimum boundary.
• 20:55
  SPEAKER_02: And I think that's always been a question of like, is you know, indirect use phase is it important for me as a company?
• 21:01
  SPEAKER_02: That's where the question I think comes around relevance.
• 21:04
  SPEAKER_02: Is your is your inventory actually relevant to the emission sources you have?
• 21:08
  SPEAKER_02: And so going beyond that is a bit of a stretch.
• 21:10
  SPEAKER_02: I think it depends on the maturity of the company, but it really comes back to what do they do?
• 21:15
  SPEAKER_02: And do the emission sources make up like an important part of the relevance uh inventory.
• 21:20
  SPEAKER_04: And you find that companies really then are reliant on that guidance in this go-through standard and the rate of the latest technical guidance in terms of how sort of their starting point for even figuring out what is material.
• 21:32
  SPEAKER_02: Exactly.
• 21:32
  SPEAKER_02: Because it comes back to another one of the challenges, like knowledge or capacity at the company, right?
• 21:37
  SPEAKER_02: And so they're gonna look to that standard and the technical guidance to understand what to do and what do we not have to do at this point, especially around scope three, where it's seen as quite resource intensive, seen as needing to bring in like 30 different stakeholders, but you have these conversations and you can get to like a minimum viable product on scope three, where you don't have to do that.
• 21:55
  SPEAKER_02: And so that's what they're looking for.
• 21:56
  SPEAKER_02: Like, what can I do as a first go?
• 21:58
  SPEAKER_02: I think, especially with California.
• 22:00
  SPEAKER_02: California now, where you know companies who have never thought of this before and are like, where do I start?
• 22:05
  SPEAKER_02: And so that minimum boundary is giving that prescriptive um push, I think.
• 22:09
  SPEAKER_04: Are you seeing the same thing?
• 22:10
  SPEAKER_01: Yeah.
• 22:11
  SPEAKER_01: It also depends on the industry and the and the category.
• 22:14
  SPEAKER_01: Some categories are more intuitive.
• 22:16
  SPEAKER_01: I think we see more questions in category 15, especially as it relates to financial institutions, because we're talking about a variety of very complex financial products.
• 22:26
  SPEAKER_01: Um and there's a kind of mixed practice on the market.
• 22:30
  SPEAKER_01: Some people report just according to the minimum boundary in scope three standards.
• 22:34
  SPEAKER_01: Some financial institutions might go a little bit beyond.
• 22:37
  SPEAKER_01: So right now we we see this kind of a you know, I want to I don't want to say push, but like the effort to determine what actually should be reported, how we go about it.
• 22:47
  SPEAKER_01: To us, it's like, as we said in our SRG, right?
• 22:50
  SPEAKER_01: We would perfectly under our GEG protocol accept those um you know minimum boundaries outlined in there.
• 22:57
  SPEAKER_01: If companies want to go beyond, like for me, it's like consistency.
• 23:00
  SPEAKER_01: Well, if you go beyond how far, are you consistently applying expanded boundary throughout entire you know organization or not?
• 23:08
  SPEAKER_01: So, but again, the financial institution is a bit more complex.
• 23:11
  SPEAKER_01: Like Colin mentioned, for a lot of non-FS clients, especially those who just started, maybe historically never reported the full uh scope three inventory.
• 23:21
  SPEAKER_01: I think it's a good concept, allows them to pace themselves and and um and calculate emissions using data that they have.
• 23:30
  SPEAKER_01: Emission factor, that's another thing.
• 23:32
  SPEAKER_01: Emission factors, right?
• 23:33
  SPEAKER_01: A lot of emission factors are calculated using the concept of uh of minimum boundaries outlined in GEG protocol.
• 23:39
  SPEAKER_01: So that sort of helps companies get aligned.
• 23:43
  SPEAKER_01: Um and I think let's wait for updated protocol and then worry about that there, right?
• 23:48
  SPEAKER_04: All right, let me switch gears a teeny bit.
• 23:50
  SPEAKER_04: And one of the other topics we spent a lot of time talking about uh at this past reporting cycle was the organizational boundaries.
• 23:58
  SPEAKER_04: And again, reminder for our listeners that GHG protocol, you have three choices right now, although that also may be changing, although we didn't talk about that with Colin.
• 24:07
  SPEAKER_04: Uh and then in ESRS, you have the additive approach.
• 24:11
  SPEAKER_04: So you start with financial control, you add operational control.
• 24:14
  SPEAKER_04: That's proposed to be changing.
• 24:16
  SPEAKER_04: And then obviously ISSB, you can follow GHG protocol.
• 24:19
  SPEAKER_04: So are you maybe I'll start with you, Marchin?
• 24:22
  SPEAKER_04: And are you seeing, first of all, challenges of people in applying the ESRS current organizational boundaries, or at least thinking about those organizational boundaries.
• 24:32
  SPEAKER_04: But also, are companies thinking of changing organizational boundaries, or or what are we seeing sort of in the market right now?
