A data product approach to assess and monitor carbon impact.
In this article, we talk about using data products for tracking carbon emissions and continuously monitoring the correlation between carbon emissions and associated financial performance and risk management and sustainability reporting.
Regulatory and NGO-driven pressure is increasing on financial institutions, and the institutions are expected to report on their carbon emissions, associated financial performance (Scope 3, Category 15), risk impact (e.g., earnings at risk due to carbon emissions), and progress of their sustainability objectives (e.g., reduction in carbon emission intensity – Paris Agreement).
A data product is a detailed representation of a company’s “on-the-ground” business operations, designed to produce a specific outcome based on business logic or data transformation. As organizations are becoming more digitally integrated and adopting cloud-first principles for new capabilities, data products are becoming the “go-to” enabler. They enable the delivery of modular capabilities that can be governed, managed, and enhanced within the respective business domains while also enabling the reuse of existing data capabilities across the enterprise.
Scope 1 includes direct greenhouse gas (GHG) emissions, which are emissions from sources that are owned or controlled by a business entity.
Scope 2 includes indirect GHG emissions, which are emissions from the generation of purchased energy consumed by the entity.
Scope 3 includes other indirect GHG emissions, which are emissions generated by activities not owned or controlled by the entity, such as investments or partnerships.
Recent SEC guidance1 to enhance and standardize climate related-disclosures strengthens the case for a structured data taxonomy that can report numerous financial and risk aspects of carbon. Carbon data products will enable the development of this taxonomy which can be used to develop an internal price for carbon as well as the metrics for measuring the impact of emissions. It can also help create consolidated financials and aid in climate scenario analysis.
The SEC guidance also recommends that institutions conduct economic analysis to assess the economic costs of climate change, and its effect on efficiency, competition, and capital formation. Performing a comprehensive analysis will require carbon data products to be leveraged with finance and risk data products.
To ensure they have a trusted and unified view of carbon emissions, financial institutions will need to develop data products with capture and curation capabilities from a wide range of data domains. Currently, companies are highly dependent on third parties for emissions data. While these organizations have made valuable contributions in advancing ESG investing globally, it’s important for lenders, asset owners, and managers to develop data capabilities within their own enterprise to fully understand their carbon footprint and its impact. The third-party data is best used for benchmarking or as a proxy when data from the true source is not available. Additionally, financial services institutions will require data products to baseline and tailor target setting methodologies for Scope 1, 2, and 3 emissions as per the Science Based Target initiative (SBTi).
The spectrum of data domains required for quantifying the carbon footprint of an organization is wide and complex. Data products are the best answer for this, because they can capture the data formats, frequency, and business relevance for each source of emissions as well as the target setting rationale in an organization.
View the PDF to see the numerous data domains that are required for developing carbon data products that can track and measure carbon emissions and their impact.
It’s important to have a dynamic reporting capability to meet the objectives of numerous ESG governing bodies and to track progress on internal priorities such as pay equity and racial equity and providing financial products in underserved communities.
A carbon data product-based approach will help develop an integrated, curated, and controlled information management ecosystem to support:
There are pitfalls to be aware of, however:
As organizations are becoming product aligned, leveraging modern architecture patterns like data mesh can be very advantageous in delivering integrated carbon-finance-risk information management and analytics. This approach can deliver trust and quality. Data mesh architecture also offers the following:
For a view of how data mesh architecture can support integrated carbon-finance-risk information delivery and analytics, download the graphic.
At a time when ESG requirements are likely to add complexity to your existing front-, middle-, and back-office operations, it’s good to know there is an approach that will mitigate that complexity. Data mesh patterns will make it simpler to operationalization and maintain your new sustainability information management capabilities.
Carbon emissions data products
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