The Securities and Exchange Board of India (SEBI), through its circular (Circular SEBI/HO/CFD/CFD-SEC-2/P/CIR/2023/122), has mandated the adoption of the Business Responsibility and Sustainability Report (BRSR) Core for listed companies under Regulation 34(2) of the LODR Regulations, 2015. Effective from FY 2024-25, this framework aims to standardize sustainability disclosures, ensuring transparency and accountability in addressing ESG (Environmental, Social, and Governance) considerations.
The circular provides detailed guidelines for calculating environmental footprints, including greenhouse gas (GHG) emissions, water consumption, energy usage, and waste generation. A key feature of this framework is SEBI's endorsement of the spend-based methodology, also referred to as the Carbon Accounting Proxy (CAP) Methodology, for estimating environmental metrics when direct measurement data is unavailable.
What is the Spend-Based Methodology or Carbon Accounting Proxy (CAP) Methodology?
The Carbon Accounting Proxy (CAP) Methodology is a practical and accessible approach for estimating Scope 1 and Scope 2 emissions using financial expenditure data. It is particularly beneficial for organizations that lack detailed operational data on fuel consumption, refrigerant use, or electricity consumption.
Breakdown of the Carbon Accounting Proxy (CAP) Methodology:
Step 1: Data Collection
Gather Financial Data: Organizations should begin by collecting relevant financial data from their accounting systems. This data should include expenses related to:
Fuels (e.g., gasoline, diesel, natural gas)
Refrigerants (e.g., hydrofluorocarbons)
Electricity consumption
Classification: Ideally, this data should be classified by location (state-wise) and type of expenditure to facilitate more accurate estimations later on.
Step 2: Price Adjustments
Identify Credible Pricing Information: Use credible public pricing databases or market rates to obtain price factors for each type of fuel, refrigerant, and electricity consumed. This could involve:
Consulting government publications or industry reports for average prices.
Utilizing online databases that track energy prices and fuel costs.
Convert Spend Data to Quantity Estimates: Apply the identified price factors to convert the financial spend data into quantity estimates.
Converting Spend Data to Quantity Estimates, an example:
If an organization spent INR 100,000 on diesel at an average price of INR 80 per liter, the quantity of diesel used would be (100,000/80) - 1,250 liters
Step 3: Application of Emission Factors
Select Appropriate Emission Factors: Gather emission factors from recognized sources such as the Intergovernmental Panel on Climate Change (IPCC) or local environmental agencies. These factors represent the amount of CO2 equivalent emissions produced per unit of fuel or energy consumed.
Calculate Emissions: Multiply the quantity estimates obtained in Step 2 by the corresponding emission factors.
For instance: If the emission factor for diesel is 2.68 kg CO2e per liter, then for 1,250 liters of diesel:
Total Emissions = 1,250 liters × 2.68 kg CO2e/liter = 3,350 kg CO2e
Step 4: Aggregation
Compile Emissions Data: After calculating emissions for each type of fuel and electricity consumed, aggregate these figures to obtain total Scope 1 and Scope 2 emissions for the organization. This may involve summing emissions across different locations or operational units.
Report Findings: The final step involves compiling the emissions data into a report that can be disclosed to stakeholders. This report should include:
Total estimated emissions
Methodology used for calculations
Sources of financial data and emission factors
Any assumptions made during the estimation process
By following these steps in the CAP methodology, organizations can effectively estimate their greenhouse gas emissions using available financial data. This approach not only facilitates compliance with sustainability reporting requirements but also lays the groundwork for future improvements in emissions measurement and management as companies develop more sophisticated data collection systems over time.
Why Has SEBI Endorsed the CAP (Carbon Accounting Proxy) Methodology?
SEBI’s endorsement of the spend-based aka Carbon Accounting Proxy Methodology stems from its practicality and adaptability in addressing key challenges faced by Indian companies in sustainability reporting. Below are the primary reasons:
Ease of Implementation: The CAP methodology simplifies carbon accounting by leveraging readily available financial data. Organizations can estimate emissions without requiring extensive infrastructure or advanced tools for direct measurement. This makes it particularly useful for smaller firms or those at the initial stages of ESG reporting.
Consistency Across Sectors: By standardizing spend-based proxies, SEBI ensures that sustainability disclosures are comparable across diverse industries. This uniformity allows stakeholders to assess companies’ environmental performance more effectively, regardless of their sector or operational scale.
Encouragement for Improvement: While spend-based reporting serves as an entry point for organizations with limited capabilities, SEBI encourages companies to transition towards activity-based methodologies over time as they develop better systems for collecting precise data. This progressive approach fosters continuous improvement in ESG practices.
Alignment with Global Standards: The CAP methodology aligns Indian companies with international ESG frameworks like the GHG Protocol, which also supports spend-based calculations as a provisional solution for Scope 3 emissions. This alignment enhances Indian organizations' credibility among global investors who prioritize robust ESG disclosures.