• 24:39
  SPEAKER_01: You mean ESRSs specifically.
• 24:41
  SPEAKER_04: Well, okay, let's take this wherever you would like.
• 24:43
  SPEAKER_01: Yeah, let's start with ESRS's.
• 24:45
  SPEAKER_01: Um it's so honestly from our perspective, and again, let me just be very clear what I see is a perspective from US market, right?
• 24:52
  SPEAKER_01: Primarily on a client level.
• 24:54
  SPEAKER_04: Although you are getting a lot of questions.
• 24:55
  SPEAKER_01: Yes, we're getting a lot of questions.
• 24:57
  SPEAKER_01: So um I think that there's continues to be a challenge, right?
• 25:02
  SPEAKER_01: So, starting point doing this you know, two-step approach, people a little bit still misunderstand what does it really mean?
• 25:08
  SPEAKER_01: Um, so we continue getting questions about that in terms of changing uh the boundaries.
• 25:15
  SPEAKER_01: It's I think more of a question that we have is alignment, right?
• 25:18
  SPEAKER_01: Like if I did something historically using operational control boundary, if I want to comply with ESRSs, where do I have a difference, right?
• 25:28
  SPEAKER_01: Is it significant?
• 25:29
  SPEAKER_01: Could I claim it immaterial?
• 25:31
  SPEAKER_01: Would I end up in the same spot?
• 25:32
  SPEAKER_01: And for some companies you would end up in the same spot, whichever you, because of the nature of operations, but for more complex global uh you know, multinational companies, that might be a little bit challenging.
• 25:43
  SPEAKER_01: So the questions we're more getting is not about changing, but like how can I fit what I have right now to those standards?
• 25:51
  SPEAKER_01: Are there any ways for me to make it work?
• 25:54
  SPEAKER_01: And the answer is always the same, it depends.
• 25:57
  SPEAKER_01: It depends.
• 25:57
  SPEAKER_01: What do you do?
• 25:58
  SPEAKER_01: How many unconsolidated um arrangements do you have?
• 26:02
  SPEAKER_01: What other contractual arrangements do you have?
• 26:04
  SPEAKER_01: So those are the type of questions we're getting right now, especially as I mentioned before, the interoperability becomes kind of more and more important because people have to start reporting and using different frameworks in real life.
• 26:18
  SPEAKER_01: So um so that's what I see like from our perspective, right?
• 26:21
  SPEAKER_02: I think from the Canadian perspective, like it's it's a lot of the commodity uh drivers where there was historically, you know, you you own a plant with three other entities and you're gonna split it, usually usually saying equity share.
• 26:33
  SPEAKER_03: Yes.
• 26:34
  SPEAKER_02: And and that may be the same as your financial control at the end of the day, but it's the question of like, is it and what do I have to do?
• 26:40
  SPEAKER_02: Is it okay if I do this or how do I actually structure this?
• 26:43
  SPEAKER_02: So it's a lot of questions, maybe not like panic over do I have to switch?
• 26:47
  SPEAKER_02: Um, but just like, what does it look like if I have to?
• 26:50
  SPEAKER_02: Um but ultimately it's though it's those sectors where they are traditionally doing like equity share or a different control approach.
• 26:56
  SPEAKER_04: It's interesting because uh, you know, right now the amended ESRS, what's proposed is to do financial control and then you add operational control if you if it's all use for material here.
• 27:08
  SPEAKER_04: This it's more um nuanced than that.
• 27:11
  SPEAKER_04: And what one of the discussions we had within the network was that there's so many companies using operational control that this is going to force a lot of change.
• 27:21
  SPEAKER_04: And so again, just curious as you guys think about the clients you're dealing with, do you think a shift to like a full financial control model is potentially I don't want to say problematic, but is is going to require a shift.
• 27:36
  SPEAKER_02: I think it will ultimately, yes.
• 27:37
  SPEAKER_02: Yes like that's the bottom line.
• 27:39
  SPEAKER_02: Yeah.
• 27:39
  SPEAKER_02: Um, and it's a matter of are is everyone ready to make that that that switch?
• 27:44
  SPEAKER_02: Um, and then are they following the right processes to figure out like is it up or is financial control, right?
• 27:49
  SPEAKER_02: Yeah.
• 27:50
  SPEAKER_02: Um it just has to be, it's gonna be done.
• 27:52
  SPEAKER_03: Yeah.
• 27:53
  SPEAKER_04: So I have a philosophical question that you may or may not want to answer.
• 27:57
  SPEAKER_04: So financial control aligns with the other information in the sustainability statement.
• 28:03
  SPEAKER_04: So it seems like there is a very strong argument to say that for a user of the statement, it's actually most helpful to present the information based on financial control, because then you understand the scope of the entities, assets, and operations that are included and otherwise.
• 28:20
  SPEAKER_04: Now, the counter-argument would be, of course, that well, if you are in some of these industries, that's leaving out a lot of emissions that you are responsible for.
