Understanding relevant climate-related metrics
Understanding relevant climate-related metrics
Our sustainability webinar series aims to break the complex world of sustainability into digestible pieces to help you understand the fundamentals and start driving change in your organisation.
Throughout 2024, our webinars have covered carbon accounting, setting carbon targets, and voluntary and mandatory reporting. Recently, we’ve focussed on climate-related risks, opportunities, scenario analysis, and policies. At our October event, Aletta Boshoff continues the journey with AASB S2 Climate-related Disclosures, focussing on relevant climate-related metrics.
Why climate-related metrics matter now more than ever
Climate-related metrics are key to understanding and managing how climate risks and opportunities affect an organisation. These include measures like greenhouse gas emissions (Scope 1, 2, and 3), carbon footprint, energy usage, water consumption, and waste management. They help track progress towards sustainability goals and ensure compliance with frameworks like the Task Force on Climate-related Financial Disclosures (TCFD) and the Australian Accounting Standards Board (AASB) sustainability reporting standards.
These metrics are essential for transparency and accountability and can help your organisation identify and mitigate climate risks, such as extreme weather events and regulatory changes. By using these metrics, you can help your organisation better plan strategically, align with global climate goals and enhance its resilience to climate impacts.
Case for action
Action on climate-related metrics is driven by the need to comply with regulatory requirements and voluntary guidelines, such as those from the TCFD. Organisations are encouraged to adopt these metrics to prepare for mandatory reporting under standards like AASB S2 Climate-related Disclosures. Integrating climate-related metrics into business practices ultimately supports long-term sustainability and financial performance.
TCFD guidelines regarding climate-related metrics
The TCFD offers helpful guidelines to make sharing information about climate-related financial risks and opportunities easier using specific metrics. Here are their top recommendations and some advice for implementing them:
Disclose metrics used:
- Disclose the metrics used to assess climate-related risks and opportunities in line with your strategy and risk management processes. This includes disclosing Scope 1, Scope 2, and, if appropriate, Scope 3 greenhouse gas (GHG) emissions and the related risks.
Consistency with cross-industry metrics:
- Ensure your metrics are consistent with cross-industry climate-related metric categories. This helps benchmark and compare performance across different organisations and sectors.
Include relevant metrics:
- Consider including metrics on climate-related risks associated with water, energy, land use, and waste management, as applicable to your business.
Incorporate metrics into remuneration policies:
- Where climate-related issues are material, disclose whether and how related performance metrics are incorporated into remuneration policies for executives and key management personnel.
Internal carbon pricing:
- Provide your internal carbon prices and disclose how these prices are used in decision-making processes.
Historical and forward-looking metrics:
- Provide metrics for historical periods to allow for trend analysis and forward-looking metrics to align with business or strategic time horizons.
Methodology disclosure:
- Disclose the methodologies for calculating or estimating climate-related metrics to ensure transparency and comparability.
Tips for putting the TCFD guidelines into action:
To get the most out of the TCFD recommendations, start by adopting these guidelines voluntarily. This will help you prepare for future mandatory reporting and align your business with global climate goals. By incorporating climate-related metrics into your strategic planning, scenario analysis, and risk management processes, you can ensure climate considerations are part of your overall business strategy.
It's also important to talk to your stakeholders, like investors and customers, to understand what they expect and make certain your metrics meet their needs. Sharing qualitative and quantitative information can boost transparency and comparability, especially when numbers are hard to come by. By explaining how you calculate or estimate your climate-related metrics, you ensure your disclosures are clear and comparable.
AASB S2 requirements regarding climate-related metrics
The AASB S2 standard mandates the disclosure of climate-related metrics, building on the voluntary guidelines of the TCFD. Specifically, you must disclose your greenhouse gas emissions (Scope 1, 2, and 3) in accordance with the Greenhouse Gas Protocol. This includes detailing the measurement approach, inputs, assumptions, and any changes to these methods. Additionally, organisations must report on the amount and percentage of assets or business activities vulnerable to climate-related transition, physical risks, and opportunities.
Best practice examples
Several organisations have successfully implemented climate-related metrics, showcasing best practices in reporting and managing climate risks and opportunities. For instance, the National Australia Bank (NAB) has proactively disclosed its financed emissions across various sectors, including power generation, thermal coal, oil and gas, cement, aluminium, iron and steel, and transport aviation. NAB’s detailed breakdown of absolute emissions for Scope 1, 2, and 3, portfolio updates, and data quality references, demonstrate a comprehensive approach to climate-related financial disclosures.
Another example is Coles, which has focused on metrics related to waste management as part of its move towards a circular economy. Coles reports on the percentage of solid waste diverted from landfills over time, providing a clear visual representation of progress through graphs. This practice highlights the importance of tracking and communicating environmental performance in a way that is accessible and understandable to stakeholders.
Both NAB and Coles align their reporting with the TCFD recommendations, which serve as a valuable framework for organisations aiming to enhance their climate-related disclosures.
How BDO can help
The sustainability reporting landscape is developing rapidly, making it challenging for organisations to keep up and know where to start preparing for mandatory reporting. If you need help creating your plans, contact us.