There is a rising interest among companies in accounting for their carbon footprint. This endeavor requires the application of calculation methodologies that distinctly outline the required procedures, criteria, and principles. Nevertheless, the process is not devoid of challenges that may give rise to human errors capable of substantially impacting the outcomes. Consequently, stakeholders, including customers, regulators, and investors, anticipate companies to proactively undertake the essential measures to generate precise and credible inventories.
Carbon Footprint Verification and Assurance
A third-party audit serves as crucial evidence regarding the credibility of the carbon footprint. This process yields substantial benefits by enhancing internal control procedures, refining the process of setting organizational and operational boundaries, and bolstering the ability to generate consistent, comprehensive, accurate, and transparent inventories.
Given the inherent imprecision in emissions calculations due to the use of emission factors, a third-party audit may contribute to refining procedures for the collection, calculation, and reporting of greenhouse gas (GHG) emissions. However, it should not devolve into a process aimed at undermining the reporting company.
To elucidate the audit process, let’s examine its integral stages:
- Verification:
This involves a retrospective review by external auditors, confirming the accuracy of calculations and verifying the appropriateness of activity data and emission factors for the selected period and organizational scope. This process should adhere to recognized methodologies such as ISO 14064-3 or ISAE 3000.
2. Assurance:
The culmination of the verification process, assurance is presented as a letter or report expressing the level of confidence in the inventory results. The language employed in the letter is contingent on the chosen type of assurance, which may be “limited” or “reasonable,” with the latter being more comprehensive.
Limited vs. reasonable verification
Limited Verification: Limited verification, as the name implies, confines assurance to specific aspects of the emissions inventory. It is the most prevalent type, offering a fundamental level of assurance compared to reasonable verification. Typically, it involves a documentary review of procedures, an assessment of their consistency with the chosen methodology, an evaluation of data control processes, scrutiny of supporting documents (e.g., invoices, tickets, and spreadsheets), and a check on the accurate application of calculations. The auditor selects a limited sample of data for review, either randomly or in a targeted manner (e.g., focusing on data significantly influencing results). Additionally, the audit team may interview key informants to confirm data or investigate significant variations from previous periods. Limited assurance is generally perceived as credible, making it sufficient in most cases.
Reasonable Verification: Reasonable verification represents the highest level of available assurance. Unlike limited verification, this type includes field visits, often requesting a broader or more disaggregated selection of data (e.g., data by facility rather than aggregate data by a group of facilities). It may also involve a review of measuring instruments and a more thorough examination of existing controls. Due to the heightened scrutiny and the inclusion of site visits, reasonable verification tends to be more costly, encompassing increased travel and living expenses.
In both verification types, the audit team is mandated to recalculate results if identified findings lead to material changes, whether at the facility or corporate level. This involves setting a significance threshold, commonly at 5%.
It’s important to note that while both limited and reasonable verifications aim to minimize the risk of material misstatement, limited verification inherently carries a higher risk compared to reasonable verification.