• 28:29
  SPEAKER_04: So if you were personally deciding, would you support the a move to financial control just because of this alignment?
• 28:38
  SPEAKER_04: Or do you really think operational control continues to have a very important point?
• 28:45
  SPEAKER_01: I uh know is my answer because I am a little bit uh tilted in my way.
• 28:50
  SPEAKER_01: I'm gonna give you a two-pronged answer.
• 28:52
  SPEAKER_01: Uh, I think current currently, as things are, I would still I think operational control has important aspects to play.
• 28:59
  SPEAKER_01: And that's purely because of a availability of data, people need time to transition.
• 29:04
  SPEAKER_01: I think long-term, financial control has more sense, right?
• 29:08
  SPEAKER_01: Because as you said, and we've been talking about this for a long time, I think that um this kind of uh having the same basis for your financial statements and sustainability statements, it's very important.
• 29:19
  SPEAKER_01: Um, but that's me.
• 29:20
  SPEAKER_01: I'm an accountant, I I recognize, you know, but for me, the because you have multiple people using this information in in various ways, to make it the easiest to understand is having the same basis, right?
• 29:32
  SPEAKER_01: So you're not reading two different documents trying to decipher what is the basis here, what is the basis there, and uh especially a lot of this um uh sustainability information or um um emissions information also require a certain level of intensity metrics, right?
• 29:48
  SPEAKER_01: Financial metrics to uh to be embedded there.
• 29:50
  SPEAKER_01: So it's only natural to believe that the best option would be to have this, you know, on the same basis, right?
• 29:57
  SPEAKER_01: But as I said, I think we need a little bit more time because we're moving at really, like when you think about it, we're moving at a really fast pace for something that was very voluntary and a lot of reporting, but still voluntary, and even companies that reported a lot of information, there's huge diversity in practice, what's included, what's how they determine certain things.
• 30:16
  SPEAKER_01: So I think we need a little bit time to transition over time.
• 30:19
  SPEAKER_01: That's why I personally am supportive of maintaining the operation control.
• 30:24
  SPEAKER_01: I don't know when the time to switch will be, but I think it's as of now, uh a lot of our clients would not be ready to um to fully transition.
• 30:32
  SPEAKER_01: It's gonna be a big effort to do that.
• 30:33
  SPEAKER_04: Well, they're they're gonna need to be ready if they're yes or us why.
• 30:37
  SPEAKER_04: How about Colin from your perspective?
• 30:39
  SPEAKER_02: I've actually had a CFO ask me that exact same question.
• 30:42
  SPEAKER_04: Oh, so you should be prepared.
• 30:43
  SPEAKER_04: I know.
• 30:44
  SPEAKER_02: It was a decent item, it was very similar.
• 30:46
  SPEAKER_02: It's like looking at other sustainability matters in your report, financial control.
• 30:51
  SPEAKER_02: He's like, Well, why am I doing my GHGs on operational?
• 30:54
  SPEAKER_02: Yeah.
• 30:54
  SPEAKER_02: It's like it's a good question.
• 30:55
  SPEAKER_02: It's kind of how it's always been done.
• 30:57
  SPEAKER_02: Um, he's like, Well, why don't I move to financial control?
• 31:00
  SPEAKER_02: It's like, well, you actually can.
• 31:01
  SPEAKER_02: Like, there's nothing stopping you from doing this, except, you know, three or four of your peers are doing op control.
• 31:07
  SPEAKER_02: And so he's like, well, you know, like I'd rather be correct in my mind than follow what all my other peers are doing.
• 31:13
  SPEAKER_02: So I'm I'm of that mind.
• 31:15
  SPEAKER_02: Ultimately, yeah, companies will need time to move, but if they're regulated, they will not have that time.
• 31:20
  SPEAKER_04: So I mean, it is interesting because I even think about pollutants and very specifically often are from the same sources, where high emitting sources.
• 31:28
  SPEAKER_04: And then to have those on a daily basis, it's it's a struggle.
• 31:31
  SPEAKER_04: Okay, we'll move on from materiality and philosophical questions.
• 31:34
  SPEAKER_04: So um, let me move to another topic that I am personally quite interested in, which is scope two reporting, um, and specifically talking about the use of racks in scope two reporting.
• 31:46
  SPEAKER_04: So those renewable energy credits, there's a lot of other similar types of instruments, but for today's discussion, we'll call them recs.
• 31:53
  SPEAKER_04: And basically, again, as a reminder to our listeners, that these are used to offset, I'll say dirty energy.
• 32:01
  SPEAKER_04: You can buy these recs into say that you're buying clean energy.
• 32:04
  SPEAKER_04: That's a very, very simplistic explanation.
• 32:07
  SPEAKER_04: Uh, but just curious from both of you, there's a lot of criteria to be able to use these types of instruments in your scope to reporting, putting aside SPTI and some of the other uh things we spoke about earlier.
