Building a sustainable future: a practical guide to ESG reporting and carbon accounting for infrastructure investors
High-emitting sectors like the infrastructure sector are a regulatory focus for GHG emission reduction from governments and global regulatory bodies. ESG (environmental, social and governance) regulations, particularly with regards to carbon accounting (view our timeline of upcoming carbon accounting requirements here) are widespread and constantly evolving. The added focus on ESG in this sector means that reporting on ESG and acting on the insights uncovered in those reports is particularly important.
A previous blog, ‘Navigating ESG in sustainable infrastructure’, focused on the rising scrutiny of investors and banks towards green infrastructure managers, in order to secure investment and work towards government net-zero pathways, highlighting the importance of reporting clearly in line with evolving regulations. This blog focuses on the unique practical challenges behind the calculation of metrics for infrastructure companies and investors.
The Scope 3 struggle
Tracking Scope 3 carbon emissions is particularly challenging for this sector due to the complex, multifaceted nature of infrastructure projects.
Scope 3 emissions refer to all indirect emissions that occur as a result of a firm’s operations, which can include anything from waste disposal by third-parties to employee commutes. Given the span of infrastructure supply chains and the vast numbers of stakeholders involved – architects, contractors, suppliers, regulators, users, and others – quantifying and tracking these emissions is a formidable task.
Infrastructure firms rely on materials such as steel, concrete, and other construction inputs. The extraction, processing, and transportation of these materials generates considerable GHG emissions. Accurately tracking carbon production requires granular data from every step of these materials' lifecycle, which may not always be readily available or reliable, as the emissions might be produced by different companies or contractors. Changes in suppliers or their practices make tracking even more difficult.
However, companies and investors can make a decent start on Scope 3 emission reporting by using a “spend-based” reporting approach. Using GHG Protocol-approved conversion factors, KEY ESG can calculate a“spend-based” estimate of a firm’s scope 3 emissions based on what they spend on goods and services, the industry and the location. The spend-based approach can be easier and less costly to implement, but it is less accurate as it’s based on industry benchmarks. Quite often, variances in spending don't necessarily correspond exactly to changes in emissions. As a company’s carbon accounting progresses, they could switch to activity-based calculations. This method often provides more accurate and detailed data but can be resource-intensive to implement.
Data collection complexity
ESG reporting for infrastructure investors is often particularly complex because the assets are owned in different ownership structures (such as SPVs) and are spread across various locations and asset types. Collecting the data from disparate sites involves collaborating with many different parties, often including external Operations & Management teams. The data from different ownership structures, as well as various asset locations and types must be highly granular to draw actionable insights, from which operational improvements can be made.
KEY ESG has worked closely with its infrastructure clients to identify these challenges and ensure that the platform provides appropriate collaboration tools to automate and streamline the data collection process as much as possible. Our dashboard helps infrastructure investors to handle those workflows effectively and enables them to sort and segment the data into different sites, asset classes and ownership structures. This means that they can clearly see outliers and underperformers across their funds, sites and assets and take action to make improvements.
Some metrics are harder to track than others
HR data, for example, can be hard to gather within the infrastructure industry, because many jobs are fulfilled as short-term contracts, and lots of work is subcontracted out. Safety standards, emissions, culture, and general staff wellbeing are all further complicated by transitory teams and outsourced labour.
Communications between departments can also slow down data collection processes and, often, staff further down the chain simply have no understanding as to why the information requested is needed, or what it will be used for. Health and safety staff, for instance, are often hesitant to provide ESG data in case it reveals that they are doing something wrong.
With KEY ESG software, processes are streamlined. Each department of every portfolio company can access a user-friendly dashboard catered specifically to their data input requirements. This platform explains exactly what metrics need to be measured, how they should be tracked, and why they are needed, allowing staff to submit accurate data that can provide valuable insights.
How software can help
Adopting a software solution to help manage ESG reporting makes the entire process easier – from data collection to assessing metrics and submitting reports.
We encourage firms to start small and gradually scale up their processes as their team becomes more adept. Start with a few metrics for the first year, then add more over time. Gradually integrating these systems keep steam members on the same page and encourages them to learn more about ESG.
Putting it into practice
One of our infrastructure fund manager clients is a market leader in decarbonisation and impact investing. The company’s team was collecting raw data on greenhouse gasses, but the data was disjointed and incomparable. They didn’t have the internal resources to measure their own scopes 1, 2, and 3 emissions alongside their financed emissions.
KEY ESG’s fund manager platform provided a centralised hub for activity-based and spend-based carbon accounting, calculating the firm’s Scope 1, 2, and 3 emissions for their portfolio companies within 1 quarter.
- 26 portfolio companies evaluated
- 10 ESG metrics evaluated for each
- 7+ countries of operations covered in the assessment
- 100+ automated carbon conversion factors used
- 6 weeks from start to output
- 5 dedicated support interactions hosted by KEY ESG
- 2+ ESG improvement areas flagged on average per company
- KEY ESG software streamlined the firm’s processes and improved data accuracy, enabling the firm to set data-driven improvement targets.
For more information on how KEY ESG’s platform can streamline and optimise the ESG management processes for infrastructure investors, please get in touch with our team.