What Does This Mean for Organizations?
The adoption of the spend-based methodology has several implications for organizations:
Accessibility: Companies without advanced environmental data management systems can now participate in sustainability reporting using financial proxies.
Transparency: Organizations must disclose their assumptions and sources for emission factors when using CAP methodology, ensuring clarity in their reporting.
Competitiveness: By aligning with SEBI’s BRSR Core standards and global ESG practices, companies can enhance their appeal to international investors.
Pathway to Maturity: The spend-based approach serves as a stepping stone, enabling businesses to gradually transition to more accurate activity-based measurements as their capabilities evolve.
SEBI’s endorsement of the spend-based methodology, aka Carbon Accounting Proxy Methodology, under the BRSR Core framework marks a significant step forward in promoting standardized and transparent ESG reporting in India. The CAP methodology provides a practical solution for organizations to measure their environmental impact while encouraging them to improve their data collection systems over time. This initiative not only aligns Indian businesses with global standards but also enhances their accountability and sustainability performance on both domestic and international fronts.
StepChange's ESG Accelerator: Empowering Sustainable Practices Aligned with the CAP Methodology for BRSR Reporting
StepChange's ESG Accelerator is an innovative software platform designed to help organizations of all sizes effectively measure, analyze, report, and enhance their Environmental, Social, and Governance (ESG) metrics. By integrating cutting-edge technology with best practices in sustainability, the ESG Accelerator provides a robust framework for organizations to navigate their sustainability journeys.
Key Features of StepChange's ESG Accelerator:
Comprehensive Data Management: Comprehensive Data Management: The platform standardizes and automates data collection workflows through over 350 integrations, allowing for seamless data unification across facilities, departments, and geographies. Key features include:
OCR Integration: Optical Character Recognition (OCR) technology enables organizations to digitize and extract data from scans of physical documents, making it easier to incorporate historical records into the ESG reporting process.
Data Ingestion via WhatsApp: POCs from various departments and facilities can conveniently submit data related to electricity, water, and waste management through WhatsApp. This user-friendly feature allows for quick and efficient data collection from various stakeholders, ensuring timely updates and accurate reporting.
Purpose-Led Dashboard: Users can track and analyze data across more than 90,000 emission factors, ensuring complete coverage of Scope 1, 2, and 3 emissions. This feature empowers organizations to gain insights into their environmental impact and identify areas for improvement.
Automated Reporting: The ESG Accelerator simplifies the reporting process by enabling one-click generation of ESG reports in accordance with globally accepted sustainability standards such as BRSR, GRI, TCFD, and CDP. This functionality reduces response time for compliance requirements and enhances transparency.
Science-Based Insights: The platform supports organizations in setting science-based targets aligned with international frameworks. It provides actionable recommendations to help businesses track their progress against these targets while identifying opportunities for emissions reduction.
Peer Benchmarking: Organizations can benchmark their core ESG metrics against industry peers using available data, facilitating continuous improvement and competitive advantage in sustainability initiatives.
Alignment with the Carbon Accounting Proxy (CAP) Methodology for BRSR Reporting
The CAP methodology is particularly relevant to the functionalities offered by StepChange's ESG Accelerator. Here’s how the accelerator aligns with this methodology:
Data Collection Capabilities: The ESG Accelerator enables organizations to gather financial data related to expenditures on fuels, electricity, and other operational inputs seamlessly. Access to this data is crucial for implementing the CAP methodology effectively.
Integration of Price Adjustments: With access to credible pricing information through the platform’s extensive database, organizations can easily convert financial spend data into quantity estimates for fuel or energy use—an essential step in the CAP methodology.
Emission Factor Application: The accelerator provides access to a vast library of emission factors from recognized sources, allowing organizations to accurately calculate emissions based on quantity estimates derived from financial data. This integration supports the CAP methodology by ensuring that emissions calculations are based on reliable data.
Reporting and Compliance: By facilitating automated reporting aligned with BRSR and other frameworks, StepChange’s ESG Accelerator helps organizations communicate their emissions estimates derived from the CAP methodology transparently to stakeholders.
Continuous Improvement Pathway: The platform encourages organizations to transition from spend-based estimates to more precise activity-based measurements over time. As companies develop better data management systems through StepChange's tools, they can enhance their emissions reporting accuracy.
StepChange's ESG Accelerator is a powerful tool that empowers organizations to take control of their sustainability efforts while aligning closely with the Carbon Accounting Proxy (CAP) methodology. By providing comprehensive data management capabilities—including OCR integration and WhatsApp data ingestion—alongside automated reporting features and science-based insights, the platform enables companies to effectively measure and improve their ESG performance. As organizations leverage these tools to implement the CAP methodology, they are better equipped to navigate the complexities of sustainability reporting and contribute positively to global environmental goals.