• 32:20
  SPEAKER_04: What are you guys seeing of how people are uh applying these requirements to say that those instruments should be from the same market and as close as possible in terms of timing?
• 32:32
  SPEAKER_04: Are we seeing they're in the same market at the same time, or is it still being interpreted quite loosely?
• 32:38
  SPEAKER_02: From a Canadian perspective, it's actually quite interesting because a lot of the provinces are regulated and you can't build like a PPA.
• 32:47
  SPEAKER_02: You can't not allow to.
• 32:48
  SPEAKER_02: Um, the infrastructure isn't there, the processes are not in place.
• 32:51
  SPEAKER_02: And so like some of the big banks, they fully buy 100% renewable energy and they buy recs in a province that is, you know, they have they may have some branches there, for example, but it's certainly not their biggest footprint.
• 33:03
  SPEAKER_02: And so the discussion is, especially as an auditor of those companies, like are they actually meeting the same market?
• 33:10
  SPEAKER_04: Yes.
• 33:10
  SPEAKER_02: Um, and generally it's been a yes.
• 33:13
  SPEAKER_04: You're saying yes still.
• 33:14
  SPEAKER_02: Yeah, exactly.
• 33:15
  SPEAKER_02: Because it's like because you're in the regulated market, you know, if most of your branches are in one province, which has one electricity grid, you can't actually like procure wrecks that are in that exact geographical location.
• 33:28
  SPEAKER_02: There should be some leeway in that.
• 33:31
  SPEAKER_02: Maybe.
• 33:31
  SPEAKER_02: I know, maybe, right?
• 33:32
  SPEAKER_02: And so that's been what's been happening in in Canada.
• 33:36
  SPEAKER_02: Um, there is at least the intention to go out and procure recks, like is a very viable option from a lot of the the companies there.
• 33:44
  SPEAKER_02: Um, and so that same market thing has been like, hey, do we actually have to do this?
• 33:48
  SPEAKER_02: Like we are actually getting additional renewable energy on the grid.
• 33:51
  SPEAKER_02: Like we're doing the things that is intended to do, that the the concept of market-based.
• 33:55
  SPEAKER_02: Um and so it's like, can we keep going in this direction?
• 33:58
  SPEAKER_02: Yeah, please.
• 34:00
  SPEAKER_04: So it's interesting.
• 34:01
  SPEAKER_04: And then I want to come back to some of the other markets, but there's a lot of renewable power in general in Canada.
• 34:07
  SPEAKER_04: And it is concentrated, right, in certain locations.
• 34:11
  SPEAKER_04: And so it sounds like then, at least for now, there's a general, well, if it's in Canada.
• 34:17
  SPEAKER_02: Yeah.
• 34:17
  SPEAKER_04: But so then what if they said it's in the US and it's not interconnected?
• 34:22
  SPEAKER_02: It's funny because there are a few places that are interconnected, right?
• 34:25
  SPEAKER_02: Where they are.
• 34:25
  SPEAKER_02: I said it's not so fair.
• 34:27
  SPEAKER_04: Yeah, and I guess again, for listeners, benefit, interconnected means you actually could physically get the power from one location to the other location.
• 34:34
  SPEAKER_04: Some places you can do that, some places you can't.
• 34:37
  SPEAKER_02: So we've had a few asks of that actually, where uh say a company has locations in both Canada and the US or or anywhere else.
• 34:44
  SPEAKER_02: Um, can they apply recs from the US to their Canadian branches?
• 34:48
  SPEAKER_02: And and we've been just very cautious.
• 34:50
  SPEAKER_03: Yes.
• 34:51
  SPEAKER_02: You know, obviously it's not quite the same market.
• 34:53
  SPEAKER_02: Um, you're gonna maybe take a risk because you're not hitting that uh data quality or the criteria.
• 34:59
  SPEAKER_03: Yeah.
• 34:59
  SPEAKER_02: Like, but ultimately the spirit of this, are you are you really doing what you should be doing?
• 35:04
  SPEAKER_02: Are you creating additional renewable energy in the market?
• 35:07
  SPEAKER_02: And generally they have been doing that.
• 35:09
  SPEAKER_02: So we haven't been saying don't do it.
• 35:11
  SPEAKER_02: Yes.
• 35:12
  SPEAKER_02: Um that's what I want to come back to on this.
• 35:14
  SPEAKER_02: It's like, are you actually generating additional renewable energy on the grid?
• 35:18
  SPEAKER_02: And that's what we try to get our clients to think about.
• 35:20
  SPEAKER_04: Yeah, although that is really a difficult question because a lot of these renewable projects, you know, yes, there's some new offshore, and there are definitely new projects, but there's a lot of really old projects that are still selling their racks.
• 35:32
  SPEAKER_02: Yes.
• 35:32
  SPEAKER_02: So we try to keep it to those actually new, like generated because of the ask, which was like true additionality.
