Counting Carbon: Implementing carbon accounting and tracking systems and processes throughout your organization and supply chain

SPEAKER A

I'd like to give the panelists a chance to introduce themselves here. So let's start with you, Gotham.

SPEAKER B

Yeah. Good morning and thank you, Howard, for having me over here.

SPEAKER A

Pleasure.

SPEAKER B

It's a pleasure to be here, and thank you for the opportunity. My name is Gautam. I work for Hess Corporation. We are a global independent oil and gas company, primarily involved in the exploration and production of crude oil and natural gas, having a longstanding commitment to sustainability. So we have been publishing a sustainability report for now over 25 years, and I have some of the industry leaders in when it comes to disclosures around ESG. So, yeah, I've been with Hess now for 16 years, primarily in the sustainability and reporting space.

SPEAKER A

Great. Well, welcome. And Richard.

SPEAKER C

Hi. Yes, I work for a technology firm called Gen Ten. We do things like CTRM, but we take a wider approach, our mission being to help improve the flows of data from origin through to destination in these different supply chains, and trying to match the operation on the trading commercial side with the sustainability side, and measuring the carbon, tracking the carbon, and then providing systems to help them record the inventories that they're using to offset the operations.

SPEAKER A

Excellent. And again, this is going to be a. This session is entitled counting carbon, implementing carbon, accounting and tracking systems and processes throughout your organization and supply chain. So let's get right into it. We had chatted a bit beforehand and put together some questions. Start with you, Gavin. How do you currently track and measure carbon emissions?

SPEAKER B

I mean, I think from a best practice standpoint, I think it really needs to be a very systematic approach as you approach tracking, collecting and reporting on your carbon emissions. Usually companies first define the boundaries and scope of their emissions and primarily utilize greenhouse gas protocol, which is the fundamental guidance when it comes to tracking carbon emissions? I think primarily one of the key things involved is how do you really implement systematic softwares? How do you come up with those tracking mechanisms, how you build that infrastructure, about collecting that, and then the other piece is the calculation part of it. So there are a wide variety of sources that you can use specifically, like, for example, oil and gas industry. We primarily use API compendiums, the American Petroleum Institute compendiums that do provide the emission factors and the calculations to come up with them. And then the last but not the least, is the reporting side of it. And reporting primarily involves using some of your widely recognized frameworks, like GRI or CDP for reporting your emissions.

SPEAKER A

Excellent. And you had mentioned technology in there, too. So maybe, do you have any comments on how you're seeing technology being used to assist that.

SPEAKER C

Our part is providing a place to put the data. And then it's like how, how do you get quality data being the second part of that. So kind of what Tom was referring to towards the end there, having it, we treat it exactly as an attribute of the quality of the stuff that if I'm buying some agricultural product, I've got a place to put, when a farmer tells me that this was the number, I can put it there and then I can keep that in my inventory and I can keep it for allocating, whether I'm going to sell somebody green and charge a premium for it or whatever. So we help with the process and the storage of these numbers. It's a whole different topic about the quality of that number, which I'm sure we'll cover on some of the project stuff that other companies are doing wonderful.

SPEAKER A

Well, so let's talk about some of the methodologies and tools right now that you're using to, to account for your carbon.

SPEAKER B

Yeah, I mean, there are like wide variety of methodologies that are available. Like I said, you know, of course, greenhouse gas protocol being the fundamental guidance for it. And in addition to that, companies also go ahead and develop their own like internal standards or protocols for carbon accounting. And then, especially speaking from an oil and gas perspective, like we are a member of trade associations where a lot of companies kind of come together and provide some, or develop some very specific guidance around oil and gas. Because, I mean, greenhouse gas protocol is a guidance document, but it is kind of at a high level. So how do you really take it one level down and make it more specific and very customized for your oil and gas industry? I think that's where these guidance documents developed by some of the member companies of trade associations are really helpful.

SPEAKER A

Excellent. Did you want to add something to that? I'm sorry. Feel free to jump in. By the way, how frequently at your organization are carbon emissions assessed?

SPEAKER B

I mean, it really depends upon, if you really ask about the frequency, it can be, it really varies from company to company based on their internal policies, based on regulatory requirements, industry standards. But primarily, if I were to break it up into two, it would primarily fall into two main buckets would be mandatory reporting and your voluntary reporting and mandatory reporting. Again, going back to what Darcy and Tom were alluding to, is like, depending upon where you have operations, the jurisdictions you may be, you know, have to comply with the regulations. So for example, in the US, there is an, the frequencies like annual for our EPA greenhouse gas reporting on an annual basis. Talking about Europe, they are subject to EU emissions training scheme where they have to report their emissions on an annual basis. So, I mean, wherever you are required to comply with regulations and report your emissions on an annual basis, that kind of pretty much drives the frequency. But from a voluntary standpoint, depending upon what external commitments in terms of your net zero targets or your sustainability goals that you have communicated externally may drive you to disclose your emissions on a more frequent basis.

