Challenges of Auditing Climate Change Data

In finance, auditability is table stakes. In sustainability, it’s still a scramble. When your auditor asks, “Where did this number come from?”—you know the answer. You point to the ledger, the workflow, the policy, the controls. But what happens when they ask the same about your emissions data? Or your Scope 3 supplier figures? Or your water intensity ratio? That’s when most companies start digging through Excel files, buried emails, or a consultant’s offline calculator. Let’s be clear: that won’t hold up. Not with CSRD. Not with SEC climate rules. Not with limited assurance requirements just around the corner. If the CFO owns financial control environments, they also need to think about non-financial data the same way. Because today, regulators are asking for emissions breakdowns. Tomorrow, it will be biodiversity, supply chain risk, and human rights. So here’s the question: Can you walk your auditor back to the exact source system, transaction, and calculation method used to generate your sustainability metrics? Not just “we worked with a third party” or “we had a consultant pull that.” But a verifiable, traceable, auditable line—from data ingestion to disclosure. If not, then it’s time to build that infrastructure. What does that actually look like? • Data collection tied directly to operational or financial systems • Centralized controls over assumptions and methodologies • Audit logs for all changes or overrides • Evidence files automatically attached to calculations • Version control of every output • User access permissions and approval chains It’s not about building a whole new financial close process. It’s about applying what you already know—internal control, documentation, defensibility—to a new and fast-evolving class of disclosures. Because soon, your board, investors, and auditors will ask: “Can we trust these numbers?” And the answer can’t be: “We hope so.”

Scope 3 Climate reporting is one of the big debates of 2024 and we need a grown-up discussion about how to address the problems with the data. Our research team has just published some very helpful insights. Key points below:   - It represents the majority of emissions: On average, Scope 3 emissions account for over 80% of overall carbon footprint of companies. - But… reporting is poor quality: In the FTSE All World (ie large/mid caps representing approx. largest 4000 listed companies globally) 45% disclose Scope 3 data, but less than half of them cover the most material categories for their sector. - And reported data is volatile, with over a third of disclosed values varying at least 50% YoY and half varying at least 20%. Changes to reported Scope 3 categories is major source of variation, with almost half of reporting companies in the FTSE All-World Index either adjusting categories (37%) or disclosing for the first time (12%). - Estimated data varies dramatically depending on what models and methodologies you apply. Ultimately, the quality of estimated data is inherently constrained by the quantity and quality of the available reported data. Compared to Scope 1 and 2 estimates, Scope 3 estimation models must work with a third less input data – which, on average, is also almost twice as variable and more than twice as volatile. - There is potentially too much discretion on how to report: Existing standards provide broad discretion on which emissions to include, how to categorise them, and what data and methods to use to measure them – creating a much higher reporting burden for Scope 3 emissions for companies, but also contributing to poor data quality and comparability for investors. - Focusing on top 2 or 3 categories could be the way forward: the two most material Scope 3 categories in each sector and on average cover 81% of total Scope 3 emissions, providing a useful rule of thumb to determine the most material categories for investors and companies. We provide recommendations on Scope 3 for each. Cutting across them, we emphasise the need to systematically focus on the most material Scope 3 categories in each sector to reduce reporting burdens and improve quality and comparability of Scope 3 data.   Read full paper here: https://lnkd.in/erUxsH8d Well done to Félix Fouret Ruben Haalebos Malgorzata Olesiewicz Jack Simmons Mallika Jain Jaakko Kooroshy. Jane Goodland Cornelia Andersson Aled Jones Solange Le Jeune Tony Campos Carolyn Roose Eagle Arne Staal Fiona Bassett Claire Dorrian David Russell Carmen Nuzzo Stephanie Pfeifer OBE Adam Matthews Rory Sullivan Nathan Fabian Tamsin Ballard Sagarika Chatterjee Michael Jantzi Will Oulton Jessica Fries Ella Sexton Ben Caldecott James Close Patrick Arber Faith Ward Andreas Hoepner