• 35:39
  SPEAKER_02: Um, and again, there aren't that many companies in Canada that are doing this.
• 35:42
  SPEAKER_02: Yeah, the biggest companies are doing this.
• 35:44
  SPEAKER_02: And so it does come up.
• 35:46
  SPEAKER_04: Yes.
• 35:47
  SPEAKER_04: Although what those projects have been built anyway.
• 35:49
  SPEAKER_04: Yeah.
• 35:50
  SPEAKER_04: I don't know.
• 35:50
  SPEAKER_01: Martin, what's your I mean, I don't know what else to add here.
• 35:55
  SPEAKER_01: But we have similar challenges in the United States.
• 35:58
  SPEAKER_01: In general, people treat US treat the US as one big market.
• 36:01
  SPEAKER_01: Yeah.
• 36:01
  SPEAKER_01: And I know historically we're not kind of uh taking any exception.
• 36:05
  SPEAKER_01: Um, the bigger challenge for me is companies operating globally and those kind of um interconnected use of recs in certain territories, like treating globe as one being broadcast.
• 36:14
  SPEAKER_03: Yes.
• 36:15
  SPEAKER_01: We've seen kind of a, I don't want to say tendency, but we've seen instances when companies try to maybe navigate that.
• 36:21
  SPEAKER_01: That's a bit more challenging for me, right?
• 36:23
  SPEAKER_01: Using the you know, US rags to offset uh consumption in Indonesia, for example.
• 36:28
  SPEAKER_01: Right.
• 36:29
  SPEAKER_01: Would we accept that?
• 36:30
  SPEAKER_01: I mean, that's for me, it's like high hurdle.
• 36:33
  SPEAKER_01: Um, I mean, I'm really curious where protocol is gonna go with with a scope.
• 36:37
  SPEAKER_04: Some of what I've heard sounds like it's gonna be a whole new world because we didn't even talk here about the fact that you know, how closely do you have to match your time?
• 36:47
  SPEAKER_04: Right.
• 36:47
  SPEAKER_04: And again, for our listeners, electricities consume 24 hours a day, different times a day.
• 36:53
  SPEAKER_04: The type of electricity you're consuming is likely quite different.
• 36:56
  SPEAKER_04: And so if you're buying recs at one time of year or one time of day and your consumption is completely different from that, it should you I mean, is that really making a difference?
• 37:08
  SPEAKER_04: Well, so for our listeners who are not watching, March and Collin are publicly like, please stop, please stop this line of questioning.
• 37:16
  SPEAKER_02: The one thing I was gonna bring up is what has helped, I think, a lot of Canadian-American companies is the RE100 guidance, which has given a bigger view of this and like US same market anywhere.
• 37:26
  SPEAKER_02: And they're saying basically for Canadian companies they can use the US as the same market too.
• 37:29
  SPEAKER_02: And a lot of our clients have just pointed to that.
• 37:31
  SPEAKER_02: Yes, this is what we're gonna do.
• 37:33
  SPEAKER_02: We signed up for RE100, we got to meet these requirements more than the GHCP.
• 37:37
  SPEAKER_01: Yeah.
• 37:38
  SPEAKER_01: Yeah.
• 37:38
  SPEAKER_01: And the reason we're making faces to try not to go that direction because it's a very philosophical, right?
• 37:43
  SPEAKER_01: I think uh Colin kind of a mention up front, you know, what's the purpose?
• 37:47
  SPEAKER_01: Why you want to do this, right?
• 37:48
  SPEAKER_01: So, which is different questions like what is actual regulations and what accounting standard tells you to do.
• 37:54
  SPEAKER_01: Um, and you know, I see header, like from your perspective, supporting maybe closer time of generation, closer market, it makes a lot of sense.
• 38:03
  SPEAKER_01: Um, another option going into also considering just additionality of new projects.
• 38:09
  SPEAKER_01: Again, all this has a pros and cons.
• 38:11
  SPEAKER_01: Like some group of our clients who highly support those solutions and and group of our clients who you know hate it.
• 38:17
  SPEAKER_01: To me, I'm always going back to um practicality at this current stage, right?
• 38:24
  SPEAKER_01: Which um is it practical?
• 38:26
  SPEAKER_01: Could companies again, what are you trying to achieve?
• 38:29
  SPEAKER_01: Could companies get there?
• 38:31
  SPEAKER_01: And um was it would it make sense from that perspective where we are?
• 38:35
  SPEAKER_01: And it's also different markets are developed differently, yeah, right?
• 38:39
  SPEAKER_01: Certain availability of data in Canada might be better than in certain US markets or or in you and versus kind of a like Asian market.
• 38:46
  SPEAKER_01: So it all depends where is your and those markets are being developed like on a national level, oftentimes.
• 38:52
  SPEAKER_01: So like each nation or country can kind of have a different state of development and uh different goals.
• 38:58
  SPEAKER_01: So, you know, I think as of now, we need certain room for interpretation and room for for the for the markets to grow in uh long term.