SPEAKER A

Gotcha.

SPEAKER C

Yeah, I mean, I guess a lot of companies, they're trying to get that annual report and there's a big job in getting it ready for that annual declaration or whatever. System wise, we're kind of doing it real time. So the logistics, we have our APIs into the vessel and the container, tracking stuff to know details, the profile of the vessel, of the kilometers that it's traveled, et cetera, et cetera, that gives us some admission. But doing that all behind the scenes as a byproduct of operations is sort of, we're trying to relieve the, it used to be, you know, buy right, sell right, and ship it on time. And now you've got all of these other pressure and responsibilities. It's like, well, how do we relieve that burden? So by doing that all in the background, whilst they may only need to report it on an annual basis, the hard work of collecting that information, we're doing it as people are taking product up, as they're shipping product over, so that it's all there whenever they want to report on it just takes away that whole big job at the end of the year.

SPEAKER B

And I'll just add one more thing to it, Howard, is one of the things is with an increased focus on, especially in light of this SEC rule, where they do want to make the GSG disclosures emissions as part of your financial reporting, I think not to create an additional burden for the internal audits to actually do perform at the end of the year. They may be collecting this mode on a monthly basis or a quarterly basis, very similar to how we close our books financially. I mean, that would pretty much take the same frequency just to take that burden off doing it at the end of the year, right.

SPEAKER C

I mean, it's not there yet, but I mean, the idea of bringing carbon onto the balance sheet, if you've got it, if it's a number, I've got 1000 tons of carbon emissions or whatever, and there is a market price to that. You know, it becomes familiar territory in how they'd be able to handle it. But I guess there are just some other problems that need solving before that can become an effective number, you know.

SPEAKER A

And speaking of numbers, let's get to data and data veracity. You know, one of the things that struck me during the last conversation, I think it was Darcy, was mentioning that the challenges of getting inputs from different organizations. So what are some of the, I guess, what strategies do you have to sort of verify accuracy and integrity of emissions data, particularly when you're in a collaborative type of situation?

SPEAKER B

I mean, really, it's kind of, if you're looking at your internal collection of data. So, you know, basically coming up with your robust internal collection data systems, and especially when you are in a decentralized organization environment, getting, how do you automate all your data collection efforts internally? How do you streamline, because your data may be coming from a variety of different sources. Right. How do you streamline? So where you are minimizing human error, you are minimizing human interventions in order to improve accuracy of the data. That is one, the other strategy is how do you engage or involve your internal audit teams to now have another set of eyes when the data is compiled, just to make sure that the errors are minimal. And then also training your people, I think that is one of the most important element is the people who are actually involved in the data collection process. How do you train them? And by training, meaning not just providing them training on systems or processes, but it's more about how do you make them internally aware of the importance of how this data is being collected, and it's going to eventually be reported externally. So I think just reinforcing and emphasizing that point makes it extremely important. And last but not the least, is your utilization of data management software. So I think there are a ton of management softwares out there who can actually do a lot of this for you. There are inbuilt emission factors, there are inbuilt verification steps that kind of do it for you. And I think it just streamlines the whole process. So those are some of the internal strategies. Talking from an external strategy standpoint, I think there is a lot of push now. And this has also been one of the things proposed by SEC is the third party assurance. I mean, our stakeholders, including our investors, are already asking for third party verification. So it can be time consuming, it can be costly. But I think it is essential to get another set of eyes and have a third party look at your data and call it good.

SPEAKER A

And what are the third party groups you're looking for?

SPEAKER B

So basically, like verification services that will actually come in and you can do it in a wide variety, like, I know, some organizations get verification on their complete environmental, social and governance data, whereas others may just cherry pick based on materiality or the material issues. They see more around greenhouse gas emissions, so they may just get their data verified only for the greenhouse gases. So, and on others, like for us, we utilize a third party and we actually get our report verified in its entirety. So not just the performance data itself, but even the claims that we make in our report are also verified by third parties.

SPEAKER A

Wonderful.

SPEAKER C

Does the carbon footprint get factored into the final number of doing the verification?

