If you were told that a company made $100m in profits last year, how much would the company be worth? Or if it lost $100m? Impossible to say without context, yes?

So why is it any different with emissions reporting?

If one pharmaceutical company has 10% lower CO₂ emissions than another, is it better? Again, it’s impossible to say. It may be half the size of the other, or outsource all of its production, or be based in France (with a mostly nuclear electricity grid).  

So, it is critical that companies report their CO₂ emissions data in a context that helps investors (and other stakeholders) to understand what it means, how important it is and what the direction of travel is.

There are many types of context.  Context can be:

• Size-derived: As growth or decline within product lines offered by the company may have a significant impact on emissions
• Product-mix-derived: As new products may increase or decrease a company's emissions profile
• Geographically-derived: As changes to the source of electricity generation have fundamental impacts on the Scope 2 emissions of companies using that electricity
• Value-chain derived: As companies will have differing emissions levels depending on where in the value chain their activities sit
• Time-derived: As the emissions trajectory over time (both backwards and forwards-looking) will be of interest to investors
• Company-derived: As emissions can change due to mergers and acquisitions

One notable 'context' is ‘scope 3’ emissions from manufactured products.

• While a wind turbine manufacturer may report its manufacturing emissions, these are insignificant compared to the emissions that are being saved by its products
• By contrast, the 'scope 3' usage emissions of oil are considerably greater than its scope 1 and scope 2 emissions.

Many ESG ratings agencies pay insufficient attention to the nature of the products being manufactured (which is astonishing!).  It is therefore up to companies to focus them (and their investors) on this critical point of context.

Pressure is growing for more mandatory disclosure and this will inevitably lead to all major companies being legally required to publish emissions and other sustainability data.

But while some investors - and all ESG ratings agencies - say they want comparable data, that doesn’t mean a single emissions number is comparable. It is up to companies to take hold of the narrative here, using the TCFD principles of relevance and clarity to ensure that they contextualise their data and enable investors to make sensible decisions.

Tips and tools

Four tips for companies:

• Focus on materiality. How does your emissions profile fit into the company’s strategy? What data best illustrates this?
• Follow TCFD guidelines in reporting and explicitly show investors that this is what you are doing.
• Think about all types of emissions – scope 1, 2 and 3. See https://ghgprotocol.org/ for more information.
• Talk to your investors – understand why are they interested and what are they interested in. Then make sure that the information that you provide is primarily tailored to their specific interests and needs (whatever standards-setters say).