• 39:07
  SPEAKER_01: I mean, we'll we'll see where protocol is gonna go with this.
• 39:10
  SPEAKER_01: But you know, I'm I'm literally, I have clients who speak from both sides of the you know spectrum, supporting and opposing more, you know, more relaxed or more more strict rules in in market based uh calculations.
• 39:22
  SPEAKER_04: So well, and Colin, you spoke yesterday or when we recorded our uh other episode, and this was in the context of scope three about feasibility being sort of one of the benchmarks.
• 39:32
  SPEAKER_04: And if you think of you know, that you if you were to require companies to match location and time on an hourly basis right now, I it just does not in most markets seem feasible.
• 39:43
  SPEAKER_04: Okay, but I do have another follow-up philosophical, even more philosophical question.
• 39:48
  SPEAKER_04: So right now, GHG protocol has location-based and market-based.
• 39:53
  SPEAKER_04: That's also required under ESRS, and then ISV standards is location-based, and then you disclose your contractual arrangements.
• 40:01
  SPEAKER_04: Do you philosophically think we should have market-based?
• 40:05
  SPEAKER_02: No, I actually think the disclosure of contractual instruments is is the better way of doing it.
• 40:11
  SPEAKER_02: I don't love the if I don't have recs, if I'm not buying contractual um instruments, I have to go figure out the reserve residual emissions.
• 40:20
  SPEAKER_02: And if I keep going down the emission factor hierarchy, I end up at location-based.
• 40:24
  SPEAKER_02: Yes.
• 40:25
  SPEAKER_02: So I'm not, I don't, and please help me uh understand what value that additional disclosure is giving you if you don't actually buy any recs at the end of the day.
• 40:35
  SPEAKER_01: That's a good question.
• 40:36
  SPEAKER_01: And I'm just trying to hard think that you know, would I support or uh don't market base?
• 40:43
  SPEAKER_01: Um I don't really know.
• 40:45
  SPEAKER_01: I mean, I agree that location base is more accurate and reflection of life.
• 40:50
  SPEAKER_01: And then the same applies for gross reporting on scope one and scope three.
• 40:54
  SPEAKER_01: I also understand why clients are trying to push, hey, if we want to continue fight financing development of renewable technologies, renewable power generation, or any other kind of renewable fuels, there needs to be some mechanism to promote that.
• 41:10
  SPEAKER_01: And that's why market base was implemented to kind of uh promote development of renewable sources.
• 41:17
  SPEAKER_01: So as long as we find some happy medium, um really kind of how is it reported?
• 41:22
  SPEAKER_01: Does it really matter?
• 41:24
  SPEAKER_01: Um, whether you report as a net versus as a gross, okay.
• 41:27
  SPEAKER_01: Um, with proper disclosures, we need to find some medium, happy medium to allow people to continue reporting those instruments, right?
• 41:35
  SPEAKER_04: Yeah, I do think it matters.
• 41:36
  SPEAKER_04: And I have to say, I think in general, I've always agreed with Colin that I, I mean, you March and knows this.
• 41:43
  SPEAKER_04: I really do not fundamentally think market base.
• 41:46
  SPEAKER_04: However, Mark uh March and I did do some illustrations that if you're in a market where there is the residual mix factor, which is basically what's left over after these are all taken out, that is actually a good way of reporting.
• 42:00
  SPEAKER_04: It's just that we are dealing with markets that don't have and so that's where I think right now, maybe the ISSB approach is the more I don't know, fit for purpose for this time.
• 42:14
  SPEAKER_04: Because I think um when you are missing some of this information, then market-based can be quite misleading.
• 42:21
  SPEAKER_02: So I think like the plain view reading of a market-based emission is confusing.
• 42:26
  SPEAKER_02: Right.
• 42:26
  SPEAKER_02: If it's not us looking at it, if it's the like a normal person who's reading a sustainability report, them understanding, oh, that that company procures 80% of their electricity from renewable sources, that's very easy to understand.
• 42:39
  SPEAKER_02: To see, you know, the emissions is higher for their market base.
• 42:42
  SPEAKER_02: And they're like, well, why is that the case?
• 42:44
  SPEAKER_02: Isn't that pulling?
• 42:45
  SPEAKER_02: Oh, yeah, it's just like it's not a concept that's well understood.
• 42:48
  SPEAKER_04: All right.
• 42:48
  SPEAKER_04: Well, I think we've probably exhausted our audience's interest.
• 42:51
  SPEAKER_04: I think we probably have much more interest.
• 42:53
  SPEAKER_04: And I still have several questions less.
• 42:56
  SPEAKER_04: So to decide um to keep this going, we're gonna do a bit of a speed round.
• 43:00
  SPEAKER_04: You guys are gonna tell me what question number you want, and then you're going to answer it.
• 43:04
  SPEAKER_01: Oh my goodness.