As an auditor assessing a client's greenhouse gas (GHG) accounting practices, sources, emissions mitigation efforts, and other related areas, you should ask a comprehensive set of questions to gain a thorough understanding of their practices and ensure compliance with relevant standards. Here are some key questions you might consider: #GHG Accounting Practices 1. GHG Inventory Scope and Boundaries - What are the organizational and operational boundaries defined for your GHG inventory? - How do you determine which GHG sources are included in your inventory? - Do you follow any specific standards or frameworks for #GHGaccounting (e.g., #GHGProtocol)? 2. Data Collection and Management - What processes are in place for collecting and managing GHG data? - How do you ensure the accuracy and completeness of your GHG data? - What tools do you use for GHG data collection and management? 3. Verification and Validation - How often do you verify and validate your #GHGdata? - Do you use third-party verification for your GHG inventory? Details? Documentation? #GHGSources - What are the primary sources of GHG emissions within your operations (e.g., stationary combustion, mobile sources, process emissions)? - How do you identify and categorize different GHG sources? 2. Emission Factors and Calculations - What emission factors do you use for calculating GHG emissions from various sources? - How often are these emission factors updated and reviewed? 3. Scope 1, 2, and 3 Emissions - How do you account for #Scope1 (direct) emissions? - How do you account for Scope 2 emissions? - How do you track and report #Scope 3 emissions? GHG Emissions Mitigation Efforts 1. Mitigation Strategies and Targets - What strategies have you implemented to reduce GHG emissions? - Have you set specific GHG reduction targets? If so, what are they and what is the timeline for achieving them? 2. Performance Tracking and Reporting - How do you measure and track the effectiveness of your emissions reduction efforts? - Do you publicly report your GHG emissions and reduction progress? 3. Renewable Energy and Efficiency Improvements - Have you implemented any renewable energy projects or #energyefficiency improvements. Regulatory Compliance - Are you in compliance with all relevant local, national, and international GHG regulations and reporting requirements? - Can you provide documentation of your compliance status and any regulatory filings? Risk Management and Adaptation - How do you assess and manage risks related to #climatechange and GHG emissions? 3. Stakeholder Engagement - How do you engage with #stakeholders on #GHGemissions and climate-related issues? - What are your future plans for enhancing your GHG accounting and mitigation practices? These questions will help you gather a comprehensive understanding of the client's GHG accounting and management practices.

Auditing Climate Change in ISO 9001: Practical Guidance for Auditors With the integration of climate change considerations into ISO 9001, auditors play a critical role in helping organizations evaluate how these issues impact their Quality Management Systems (QMS). But how do you audit these new requirements effectively? Here’s a clause-by-clause breakdown to guide you: 1) Clause 4.1: Understanding the Organization and its Context Organizations must determine if climate change is a relevant issue affecting their purpose and ability to achieve QMS objectives. As an auditor, evaluate if external and internal factors like regulatory changes, market trends, or supply chain vulnerabilities have been assessed. 2) Clause 4.2: Understanding the Needs and Expectations of Interested Parties Check if organizations have identified climate-related requirements from stakeholders, such as customers, regulators, or industry groups, and whether these are incorporated into the QMS. 3) Clause 6.1: Actions to Address Risks and Opportunities Review how organizations identify risks (e.g., supply chain disruptions from extreme weather) and opportunities (e.g., new markets for sustainable products) related to climate change. Assess if these are integrated into their QMS plans. 4) Clause 7.1: Resources Evaluate whether climate-related considerations impact resource planning, including infrastructure, operational environments, and organizational knowledge. 5) Clause 8: Operations Ensure climate change requirements are addressed in processes such as design, production, and external provider controls. Examples include eco-design, product traceability, and managing claims like carbon neutrality. 6) Clause 9: Performance Evaluation Look for evidence of monitoring and measuring climate-related impacts and customer satisfaction. Confirm that management reviews consider climate change as part of decision-making and improvement initiatives. Why it Matters: These amendments ensure organizations proactively address climate-related challenges, enhancing their sustainability and resilience. As auditors, we must ensure that climate change considerations are effectively identified and integrated into the QMS without losing focus on its intended outcomes. Let’s ensure a greener and more sustainable future through robust auditing practices. For more insights, connect or explore the latest ISO guidance! #ISO9001 #ClimateAction #AuditingPractices #Sustainability #DNV