SPEAKER B

Yeah, so basically any claims that we make, we have to provide evidence. We have to really work in with our internal business partners, get all the evidence, the backup and the supporting documentation to show it to our verifiers saying that these are the claims, if they are being made, then these are the basis on which they are being made and furnished.

SPEAKER C

Yeah, such a big, such a big topic. I mean the, I think for the logistics, what's the emissions for moving stuff around, I think that can be very much simplified. I mean whilst they haven't agreed in the world on a way of calculating it, there are a number of different calculators out there. But if you are saying, well this is the framework, the formula that I'm using and then here is my data, I don't think you need, or let's say that you do need a verification, a third, 2nd set of eyes on it external just to prove it. But I mean that should be like a five minute job really, because you've got the systems, the processes and you've said this is the formula that I'm using. And if tomorrow somebody says actually you need to use a different formula because of some other policy changes in whichever country it is, then you change that. But I think that's the simple part. If you're buying product, finding out what is the footprint of that truck of soybeans, that bale of cotton, that bag of coffee, if you'd have asked me a couple of years ago, I'd have said oh, it's great because they'd be able to do this and they will know exactly what the footprint is. And that comes in again as part of the, you know, you got the plus the two cent of that and the insetting of the carbon, the carbon amount as it comes through that supply chain, it would be, oh, it makes perfect sense and it fits the model of the other quality parameters that you need to manage on how things affect pricing is that great? And we can inset the carbon element to all of our contracts and our invoicing. But the reality is they still haven't decided on how really to calculate soil carbon. You know, a farmer doesn't know whether he's long or. Well, he knows he's long carbon, but he, until you get those things right, the number can be any number, and there's no verification company that can come in and say, actually, I agree with that. Some tough challenges to make it a reality, unfortunately.

SPEAKER B

I'll agree with that.

SPEAKER A

Well, moving along, how do you ensure consistency and comparability in carbon accounting across different maybe business units, facilities, things like that?

SPEAKER B

I mean, like I mentioned, one of the main things is standardizing the processes, so ensuring, you know, your. So, for example, like, you know, we collect data from different parts of the business, different assets. You have to have, you have to make sure that the business units that are collecting the data are actually following the standard set of protocols that are internally developed around how the data is collected, compiled and reported internally. So I think once you have those standards established internally, do provide you some standardization across the board and being able to compare that data using uniform emission factors. So, you know, that's something that you would do as a team to actually put out the guidance out. Like these are the uniform emission factors that you should be using. So that way the data, when it's collected from different business units, can be compared and is consistent, I think centralizing the data collection efforts. So having a team that kind of oversees and manages that across the board is extremely efficient and valuable because then they can standardize a lot of these processes, understand the inconsistencies that may exist, and then just kind of working with the business units to close those gaps and then also having your teams really work on a day to day on a QAQC part of it. So I think those are some of the strategies that you can adopt in standardizing that across the board. Wonderful.

SPEAKER A

Did you, anything you want to add to that or.

SPEAKER C

Not really. It comes back to the system side of having, if you got the processes embedded into your systems and your people having that place to put it and then make use of it later on.

SPEAKER A

And I believe you discussed that quite a bit yesterday, and you're developing a tech stack for an era of sustainability. You were in that session, correct?

SPEAKER C

Yeah, that's right.

SPEAKER A

Getting back to some of the things we talked about earlier, what are the roles of carbon offsetting in an organization's carbon management strategy? Let's really briefly touch on this, because we could talk about this all day long if we wanted. So maybe what's any sort of highlight points.

SPEAKER B

I mean, the only comment I would make on this one is just like, yeah, it can take the entire session. But what I really feel about carbon offsets is, and I can speak more from an oil and gas perspective, is these are market based instruments like Fabi was talking about, the Recs and the market instruments. Carbon offsets just happened to be one of the, the market instruments that companies can utilize to offset their emissions. I think the point that I would make is they should used be as a complement to actual emission reductions, not the primary mechanisms to offset your emissions. I think companies should first take steps to how they can really come up with some asset reductions in terms of, you know, when you're looking at their emissions, followed up by whatever that cannot be, can then be utilized using market based instruments like recs and offsets.

SPEAKER A

Right?

SPEAKER B

Yeah.

SPEAKER A

So let's talk about engaging stakeholders and, you know, what you've seen from your clients and what you see internally, you know, how do you engage stakeholders, internal and external, in your accounting and tracking efforts?