• 43:05
  SPEAKER_04: Okay, so I have questions one through five, but I kind of want you both to answer five.
• 43:09
  SPEAKER_04: So what question number would you like?
• 43:11
  SPEAKER_01: Three.
• 43:12
  SPEAKER_04: All right.
• 43:12
  SPEAKER_04: So this one is about GHG accounting tools and the fact of using systems versus Excel, and that people, some people would think if I could just get the right system in place, it's like a magic bullet.
• 43:24
  SPEAKER_04: Everything will be easier.
• 43:26
  SPEAKER_04: Do you agree or disagree?
• 43:27
  SPEAKER_01: No, because there's no such thing as one.
• 43:28
  SPEAKER_01: It all depends what are what is your nature of operations, what are you gonna use the system for, um, and what is really practical for you, right?
• 43:36
  SPEAKER_01: So there's no, I'm getting this question what's the best system out there?
• 43:40
  SPEAKER_01: The question is what is the best system for you?
• 43:42
  SPEAKER_01: And when we look in, and we have one of our partners, Sami, uh, who's actually in the office somewhere here, we should invite him.
• 43:48
  SPEAKER_01: He can maybe like two hours speech on that.
• 43:51
  SPEAKER_01: But that's it, it really they they uh a lot of different systems address different issues.
• 43:57
  SPEAKER_01: So, you know, companies should really be thinking what they Trying to achieve?
• 44:00
  SPEAKER_01: Is it only for emissions, or do you want to have something else?
• 44:03
  SPEAKER_01: Do you want to treat it this as a kind of a workflow tool, or do you want to treat it as a calculation tool?
• 44:09
  SPEAKER_01: So they and different companies have a different needs in that area.
• 44:13
  SPEAKER_01: So I agree that tools are helping.
• 44:17
  SPEAKER_01: It's way better to have things, you know, in the tool than in gazillion spreadsheets.
• 44:21
  SPEAKER_01: I think that to me, at least it goes without say.
• 44:23
  SPEAKER_01: But there's no one kind of a silver bullet there and uh that would address everybody's needs.
• 44:28
  SPEAKER_04: So, Colin, I wasn't supposed to ask you too, but based on our discussion, uh, when we're talking about minimum boundaries, is your view slightly different, or you basically agree?
• 44:38
  SPEAKER_02: No, I I agree.
• 44:38
  SPEAKER_02: I mean, it's there's no one size fits all solution.
• 44:42
  SPEAKER_02: And I think we talked about on the other podcasts, like as the JC protocol changes, these tools have to change too.
• 44:48
  SPEAKER_02: And so I think we talked about like an interim solution is Excel, I think, for the time being.
• 44:54
  SPEAKER_02: Not to say that their tools aren't valuable, and a lot of other companies have um may say finance tools that are existing in their systems already that can do carbon calculations, but are they gonna do the right thing for you?
• 45:05
  SPEAKER_02: Are they gonna be able to track decarbonization?
• 45:07
  SPEAKER_02: Are they gonna provide other cost savings because you don't need you know four people to manage an inventory?
• 45:11
  SPEAKER_02: These are all considerations.
• 45:13
  SPEAKER_04: All right.
• 45:13
  SPEAKER_04: I'm gonna try to stick better to my asking only one of you.
• 45:16
  SPEAKER_04: So, Con, you could ask one, two, or four.
• 45:19
  SPEAKER_02: One.
• 45:19
  SPEAKER_04: All right.
• 45:21
  SPEAKER_04: So with attention turning to California's new climate disclosure laws, what should companies be doing now?
• 45:28
  SPEAKER_02: Yeah, I think I mean, a lot of the questions we're getting right now is on scope three for companies who don't have any scope three.
• 45:34
  SPEAKER_02: Um, we're telling companies like, be prepared, we don't think it's gonna change, you gotta be ready for um 2027.
• 45:41
  SPEAKER_02: And just starting to understand what the um categories you're gonna report on, what's what's material to you, and then trying to find data.
• 45:48
  SPEAKER_02: And again, it's not like you're not gonna find the most specific best data in the world.
• 45:53
  SPEAKER_02: This is a first go for a lot of these clients.
• 45:55
  SPEAKER_02: Um, what can get you to a complete inventory or very close to a complete inventory?
• 46:00
  SPEAKER_04: Yeah.
• 46:00
  SPEAKER_04: And if you're talking 2027, it's actually 2026 data.
• 46:04
  SPEAKER_04: Yes, exactly.
• 46:04
  SPEAKER_04: So it's coming soon.
• 46:06
  SPEAKER_04: Yeah.
• 46:06
  SPEAKER_04: So, all right.
• 46:07
  SPEAKER_04: So you guys both like odd numbers better.
• 46:09
  SPEAKER_04: So you're left with two and four.
• 46:11
  SPEAKER_01: Give me two.
• 46:12
  SPEAKER_04: All right.
• 46:13
  SPEAKER_04: So, oh, so this is about talking about assurance.
