Embedding emissions measurement and reporting in your operating model

In our previous articles, we shared insights into why accurate and granular emissions modelling is a vital exercise for companies to mitigate the risks and challenges, and unlock the opportunities associated with the transition to net zero. 

However, successfully calculating and accounting for emissions (referred to as measurement in this case) is only the first step in a company’s decarbonisation journey. The next challenge is to embed emissions management into a company’s operating model. This ensures that measurements are continually updated and used to influence decisions, supporting a company to meet reduction targets and gain a competitive advantage in the market. 

The two key areas that are influenced are: 

1. The reduction of emissions from day-to-day operations  
2. The protection and creation of additional value.  

It is critical to fully understand what is required to embed emissions measurement and reporting into a company’s operating model. Given the ever-evolving data requirements and numerous use-cases, having a defined operating model in place is critical to successful ongoing emissions management.   This can be challenging, as it involves a number of different departments across the existing organisation structure – from Operations to Finance, IT to Internal Audit – and may require the creation of new functions.  

In order to simplify and clarify the task, we break embedding emissions management down into five areas: 

1. Objectives, vision and strategy

Clarifying the vision is one of the seven steps to developing successful Scope 3 emissions measurement. It is imperative to consider what the company wants to get out of emissions measurement before starting initial pilots. Once these pilots have been conducted, companies should take a step back to re-confirm or adjust the vision before setting the objectives and broader strategy. 

Questions to consider include: 

• What is the ambition level for emissions management? Is it simply to maintain license to operate, or to be market leading and create a competitive advantage? 
• Where will emissions measurement add most value? Is it to support operational reductions, or to capture commercial opportunities?  
• How will emissions measurement objectives link back to and support the overall strategic direction of the company? 

These answers will inform the design principles and operating model for emissions management. They help companies consider the specific nature of their risks and opportunities, as well as their strategic goals and reduction commitments. For example, a steel producer may want to focus on using emissions data to reduce the emissions intensity of their operations, whilst a commodities trader may be focused on integrating the information into their trade data and commercial decision-making.  

2. Control

The next step is designing the control component of the operating model. This will define how emissions measurement and reporting is managed on an ongoing basis, and inform the necessary structures, processes and digital tools. 

To define this part of the operating model, companies should consider the following aspects of control in order to achieve their vision and objectives: 

Raising the profile of emissions management should feature across all aspects of control, alongside traditional profitability-based metrics, as it has become a pressing topic for external stakeholders and has started to impact access to capital. 

3. Structure

Once governance is set, the underlying organisation structure must be defined. Fully embedding emissions management in the company goes beyond creating and assigning jobs within the designed structure. The additional responsibilities must also be considered, and plans put in place to build the required capabilities. 

The structure should be considered in three parts: 

Specific functions or teams are needed to bring the required level of focus and capacity to emissions management. This typically sits within, or adjacent to, the company’s Finance function given the similarities between carbon and financial accounting and the scrutiny of both disclosures. However, emissions management cannot be embedded by a single function in isolation. To support a company’s decarbonisation journey, responsibilities and capabilities must be defined and developed across the company. 

4. Process 

Embedding emissions management involves defining processes and new ways of working. With cross-functional responsibilities and rising external disclosure standards, clear documentation is needed to manage future risks. 

Questions to ask include: 

External reporting and customer emissions disclosure requirements will continue to evolve - particularly around Scope 3. Having clarity on emissions management processes enables companies to comply with these changes, reducing the burden of adapting, as existing procedures are already well defined and understood.  

5. Digital 

Successfully embedding emissions management requires emissions data being visible to decision-makers in the organisation. New systems and digital technologies are a key part of this solution, including software that can monitor a company’s emissions footprint. The challenge is often integrating this new capability into existing systems and IT architectures, and companies should not underestimate the importance of putting in place the right digital architecture and systems. Given the pace at which emissions reporting is evolving, any digital solution selected also needs to be sufficiently scalable and agile to meet future requirements as data accuracy and traceability improves. 

Questions to ask when defining your digital landscape for emissions management include: 

With the right digital landscape in place, information can flow in both directions. Emissions data can be fed back into operational systems for use in day-to-day decision making, as well as planning and forecasting. This will have a direct commercial impact on the business’ ability to manage transition-related risks and maximise the potential returns from new opportunities. Emissions management becomes truly value adding when this information is embedded into existing IT frameworks, rather than sitting on the side.  

What’s next? 

Emissions measurement and reporting cannot be viewed as one-off events or stand-alone processes for any company focused on decarbonising, reducing climate risk and gaining competitive advantage. Companies must consider how these processes can be integrated throughout their operational and commercial decision making.  

As regulations and market expectations continue to evolve, a clearly defined operating model is a necessary foundation. This starts with setting a vision that supports the company’s overall strategy, and flows down through the controls, structures, processes and digital landscape required to embed emissions management for the long term.  

With industry specific experts in emissions management, organisation design and market-leading methodologies and tools, Baringa is on hand to help you define your future operating model for continued success in this rapidly changing arena.  

To find out more about emissions management, organisation design and the market-leading methodologies and tools that can help your business define your future emissions management operating model, please get in touch with Laura Menzies, David Kane, or Hugh Greene. 

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