SPEAKER C

How do you engage the state? I mean, does the, I guess regulatory pressures or regulatory is the driver, right? Ultimately, yep. But, you know, well, you would say.

SPEAKER A

Like in the next stage, it's not as maybe the require, the, a lot of it is voluntary. Not.

SPEAKER C

Yeah, yeah, but voluntary to have an ESG report, sustainability report as part of your annual report, for example. But I mean, how we tried to approach it was like, rather than it be an extra job and to get people to do it, it's like, well, is the data already there that we can use? Are there other systems out there that are tracking or that are verifying some projects that we can leverage that information through APIs or whatever connectivity in order to get it without needing to retrain staff, those kinds of stakeholders, the on the ground stakeholders to get it frictionless, to get it automated through so that you're not creating another big job company and expenses and carbon footprint of that job as well. Right.

SPEAKER A

That makes a lot of sense.

SPEAKER B

Yeah. I mean, I would say, I mean broadly, you can really put them into two main buckets, your internal stakeholders and your external stakeholders. And just speaking from an internal stakeholders, I think one of the most important stakeholders internally is your leadership. So you really have to clearly communicate the importance of carbon accounting and how it is overall aligned with your overall sustainability goals. I think that's key.

SPEAKER A

Yeah, yeah, yeah.

SPEAKER B

And then the second piece to that is how do you communicate the progress against those targets on a regular basis to the leadership and maybe get that steer from them on a timely basis or from time to time just to make sure that your carbon accounting and how it impacts the overall goals is completely aligned with your overall business strategy and the progress that you're making against your targets are on track. So I think that's one key important piece. The other important stakeholders are your employees, especially the people who would be involved in your data collection and overall your emission reduction efforts. How do you emphasize the importance of that to your employees is important. And then from an external standpoint, I think communicating with, of course, your investors, communicating your, clearly communicating your goals, targets, being very transparent in your reporting, I think is immensely helpful. Engaging with your suppliers, you know, sharing those best practices with your suppliers, how you can really work together to actually reduce your carbon footprint. I think it's important. But even within suppliers, I think bringing any new ones on board, like how do you incorporate sustainability criteria into those pre qualifications? How do you make sure that sustainability gets a seat on the table when it comes to supplier selection? I think that plays a critical role too. And then last but not the least, your NGO's, you know, engaging with your NGO's communities, leveraging their expertise, their best practices and kind of creating that feedback loop as to what are the gaps, what are some areas of concerns that you're seeing and bringing it back and closing your loop into your reporting and how do you improve it year over year? I think it's important.

SPEAKER A

I would also ask you maybe the importance of reporting successes like communicating successes.

SPEAKER C

I think it's difficult. It's a dangerous one. I mean you're putting your head right above the trench.

SPEAKER A

Yes.

SPEAKER C

And just waiting to get shot by some, by some publication that whoever they're funded by, you know, is going to try and shoot that, shoot that helmet off your head.

SPEAKER A

That's a heck of a D day analogy to be making the.

SPEAKER C

But it's true. I mean there are, there are problems and there is progress being done and so getting that communication between teams so that people are suspicious, there is human nature and all of that and the greenwashing or whatever, but there's so much good stuff that is happening.

SPEAKER A

Right, right.

SPEAKER C

And to get that balanced view will actually help a lot of people. Whereas now, I mean, so you have that sort of thing, then you've got, you know, the reliability of the credits that you're buying today are going to be worth something tomorrow if you've got, you know, the corresponding adjustments of a government that says, actually no, we're taking those back. And so those credits that you thought were doing a good thing. Altruistic. And you have invested in planting those trees in that rewilding project of yours in Venezuela and you paid for it. But then I'm not picking on Venezuela. I was trying not to say Indonesia, to be honest. The issue of all of a sudden that being worthless because a government had changed its policy and then a different policy somewhere else in the geopolitical arena saying, well, actually a red plus credit is not worth what you thought it was. So it makes it all very difficult to get all of the stakeholders on. I think the data and the process, it's all very similar to any other commodity that's gone around just a little easier because there is no warehousing and it's all in the effort. Right. It's carbon dioxide that. It's the other more fundamental issues that are required in order to make carbon 2.0 a success. Otherwise, I fear that we'll have to wait for carbon 3.0 in 15 years or so.

SPEAKER A

Excellent. Before we get, we have one more question. But of course, if anyone has any questions, please just raise your hand and we'll come and to you with a microphone. But in what ways do you integrate carbon accounting data into decision making processes within your organization?

