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Emissions auditing and verification for third-party GHG assurance

January 23, 2023
Article

The emissions inventory process has evolved, and so have third-party audits and verification for GHG assurance.

If your organization has been compelled to do a third-party audit of its emissions and a greenhouse gas (GHG) assurance is your ultimate goal, but you’re not quite sure how to get there, you’re in the right place.

This article details the benefits of third-party auditing, pulls apart any confusing definitions associated with auditing, verification, and assurance, and will help prepare you for the best experience when choosing to have your emissions assessed and assured.  

What is third-party emissions auditing?

Third-party auditing of a GHG emissions inventory is when an independent firm assumes responsibility for assessing your organization’s work. A GHG emissions inventory is then assured by a third party, which offers another level of confidence to stakeholders that the inventory is accurate, reliable, and prepared in accordance with recognized reporting standards and guidelines, such as the GHG Protocol Corporate Standard.

Assurances help build trust in an organization’s commitment to impacting climate change by managing and reducing its greenhouse gas emissions. GHG assurances also help demonstrate accountability and transparency. Additionally, the auditing process should identify any inaccuracies or uncertainties in the inventory and provide recommendations for improvement, which can help organizations manage and reduce their emissions more effectively.  

In the stone age of carbon accounting, analysts would sit at their desks for months to calculate their organization’s annual GHG emissions. The process involved gathering diverse data sets from the organization and its vendors and manually calculating emissions in unwieldy Excel workbooks. It was tedious, eye-blurring work, even for those who enjoyed it.

Historically, GHG inventory audits have been performed primarily by energy and sustainability consulting firms. In fact, both the ISO 14064 and ISAE 3000 standards were originally developed with engineering and environmental specialists in mind. However, recent regulatory interest in environmental outcomes has grown, as demonstrated by the proposed SEC climate disclosures, the EU Corporate Sustainability Reporting Directive (CSRD), and the EU Sustainable Finance Disclosure Regulation (SFDR). This interest has brought about an alignment of financial and sustainability disclosures and an increase in financial accounting firms seeking accreditation for GHG inventory assurance services. The AICPA Attestation Engagements on Sustainability Information—the latest emissions assurance standard focused on financial accountants—is evidence of this trend.

Given the increased scrutiny placed on environmental metrics, more and more organizations are shifting to technology to automate and expedite inventory development and third-party GHG verification processes.

What’s the difference between GHG audit, verification, assurance, and validation?

GHG inventory calculations, methodologies, and underlying data sources include several interrelated terms, like auditing, verification, assurance, and validation. These terms can be pretty confusing to novice carbon accountants and even experienced ones.  

Many of the terms have a history in the International Organization for Standardization (ISO) document ISO 14064-3: Greenhouse Gases – Part 3: Specification with guidance for the verification and validation of greenhouse gas statements. The ISO 14000 standards are among the oldest for quantifying and reporting on greenhouse gas emissions and removals, and define these terms as follows:  

  • Audit – While not specifically defined in the ISO standards, this term is important to distinguish here. Audit has no precise definition in the field of carbon accounting—it’s an umbrella term used to describe the overall process. “We are having our GHG inventory audited,” is a good example of this use. For this discussion, “audit” will refer to the general process of reviewing an inventory.
  • Verification – Process for evaluating a statement of historical data and information to determine if the statement is materially correct and conforms to criteria. (Note: When people think of having a GHG inventory assured, this is the process they are referring to.)
  • Validation – Process for evaluating the reasonableness of the assumptions, limitations, and methods that support a statement about the outcome of future activities.  
  • Assurance – The outcome of either verification or validation that states a third-party auditor is confident that a GHG inventory (verification) or emissions reduction program (validation) is accurate and complete to an acceptable degree of certainty. Assurance services include additional assessments beyond GHG emissions data verification, such as relevance and reliability, risk identification, and internal controls. Levels of assurance include:  Limited Assurance – Level of assurance where the nature and extent of the verification activities have been designed to provide a reduced level of assurance on historical data and information. Reasonable assurance – Level of assurance where the nature and extent of the verification activities have been designed to provide a high but not absolute level of assurance on historical data and information.

What validation, verification, and assurance mean when it comes to carbon accounting

In simple terms, “verification” and “validation” refer to the process of auditing a GHG inventory, whereas “assurance” is the outcome of those auditing processes (i.e., a statement of limited/reasonable assurance).  

Validation provides an independent assessment that focuses on the underlying assumptions, methodologies, processes, and limitations of organizational emissions in the future and any plans to mitigate them. This process is forward-looking and focuses on plans, like an emissions reduction program to ensure goals are achievable through proposed actions. Committing to a Science-Based Target and independently assessing that target could be considered a form of validation.  

Verification is the term most often used when an organization is looking to have its emissions statement assessed. This process provides independent verification of an organization’s historical final emissions figures for the reporting year, the calculations and emission factors that produced them, and underlying activity or source data. When you have your previous year’s emissions audited by a third party, this is verification.  

Successful verification and validation processes end with a third-party report confirming a statement of “limited” or “reasonable” assurance. While both levels of assurance signify confidence in the results, the levels have different reporting requirements and convey subtly different meanings. Both levels of assurance will collect samples of underlying data (e.g., utility bills), though a reasonable assurance engagement will likely contain a larger sample size. Reasonable assurance may also involve site visits in sectors like manufacturing to ensure reliable and accurate data collection methods.

Limited assurance provides a lower level of assurance, though in many cases, this is perfectly acceptable. Some organizational models, like office-based businesses, typically have simpler operations and require no more than limited assurance.  

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Preparing for third-party GHG assurance

Fortunately, today, carbon accounting professionals have comprehensive sustainability software and management systems like Sustain.Life to drastically simplify the process. The hours of searching for emissions factors and developing formulas to transform electricity consumption across geographies with unique grid energy mixes into metric tons of carbon dioxide are in the past—and so are onerous preparations for audits and verifications.

Want to know what to expect during the emissions auditing process, how to prepare, and how to simplify the whole process? Join Sustain.Life on February 15, 2023, for a webinar about our audit and verification features to make the process much simpler for companies and their third-party auditors.

In this webinar, our team will walk through Sustain.Life’s new verification and assurance support feature and how it enables companies to quickly share their emissions data with assurance providers.

EVENT: Preparing for third-party GHG assurance
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At Sustain.Life, our goal is to provide the most up-to-date, objective, and research-based information to help readers make informed decisions. Written by practitioners and experts, articles are grounded in research and experience-based practices. All information has been fact-checked and reviewed by our team of sustainability professionals to ensure content is accurate and aligns with current industry standards. Articles contain trusted third-party sources that are either directly linked to the text or listed at the bottom to take readers directly to the source.
Author
Ben Gruitt
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The takeaway

"Verification” and “validation” refer to the process of auditing a GHG inventory, whereas “assurance” is the outcome of those auditing processes (i.e., a statement of limited/reasonable assurance).