• 46:16
  SPEAKER_04: No, this is a good question.
• 46:17
  SPEAKER_04: So if you're moving towards assurance, basically what Colin was just talking about with um California, what should you be prioritizing when it comes to data quality and or governance?
• 46:28
  SPEAKER_01: Well, it's a very interesting question because they go together, I think.
• 46:31
  SPEAKER_01: Data quality and governance.
• 46:32
  SPEAKER_04: That's why you said and or.
• 46:33
  SPEAKER_01: Yeah, I think it should be ed, right?
• 46:35
  SPEAKER_01: Um, to me, I'm always kind of answering like you think about this as a policy, system, processes, and documentation, right?
• 46:42
  SPEAKER_01: And that goes with governance, right?
• 46:44
  SPEAKER_01: In order to have the system working, you have to have proper governance.
• 46:47
  SPEAKER_01: So to me, it's both.
• 46:49
  SPEAKER_04: All right, good answer.
• 46:50
  SPEAKER_04: Okay, final question.
• 46:51
  SPEAKER_04: So you're left with the leftovers, but it's a good question.
• 46:54
  SPEAKER_04: So whether a company is still reporting voluntarily, they're gonna report because of California 253, the GHG requirements, CSRD, maybe ISSB, no matter what your reason for reporting, what's sort of the number one thing you think people or companies should be thinking about right now to improve their processes?
• 47:14
  SPEAKER_02: I think the knowledge on the on the client side, right?
• 47:18
  SPEAKER_02: So having the ability to understand what data you need, um, what regs you're gonna be reporting against, how interoperable are they, um, and being able to have that process internally that's there year over year, um, and to get assurance because ultimately that's where a lot of these regs are gonna go or are there already.
• 47:34
  SPEAKER_02: Um, and then I think you know, once those processes are in place, there's probably gonna be bit more pressure on decarbonization and understanding what to do there.
• 47:42
  SPEAKER_02: And so being able to sell that internally, where maybe decarbonization isn't the language you should be using, it's cost reduction, it's risk mitigation, but ultimately that's the step after you start to build your inventory.
• 47:53
  SPEAKER_04: Well, that's in the big picture, the purpose of having this inventory, right?
• 47:58
  SPEAKER_04: So, okay, well, I have follow-up questions, so I'm going to restrain myself.
• 48:01
  SPEAKER_04: So now, final question for both of you.
• 48:03
  SPEAKER_04: And I'll let Colin go first since he had the leftover questions.
• 48:06
  SPEAKER_04: So if you just had one piece of advice for companies that are reporting GHG, what would that advice be?
• 48:12
  SPEAKER_02: I think just understanding the data availability and how it links with the bigger business.
• 48:17
  SPEAKER_02: Because there's a lot of data asks throughout a business, no matter what, not just who cares about the inventory, there's data asks.
• 48:23
  SPEAKER_02: So, how do you make sure that you're economizing people's time, making sure that you're not like doubling up on asks and resources, and then really finding the benefits of building that inventory, whether it's you can identify hot spots of energy consumption, um, areas where there's like five different systems telling you the exact same thing, like those benefits of the work that you have to do that's maybe regulatory is a key uh piece of this.
• 48:45
  SPEAKER_04: All right.
• 48:46
  SPEAKER_04: Marcia?
• 48:47
  SPEAKER_01: Well, I'm out of auditor, so I have to go with policies, right?
• 48:50
  SPEAKER_01: Good answer.
• 48:51
  SPEAKER_01: Start with really good policies, write things down and have a governance structure.
• 48:55
  SPEAKER_01: It goes back to your question before the question.
• 48:56
  SPEAKER_01: I think this is the same answer.
• 48:58
  SPEAKER_01: Um, because having that would allow you consist would allow you consistency, would allow you to identify any places where you know maybe missing data, and you would allow you to be more efficient over time, right?
• 49:10
  SPEAKER_01: I mean, you wouldn't believe how much difference does it make if clients just even prepare a very short narrative or policy, how they accounting for things.
• 49:19
  SPEAKER_01: So I'm advocating for more detailed policies and pro process descriptions.
• 49:24
  SPEAKER_01: But starting there, I think it's just step back and think what you really be, you know, want to report, what's your basis, and what rules you're gonna follow and how.
• 49:31
  SPEAKER_01: So all right.
• 49:32
  SPEAKER_04: Well, that's all my questions.
• 49:34
  SPEAKER_04: I mean, I actually have more, but all for today.
• 49:36
  SPEAKER_04: So, gentlemen, such a pleasure to talk to you.
• 49:38
  SPEAKER_04: Thanks so much for joining me today.
• 49:40
  SPEAKER_01: Thank you.
• 49:41
  SPEAKER_04: And then for our listenerslash viewers, thank you as well for joining us today.
• 49:45
  SPEAKER_04: I hope you join us again next week for more discussion on sustainability and or accounting.
• 49:51
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• 50:04
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