SPEAKER B

Yeah, I mean, essentially you kind of look at your strategic planning. And within strategic planning, I would say a couple of things. One is definitely coming up with establishing baseline. So really getting informed about your current emission levels. So then you can really come up with your goals and targets based on those current emission levels and then target setting. You know, how do you come up with your short term, medium term and long term targets based on the emissions baselines established? And then the other piece to that is how does then that align with your overall sustainability roadmap? How do you make sure that your sustainability strategy is integrated with your overall business strategy? I think that is one aspect where you have to, I think, spend a lot of time in planning that. The other piece is bringing your carbon accounting in the implementation of scorecards and dashboards. So building those to communicate performance both internally and externally. And then how do you track your progress against those targets? Like I said, those are some of the key things that I would say really helpful in your decision making.

SPEAKER A

And Richard, he mentioned quite a few times, systems and tracking and reporting. What's the role of technology in assisting someone like gotham here?

SPEAKER B

Yeah.

SPEAKER C

Having your flexible commodity management system to be able to accommodate it. A lot of them have been built before this became an issue. Right. So you don't know what you don't no, I mean, we've been looking at it. I mean, we looked at it in 2008 and then 20 1718 when there was a glimpse of hope on the 2.0 side of things. I wish Bruce, my colleague, was here instead of me today because he would be able to talk a lot more about that. He was involved with JP Morgan, with setting up the carbon desk there, etcetera, on the experiences. But you know, in a way I'm sort of kind of already covered it today in, you know, having the place to store the information and having the workflows to be able to help. And that harmonizes things through the business. Then the dashboards and the KPI's. It's just like a dashboard KPI for shipments that I haven't allocated. You know, it's carbon that I haven't offset yet. It becomes really easy then, you know, in terms of onboarding the client, you know, having a good CRM module that helps you with the onboarding process where you're embedding not just your financial approval workflows and your commercial, you've got your sustainability workflow and those approval steps. So having a flexible CTRM commodity management system that is geared towards that, it's a bit of a plug, but that's why I'm here. You need those things. And I guess our part is that we weren't just trying to solve market risk when we set out. What we wanted to do was show that sustainability can be a profit center as part of the commercial efforts. So difficult to sound new and fresh about it today because we've been banging the drums to deaf ears for a number of years, but he has the.

SPEAKER A

Time, by the way. That's one of the reasons I really wanted Richard here today is because not only is your product sort of geared towards this sort of thing, and that this isn't to give a puzzle, it's because this has been something that's been important to you for as long as we've been working together on various things. And you can tell that you're developing your product and your business with certain values in mind. It's really appreciated on a panel like this in particular. And Gotham, thank you so much for such great answers to some very technical questions. It was almost like you called me and he called me on a Friday night at about 06:00 I was in my pool and suddenly I have this very excited guy in the other line talking about carbon accounting as I'm getting into the weekend. I really. But it was almost. I was really looking for someone expert on this. And it was almost sort of like a Friday night miracle.

SPEAKER B

So, yeah, I mean, this is such an interesting space to be in Harvard. Like, for example, when you really talk about, like, greenhouse gas emissions. And I'll just make a quick comment here. Like, when you talk about CO2, it's fairly easy to calculate that because there's finite amount of, you know, carbon and fuels that we combust. So it's easy when it comes to things like big focus for oil and gas right now is methane emissions. And those are very hard to quantify. It's very hard to identify the leakages. It's very hard to quantify. And there have been some standard factors that have been shared in the industry, but there's now more push to move towards measurement based reporting. There are a lot of these frameworks now, like OGMP 2.0 that companies are embracing, and that just makes it even more challenging. So what I would leave everybody here with a note is this is an interesting but also a fast evolving space in itself. It definitely requires a lot of expertise and skills, but that is something that I think we as an industry are struggling right now to get more of those. So I think it's extremely important for everybody to just recognize the amount of hard work that actually goes in a lot of this carbon.

SPEAKER A

Yeah, yeah, yeah. Absolutely. Absolutely. Well, before we break, real quickly, just again to make a quick announcement that we're going to have a break. And then we're going to have our final closing plenary, which is called the trading shop of the future, taking a look at what the trade landscape is going to look like maybe ten years from now from a bunch of different perspectives. And, of course, environmental is one of the big areas that we're going to cover. After that, we have our closing lunch. I encourage everyone to stick around. And for guys like me, who spend most of this conference running around like a lunatic, it's one of the few times we actually have a chance to take a breath and actually speak to people a little bit. So, really love when folks stick around and enjoy it. But with that, let's have a round of applause for Gotham and for Richard.