Bringing Transparency to Sustainability Reporting

August 1, 2021

The collective misery of the 2020 pandemic forced our society to think of the importance of collective action when tackling humanity’s biggest challenges.  The stakes are rising for climate protection as well. Corporations are under pressure to translate commitments into action as we race to keep global warming below 1.5°C.  Scrutiny of net-zero commitments, both from the regulatory and shareholder side, will only increase from this point forward. After all, the first benchmark of global action – year 2030 – is now almost within short-term planning reach for corporate supply chain structures, and yet we still can’t agree on what net-zero means or how to standardize reporting across sectors.

How will we get to the moment when investors, shareholders, and regulatory bodies benefit from clear, comparable, verified information on corporate action and its impact on emissions reductions?

Digitally measured and verified sustainability data is key. It can automate tracking and verification of emissions, avoid green washing, and prevent double counting.  Without transparent, digitally-verified data there is no harmonization of corporate sustainability actions.

The current MRV systems (measurement, reporting, and verification) are primarily manual and are woefully unprepared to capture and distribute emissions information. While a sustainability professional can input yearly actions into a spreadsheet and even build a planning calculator, that process is a far cry from a fully automated, immutable, and verified process that can also seamlessly communicate with other such processes for sectoral standardization of sustainability information.

The output delivered by digital MRV – a digitalized form of quantifying, communicating, and authenticating data – is the optimal replacement for the manual process, in fact it’s the 21st century solution to the 21st century problem. Digital MRV transforms the current process into automated and verified tracking of carbon (or methane) molecules or products across the supply chain in a fully inter-operable manner – an algorithmic capability that is penetrating all industries to track myriads tasks.

The algorithms that drive digital MRV operate on platforms that also benefit from open-source positioning can facilitate much needed standardization and interoperability.  That is a task to be developed in parallel with any harmonization of sustainability standards undertaken by standards-setting organizations such as Global Reporting Initiative (GRI), Sustainable Accounting Standards Board (SASB), Science-Based Targets, amongst others.

At EC-MAP, we have considered how to start integrating digital MRV into the ongoing efforts to improve sustainability reporting both from the investor and regulatory perspective. We see transparency, trust and transactability as a unifying framework of modernizing and digitalizing sustainability action, as noted in our statement to the Securities and Exchange Commission (SEC).  Our concept of the “3Ts” is as follows, with each “T” described below:

  • Transparency enables innovation in business models, technologies, and operational processes, and with growing interest in the market to redefine what is seen as environmental performance of various products and services, the data found across the supply chain needs to be visible and clear to the consumer or viewer.
  • Trust in the data that is collected and made visible is integral to reduce the number of assumptions and misinformation that may surround the results. Keeping the integrity and reliability of the information gathered from a supply chain, will help gather higher interest in investment and support needed to expand the reach of products and services.
  • Transactability opens a plethora of opportunities for clients and companies after the transparency and trustworthiness of data is met, allowing stakeholders to benefit ever more so from their investment decisions – including in electric cars, clean energy sources, optimized buildings, and other carbon neutral commodities. Additionally, it gives data the ability to be compared across sectors and regions, so that the environmental attribute of a product or commodity is made transactable in the market and leveraged into transactable market-based solutions.

We believe that regulatory regimes need to start deploying the 3Ts Approach in their permitting and evaluation processes, and companies will need this kind of a process to meet investor, shareholder, regulatory, and societal demands.

For digital MRV emissions tracking systems to thrive, we must connect the dots and fill the silos between technology providers, NGOs, companies, and governments. At EC-MAP, we are starting on this process by building awareness of these private sector-led open-source platforms[1], encouraging them to find their footing and harmonize with ESG initiatives as we begin to educate governments on the need to start adopting transparent and trustworthy data in regulatory processes.

 

Tom Hassenboehler is the Founder and Executive Director of EC-MAP.  Anna Pavlova is a Senior Policy Advisor to EC-MAP. 

 

[1] Hsu, A., Khoo, W., Weinfurter, A., Graetz, B., & Monnot, B. et al. (2020, April 19). PreciDatos: A Blockchain-based System for Incentivizing Actors to Disclose Accurate Climate Data. Data Driven Envirolab. https://datadrivenlab.org/climate/precidatos-a-blockchain-based-system-for-incentivizing-actors-to-disclose-accurate-climate-data/