Increasing Accuracy and Transparency in Climate Risk Disclosures

Collectively we’re grappling with how to reduce Canada’s GHG emissions by 40-45% from 2005 levels and to achieve net zero emissions by 2030. The Federal Government has been consulting widely with Canadians and recently released its 2030 Emissions Reduction Plan. It’s going to take effort and action by all players in all parts of Canada’s economy to meet these goals.

We also need accurate and reliable information so we can prioritize the actions needed, as well as measure and validate our individual and collective progress towards our reduction goals. The only way any stakeholder can make informed decisions that will most effectively and efficiently reduce our emissions is on the basis of accurate and transparent information. This is true for policy makers, business leaders, and individuals.

The investment community is also in the hunt for accurate and data regarding climate risks to aid in their investment decision-making. Big strides have been made in increasing companies’ climate risk reporting, identified by the Task Force on Climate-related Financial Disclosures (TFCD) as also helping address the climate crisis, but despite this recent acceleration, “disclosure is still lacking.”

More company climate risk disclosure is needed to enable informed and sustainable decision-making for a successful transition to a low-carbon economy across the board and particularly in carbon intensive sectors like oil and gas and energy. But company disclosure on its own is not enough. We need to be able to validate what company’s report and disclose about their emissions and climate risk. We need accuracy, transparency and the ability for an objective third party to review and validate company reporting.

An Academic Approach
What we need is to take an academic approach to considering and evaluating company disclosures. Just as the scientific method relies on replication and external review to validate results, making real progress towards our emission reduction commitments relies on the ability for business leaders and investors to be able to validate company climate reporting to ensure accuracy and transparency.

Right now, there is no way to benchmark an individual company’s climate performance in the oil and gas sector against its competitors. In fact, it isn’t possible to reliably validate a company’s climate reporting against its own targets and performance, much less against its competitors. This lack of validation makes it very difficult for investors to appraise company disclosures and make the comparisons needed to drive solid fact-based financial decisions. Indeed, the lack of transparent externally validated benchmark data also hinders effective operational decision-making on the part of company leadership seeking to reduce emissions and climate risk. Accurate, transparent externally validated data can turn blind spots into spotlights helping identify the opportunities to reduce GHG emissions and improve performance in line with industry leaders.

Third Party Validation
How do we do this? In short, we use data analytics to help us. Work is progressing rapidly on global reporting standards for sustainability and climate related reporting. This is critical for comparing company disclosures. The TCFD provides guidance on Scope 1, Scope 2 and Scope 3 GHG emissions, metrics on climate-related transition and physical risks and opportunities, capital deployment, internal carbon price and remuneration. Moving towards greater consistency in type and style of climate disclosures by companies is helpful.

We also need to be able to rely on third party objective experts to validate the data reported by companies. Leveraging data analytics combined with subject matter expertise in GHGs and other ESG metrics, we can take an academic approach to validation by ensuring that there is a common list of standardized methods for comparing a company’s reported data with what can be derived from the authoritative data that is available. Data analytics also allows for full transparency regarding the calculations used. With this transparency of sources and methods, stakeholders can evaluate any significant differences that arise between company reported performance and what arises in the validation.

A good analogy for the validation process is the common practice of having a home inspection conducted when considering a sale. A home inspection provides an overview and report on a consistent list of elements of a home – electrical, structural, and the like, identifying potential risks for a purchaser where the building requires repair or improvement to be compliant with safety and other standards. The inspection services qualify to conduct the inspections based on experience and credentials evaluated by a standard-setting organization. Finally, the inspection can be undertaken by the purchaser as a condition on their offer to purchase or as is more commonly done in the name of speed and transparency, a seller proactively undertakes a home inspection, making the results available during viewings to all potential purchasers, helping them to make a sound decision about pursuing a purchase of the structure or not.

To carry the analogy on, HSE Analytics is uniquely placed to work with peer experts in the oil and gas industry on third-party objective validations of company environmental reporting and climate disclosures. The company’s founder, Troy Jones, holds a PhD and is deeply familiar with taking an academic, data-driven approach to meeting challenges, delivering performance improvement through effective multi-stakeholder collaboration. HSE Analytics also possesses the necessary deep subject matter expertise drawn from a decade of experience working side-by-side with the oil and gas industry focused on multiple major environmental and other challenges facing the industry at the federal, provincial and municipal levels of government.

There’s no time like the present and the world is watching us. Given the importance of the oil and gas sector to Canada’s economy, it’s critical that these companies successfully make the transition to a low-carbon future. Canada can be a clean energy leader and to fulfil this promise, we need to make it possible for investors, both large and small, and industry leaders and interested Canadians to evaluate the data companies are reporting about their climate performance. Let’s take HSE Analytics’ academic approach, leverage the power of data analytics combined with deep subject matter expertise to make climate risk disclosures more accurate and transparent and help our oil and gas sector successfully transition to the low-carbon future. Our planet depends on it.

At HSE Analytics, we combine PhD level expertise with wide-ranging industry and technology experience to unlock insights from your data. Let’s talk about how we can help transform your data into insight.