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.
A key feature of this circular is SEBI's endorsement of the spend-based methodology, also referred to as the Carbon & Energy Proxy Accounting (CEPA) methodology, which leverages readily available financial data on fuel, refrigerant and electricity expenses, making the calculations simple and quick, with the goal of making carbon and energy accounting exercises.
What is the Spend-Based Methodology or Carbon & Energy Proxy Accounting (CEPA) Methodology?
The Carbon & Energy Proxy Accounting (CEPA) Methodology is a streamlined approach designed to estimate Scope 1 and Scope 2 greenhouse gas (GHG) emissions using financial expenditure data. This methodology is particularly advantageous for organizations that may not have access to detailed operational data regarding fuel consumption, refrigerant use, or electricity consumption.
Breakdown of the Carbon & Energy Proxy Accounting (CEPA) Methodology:
Step 1: Data Collection
Gather Financial Data: Organizations should begin by collecting relevant financial data from their accounting systems, focusing on expenses related to: Fuels (e.g., gasoline, diesel, natural gas), Refrigerants (e.g., hydrofluorocarbons), and Electricity consumption
Classification:Organizing this data by location and type of expenditure enhances the accuracy of future estimations.
Step 2: Price Adjustments
Using the CEPA pricing database consisting of credible pricing information (price factors) to convert spend-based data to quantity-based data for each type of fuel and electricity unit consumed
Step 3: Application of Emission Factors
Select Appropriate Emission Factors: Apply the appropriate IPCC quantity-based emission factors and energy factors to the estimated quantities to calculate the CO2 emissions and total energy consumption from the Intergovernmental Panel on Climate Change (IPCC)
Calculate Emissions: Multiply the quantity estimates obtained in Step 2 by the corresponding emission factors.
Carbon emissions = (spend data/price factor)* Quantity-based emission factor
Energy Consumption = (spend data/price factor)*Quantity-based energy factor
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
The methodology used for calculations
Sources of financial data and emission factors
Any assumptions made during the estimation process
By following these steps in the CEPA methodology, organizations can effectively estimate their GHG 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 CEPA Methodology?
SEBI’s endorsement of the CEPA methodology stems from its practicality in addressing significant challenges faced by Indian companies in sustainability reporting:
Ease of Implementation: The CEPA methodology simplifies carbon accounting by utilizing readily available financial data. This makes it especially useful for smaller firms or those beginning their ESG reporting journey.
Consistency Across Sectors: By standardizing spend-based proxies, SEBI ensures that sustainability disclosures are comparable across various industries, allowing stakeholders to assess environmental performance effectively.
Encouragement for Improvement: While CEPA serves as an entry point for organizations with limited capabilities, it encourages companies to transition towards more precise activity-based methodologies as they enhance their data collection systems.
What Does This Mean for Organizations?
The adoption of the CEPA methodology has several implications:
Accessibility: Companies without advanced environmental data management systems can now engage in sustainability reporting using financial proxies.
Transparency: Organizations must disclose their assumptions and sources for emission factors when employing the CEPA methodology, ensuring clarity in their reporting.
Competitiveness: By aligning with SEBI’s BRSR Core standards and global ESG practices, companies can enhance their attractiveness to international investors.
Pathway to Maturity: The spend-based approach serves as a foundation for businesses to gradually transition to more accurate activity-based measurements as their capabilities grow.
SEBI’s endorsement of the CEPA methodology under the BRSR Core framework marks a significant step forward in promoting standardized and transparent ESG reporting in India. The CEPA 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 CEPA Methodology
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 & Energy Proxy Accounting (CEPA) Methodology
The CEPA 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 Scope 1 and 2 metrics seamlessly. Access to this data is crucial for implementing the CEPA 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 CEPA 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 CEPA 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 & Energy Proxy Accounting Proxy (CEPA) 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.