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Leveraging technology to simplify carbon accounting in private markets

Investor focus on corporate emissions reduction is on the rise as the world moves toward decarbonization targets. In fact, a new Simon-Kucher & Partners survey of 132 European private equity professionals found that 78% said reducing their portfolio’s carbon emissions has positively impacted fundraising performance. What’s more, 93% said initiatives to reduce emissions increased exit valuations.

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By Meredith Binder
Chief marketing officer, Novata


Investor focus on corporate emissions reduction is on the rise as the world moves toward decarbonization targets. In fact, a new Simon-Kucher & Partners survey of 132 European private equity professionals found that 78% said reducing their portfolio’s carbon emissions has positively impacted fundraising performance. What’s more, 93% said initiatives to reduce emissions increased exit valuations.

Carbon considerations are also an essential component of ESG reporting as regulatory requirements evolve. The Sustainable Finance Disclosure Regulation (SFDR) and the Corporate Sustainability Reporting Directive (CSRD), for instance, have expanded requirements to include reporting on Scope 3 emissions – a notable change from previous regulations. As a result, companies must now grapple with how to approach carbon accounting and understand the impact of their facilities, business travel, supply chain, and other operating decisions on emissions.

Despite its importance, getting started with carbon accounting can feel daunting for both investors and reporting companies. Emissions calculations are increasingly complex as you move across the three scopes. Introducing new organizational practices, such as creating a carbon inventory, can also be a challenge. However, with the right data and processes, companies can take steps to simplify carbon emissions calculations and get closer to achieving their decarbonization goals.

Establishing accurate baseline emissions

The first step in effective carbon management is establishing an accurate baseline of current emissions. This involves creating a carbon inventory through which reporting companies can generate estimates across all scopes:

  • Scope 1: Emissions from sources directly owned and controlled by the organization. Examples include emissions associated with boilers, furnaces, vehicles, and equipment the company owns.
  • Scope 2: Indirect emissions measured from energy purchased by the organization, such as electricity or steam.
  • Scope 3: All other indirect emissions, including emissions embedded in everything the organization purchases. Some examples include raw materials, goods and services purchased, business travel, or employee commutes.

A comprehensive carbon inventory lets companies take stock of where they are and identify areas to improve efficiencies. Accurate data collection is vital to ensure the accuracy of this process, as investors seek insights into the impact of their investments and look to find opportunities to support decarbonization efforts of their portfolio companies. In addition to Scope 1, 2, and 3 emissions, investors may also track metrics such as net-zero targets and the percentage of renewable energy used, which can help paint a fuller picture of a company’s carbon footprint. To facilitate this process, companies can leverage technology platforms to simplify data collection, streamline calculations, and ensure compliance with reporting frameworks.

Defining data-driven targets

Once baseline estimates are established, investors and reporting companies can use this information to set targets, outline action plans to reduce carbon emissions, and track progress over time. Frameworks such as the Science-Based Targets Initiative (SBTi) provide guidelines for setting targets based on scientific evidence in line with the global effort to limit global warming to 1.5°C.

Aligned with defining these targets is identifying the actions necessary for progress. Companies with net-zero targets, for instance, will be focused on both reducing and removing greenhouse gas emissions (GHG) by a defined deadline. Some examples of actions a company can take include making changes to its supply chain, implementing organizational changes to improve efficiency and save money, or investing in carbon credit projects to offset unavoidable emissions. Because decarbonization is an ongoing process, it is crucial to regularly review and refine targets as the understanding of climate change evolves and new technologies and solutions emerge.

Simplifying carbon accounting with technology

As the need for climate action grows, so too does the expectation for companies to measure, manage, and reduce their GHG emissions effectively. Investors and reporting companies can and should leverage appropriate technology tools to improve efficiencies and collect high quality data. For example, Novata provides an intuitive, easy-to-use solution to help reporting companies establish baseline emissions estimates or take a deeper dive into their carbon inventory. Emissions calculations are supported by a robust set of guidance, including step-by-step calculation guides, how-to videos, and in-house expertise. Novata’s ecosystem of partners also provide deep climate expertise to support decarbonization strategies across the private markets.

Are you an investor looking to collect emissions data from your reporting companies? To find the Novata carbon accounting solution that works best for your needs, take this short quiz.


Meredith Binder, chief marketing officer, Novata – Meredith Binder is Novata’s chief marketing officer. Prior to joining Novata, Meredith was the global head of marketing & customer experience for S&P Global Market Intelligence, a division of S&P Global Inc, responsible for global marketing, client support, CX, and internal education. She has also held global marketing and communications roles at SNL Financial and FactSet Research Systems, Inc. Meredith has a MS, Management of Technology from Fairfield University and a BS, Industrial Management, Graphics & Communication from Carnegie Mellon University.

 

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