Building a sustainable future: a practical guide to ESG reporting and carbon accounting for infrastructure investors
High-emitting sectors like the infrastructure sector are a regulatory focus for GHG emission reduction from governments and global regulatory bodies. ESG (environmental, social and governance) regulations, particularly with regards to carbon accounting (view our timeline of upcoming carbon accounting requirements here) are widespread and constantly evolving. The added focus on ESG in this sector means that reporting on ESG and acting on the insights uncovered in those reports is particularly important.
A previous blog, ‘Navigating ESG in sustainable infrastructure’, focused on the rising scrutiny of investors and banks towards green infrastructure managers, in order to secure investment and work towards government net-zero pathways, highlighting the importance of reporting clearly in line with evolving regulations. This blog focuses on the unique practical challenges behind the calculation of metrics for infrastructure companies and investors.
The Scope 3 struggle
Tracking Scope 3 carbon emissions is particularly challenging for this sector due to the complex, multifaceted nature of infrastructure projects.
Scope 3 emissions refer to all indirect emissions that occur as a result of a firm’s operations, which can include anything from waste disposal by third-parties to employee commutes. Given the span of infrastructure supply chains and the vast numbers of stakeholders involved – architects, contractors, suppliers, regulators, users, and others – quantifying and tracking these emissions is a formidable task.
Infrastructure firms rely on materials such as steel, concrete, and other construction inputs. The extraction, processing, and transportation of these materials generates considerable GHG emissions. Accurately tracking carbon production requires granular data from every step of these materials' lifecycle, which may not always be readily available or reliable, as the emissions might be produced by different companies or contractors. Changes in suppliers or their practices make tracking even more difficult.
However, companies and investors can make a decent start on Scope 3 emission reporting by using a “spend-based” reporting approach. Using GHG Protocol-approved conversion factors, KEY ESG can calculate a“spend-based” estimate of a firm’s scope 3 emissions based on what they spend on goods and services, the industry and the location. The spend-based approach can be easier and less costly to implement, but it is less accurate as it’s based on industry benchmarks. Quite often, variances in spending don't necessarily correspond exactly to changes in emissions. As a company’s carbon accounting progresses, they could switch to activity-based calculations. This method often provides more accurate and detailed data but can be resource-intensive to implement.
Data collection complexity
ESG reporting for infrastructure investors is often particularly complex because the assets are owned in different ownership structures (such as SPVs) and are spread across various locations and asset types. Collecting the data from disparate sites involves collaborating with many different parties, often including external Operations & Management teams. The data from different ownership structures, as well as various asset locations and types must be highly granular to draw actionable insights, from which operational improvements can be made.
KEY ESG has worked closely with its infrastructure clients to identify these challenges and ensure that the platform provides appropriate collaboration tools to automate and streamline the data collection process as much as possible. Our dashboard helps infrastructure investors to handle those workflows effectively and enables them to sort and segment the data into different sites, asset classes and ownership structures. This means that they can clearly see outliers and underperformers across their funds, sites and assets and take action to make improvements.
Some metrics are harder to track than others
HR data, for example, can be hard to gather within the infrastructure industry, because many jobs are fulfilled as short-term contracts, and lots of work is subcontracted out. Safety standards, emissions, culture, and general staff wellbeing are all further complicated by transitory teams and outsourced labour.
Communications between departments can also slow down data collection processes and, often, staff further down the chain simply have no understanding as to why the information requested is needed, or what it will be used for. Health and safety staff, for instance, are often hesitant to provide ESG data in case it reveals that they are doing something wrong.
With KEY ESG software, processes are streamlined. Each department of every portfolio company can access a user-friendly dashboard catered specifically to their data input requirements. This platform explains exactly what metrics need to be measured, how they should be tracked, and why they are needed, allowing staff to submit accurate data that can provide valuable insights.
How software can help
Adopting a software solution to help manage ESG reporting makes the entire process easier – from data collection to assessing metrics and submitting reports.
We encourage firms to start small and gradually scale up their processes as their team becomes more adept. Start with a few metrics for the first year, then add more over time. Gradually integrating these systems keep steam members on the same page and encourages them to learn more about ESG.
Putting it into practice
One of our infrastructure fund manager clients is a market leader in decarbonisation and impact investing. The company’s team was collecting raw data on greenhouse gasses, but the data was disjointed and incomparable. They didn’t have the internal resources to measure their own scopes 1, 2, and 3 emissions alongside their financed emissions.
KEY ESG’s fund manager platform provided a centralised hub for activity-based and spend-based carbon accounting, calculating the firm’s Scope 1, 2, and 3 emissions for their portfolio companies within 1 quarter.
- 26 portfolio companies evaluated
- 10 ESG metrics evaluated for each
- 7+ countries of operations covered in the assessment
- 100+ automated carbon conversion factors used
- 6 weeks from start to output
- 5 dedicated support interactions hosted by KEY ESG
- 2+ ESG improvement areas flagged on average per company
- KEY ESG software streamlined the firm’s processes and improved data accuracy, enabling the firm to set data-driven improvement targets.
For more information on how KEY ESG’s platform can streamline and optimise the ESG management processes for infrastructure investors, please get in touch with our team.
