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Emily Pierce is the chief global policy officer and associate general counsel at Tempe, Arizona-based Persefoni, which provides a carbon accounting and sustainability management platform. Views are the author’s own.

Amid increasingly stringent global sustainability disclosure regulations, companies are under pressure to collect, calculate, and report greenhouse gas (GHG) data. This process is challenging and can be quite complex, but evolving technology can help chief financial officers (CFOs) meet these requirements.

Today's business environment requires CFOs to recognize that the demand for GHG data goes beyond mere compliance—it is about staying competitive in a market that demands transparency on sustainability risks and risk assessment metrics.

Market forces, investor expectations, and global trends are driving companies to be transparent about their climate risks and related emissions data, even if they are not currently subject to climate-related regulations. Financial leaders must proactively integrate GHG data into financial planning, leveraging technology to manage and analyze this critical information. Failing to do so may result in falling behind in both compliance and competitiveness.

This year marks the beginning of a wave of enhanced, regulated sustainability and climate information reporting. Companies need to understand and be prepared to share their carbon emissions information, including Scope 1 (direct emissions), Scope 2 (indirect emissions generated in the company's value chain, including its supply chain), and Scope 3 (all indirect emissions generated across the company's entire supply chain).

In the United States, the U.S. Securities and Exchange Commission's (SEC) climate disclosure rules, although currently stayed due to litigation, require U.S. public companies to disclose material climate-related information, including Scope 1 and Scope 2 emissions, with attestation reports. Some CFOs are waiting for the court decision, but developments in other regions have already required action.

Meanwhile, California's climate laws will require public and private companies operating in California with annual revenues of at least $1 billion to disclose Scope 1, 2, and 3 emissions as well as climate-related financial risks. Assurance requirements will be phased in. Although implementation details are still being finalized, the legislative requirements are clear: GHG emissions reporting will be regulated, and thousands of companies will need to comply.

In Europe, the Corporate Sustainability Reporting Directive (CSRD) has come into effect. Large European listed companies have begun collecting data to report sustainability information for the 2024 fiscal year in their next annual report. Next year, this requirement will extend to more companies, including listed and non-listed ones. These reports follow the European Sustainability Reporting Standards and will require disclosure of Scope 3 emissions as well as detailed information on transition plans and targets. The standards also require companies to disclose the percentage of Scope 3 emissions calculated based on primary data provided by suppliers.

Within the next four years, the CSRD will apply to approximately 50,000 companies, including many U.S. companies. Globally, many jurisdictions are strengthening their disclosure regulations by incorporating the IFRS Sustainability Disclosure Standards (ISSB standards). These standards also clearly set expectations for disclosing emissions data, including Scope 3, and guide reporting entities to prioritize the use of primary data for calculations.

Preparing for Compliance

As the regulatory landscape unfolds, CFOs must focus on compliance but also need to understand how it impacts competitiveness. Regulations are emerging to meet market demands, which is reflected in voluntary trends, such as the approximately 23,000 companies currently reporting their emissions and other data to the Carbon Disclosure Project (CDP) due to shareholder or business requirements. Capital providers are also driving requests as they seek to calculate their financed emissions. Regulations like the CSRD will accelerate this market demand.

CFOs need to help their companies confront their GHG emissions and climate-related financial risks. This involves vast amounts of data, which can be extremely resource-intensive to handle.

However, technology offers a solution that can greatly simplify the process. Software automation forms the backbone of a robust carbon data program, and artificial intelligence is increasingly being used to streamline carbon accounting and analysis. Benefits include:

  • Increased efficiency in building a comprehensive carbon footprint: Technology enables organizations to measure and analyze their carbon footprint across all operations, enabling global data management and granular tracking. For companies with complex corporate structures and multiple reporting requirements, tracking and reporting emissions by segment is crucial for efficiently complying with the CSRD, California climate laws, and SEC climate rules.
  • Improved control and verification processes: Advanced carbon accounting software helps ensure emissions data is accurate and meets regulatory standards. AI can detect anomalies in emissions data, identify irregularities or errors that may indicate inaccuracies or reporting issues, flag abnormal spikes or drops for further investigation, and help companies automatically select and apply the correct emission factors, improving the precision of GHG calculations.
  • Facilitating Scope 3 reporting: Obtaining data from a company's supply chain is a major challenge because the data is not readily available. Tracking primary data and blending it with spend-based estimates is also complex. Technology enables companies to integrate primary data into reports, better reflecting actual emissions and informing action, while enabling more companies in the value chain to calculate their emissions and share primary data with you.
  • Advanced trend analysis: AI tools can quickly analyze emissions data, both within a company and across industries, identifying actionable emission reduction opportunities for CFOs to model. Technology-driven benchmarking also helps identify actionable competitive opportunities.

CFOs cannot afford to wait until ESG regulations take effect to take the necessary steps to ensure compliance readiness. Adopting technology from the outset will ensure that the mechanisms you establish are efficient, effective, and reliable.