ContactBook a demo

The Role of Third-Party Assurance in Corporate Carbon Footprinting 

Discover this blog post

Third-party assurance of corporate carbon footprinting (CCF) is gaining prominence as businesses strive for greater climate transparency. This blog post explores the basic definitions related to third-party assurance and presents research that illustrates its impact on emissions reporting and reduction.

Understanding Third-Party Assurance

Third-party assurance plays a crucial role in verifying the accuracy and reliability of corporate carbon footprint data. As businesses increasingly focus on environmental sustainability, understanding the different types and levels of assurance is essential for accurate reporting and effective climate action.

Types of Assurance

There are three primary types of assurance relevant to corporate carbon footprinting:

  1. Validation: This type of assurance assesses a Greenhouse Gas (GHG) statement about the outcome of future activities. For example, validation might be used to assess the avoided emissions from investments in renewable energy projects.
  2. Verification: Verification involves assessing a GHG statement based on historical data. This is commonly used to evaluate the current state of a company's carbon footprint (as-is CCF).
  3. Certification: Certification is the assurance that a product, service, or system meets the requirements of a specific standard. However, this type of assurance is not applicable to corporate carbon footprinting.

Levels of Assurance

Assurance can be provided at two different levels:

  1. Limited Assurance: In this level, the third party has not found any issues that would lead them to believe the GHG inventory is incorrect. This is often referred to as negative assurance.
  2. Reasonable Assurance: At this level, the third-party states that the GHG inventory is fairly stated. This is known as positive assurance.

Who Needs Assurance?

The need for assurance varies based on regulatory requirements and voluntary initiatives:

  1. Mandatory Assurance: Companies that are compliant with the Corporate Sustainability Reporting Directive (CSRD) are required to obtain limited assurance verification for their CCF and all other European Sustainability Reporting Standards (ESRS) data points.
  2. Voluntary Assurance: For non-CSRD companies, assurance is voluntary. These companies can decide whether they want limited or reasonable assurance based on their specific needs and goals.

Who Can Provide Assurance?

The entities authorized to provide assurance depend on the type of assurance required:

  1. Certification: Only mandated certification bodies can certify that a product, service, or system meets the requirements of a specific standard. For example, ISO certification bodies are authorized to provide this type of assurance.
  2. CSRD Limited Assurance: Financial auditors are mandated by legislation to provide limited assurance on CSRD/ESRS data points.

The Impact of Third-Party Assurance on Carbon Footprinting

Recent research has highlighted the significant impact of third-party assurance on the accuracy and effectiveness of corporate carbon footprinting. The findings underscore the importance of assurance in ensuring accurate reporting and encouraging emissions reduction.

The research indicates a strong relationship between voluntary third-party assurance, the correctness of GHG inventories, and mitigation actions:

  1. Higher Emissions Reporting: Companies with verified emissions report 13.7% higher absolute Scope 1 emissions compared to their non-verified counterparts. This suggests that non-verified GHG inventories often underreport emissions, highlighting the importance of third-party verification in ensuring accurate reporting.
  2. Emissions Reduction: Companies with verified emissions have demonstrated a reduction in their Scope 1 emissions over time. In contrast, companies without verification have not shown similar reductions. This indicates that third-party assurance not only improves the accuracy of emissions reporting but also encourages companies to take meaningful steps towards emissions reduction.

The research suggests a potential causal relationship between third-party assurance and emissions reduction. Companies that undergo verification are more likely to implement effective mitigation strategies, leading to lower emissions over time.

The researchers analyzed data from nearly 31,000 listed firms and their Scope 1 emissions from 2016 to 2021. The data was sourced from the Carbon Disclosure Project (CDP) and Clarity.ai, focusing exclusively on Scope 1 emissions.

The findings underscore the importance of third-party assurance in ensuring accurate and transparent emissions reporting. For businesses, this means:

  1. Improved Accuracy: Third-party assurance helps identify and correct underreporting of emissions, leading to more accurate GHG inventories.
  2. Enhanced Credibility: Verified emissions data enhances the credibility of a company's environmental reporting, which is crucial for stakeholders and regulators.
  3. Incentive for Mitigation: The process of obtaining assurance can incentivize companies to implement effective emissions reduction strategies, contributing to broader climate goals.

Conclusion

Third-party assurance plays a pivotal role in advancing climate transparency and sustainability efforts. By ensuring accurate reporting and encouraging emissions reduction, assurance provides businesses with a valuable tool for achieving credible and impactful results. As companies navigate the complexities of environmental reporting, understanding and leveraging third-party assurance will be essential for meeting regulatory requirements and driving meaningful climate action.

About Carbon+Alt+Delete

We provide carbon accounting software for sustainability consultants and consultancies that guide companies towards net zero.

Curious to discover how our software can improve your carbon accounting services?

Feel free to reach out to [email protected] or book a meeting to talk to one of our experts here.