Unveiling the Full Picture: Scope 1 Reporting and the Tale of the Elephant

Fugitive emissions data refers to greenhouse gas (GHG) emissions that are released into the atmosphere from leaks or unintended releases of gases from industrial processes, equipment, or infrastructure. The quantification and reporting of fugitive emissions can be challenging due to the nature of the sources and the variability of the emissions.

There are three main levels of fugitive emissions data, as follows:

1. Tier 1: ESTIMATION: The Tier 1 approach is the most straightforward and least accurate method for estimating fugitive emissions. It involves using default emission factors or simple equations to estimate emissions based on data such as production volumes, throughput, or equipment types. This method is often used when detailed data is not available or when the emissions are expected to be relatively small.
2. Tier 2: THE SURVEY: The Tier 2 approach uses more detailed and site-specific data to estimate fugitive emissions. This method involves identifying and characterizing individual emission sources, measuring or estimating the quantity of emissions from each source, and using emission factors or engineering calculations to estimate the total emissions.
3. Tier 3: AUDITABLE: The Tier 3 approach is the most detailed and comprehensive method for estimating fugitive emissions. It involves using advanced monitoring techniques, such as infrared cameras or other leak detection devices, to directly measure the emissions from individual sources. This method is the most accurate but can also be the most costly and time-consuming.

When you include fugitive emissions data, the quality of your ESG Scope 1 report depends on the detail and accuracy of the data collection methods used.

• Tier 1 is completely estimated; using Estimate factors provided by IPCC and EPA will give you a benchmark. If you use these factors, your Company emissions will always be based on total installed capacity - meaning it will never go down; we call this the Benjamin Button Method. NOTE: the only way your numbers will ever improve is to shrink your company.
• Tier 2 is a hybrid of Tier 1 and 3; you take a sample survey of some sights, then extrapolate the overall results and apply them to your entire location set. This method has many problems since the sample may have been severely biased; therefore, we call this Telephone Game Method.
• Tier 3 is the Exact method. Calculate and report on fugitive or (#refrigerant) emissions exactly as they occur. Being accurate ensures that decisions are based on reliable information, which can lead to better outcomes.

Generally, higher-level methods (Tier 2 and Tier 3) will provide more accurate and reliable data, while lower-level methods (Tier 1) ignore accuracy and uncertain data. The choice of method will depend on the specific circumstances and the organization's maturity. Is your top-of-mind goal to report, or is it to improve? Your answer will drive different outcomes. Consider the following story.

"The Tale of the Three Blind Men and the Elephant?" This story tells of three blind men who come across an elephant for the first time and try to understand what it is like by touching it.

• The first man touches the elephant's trunk and concludes that the elephant is like a snake.
• The second man touches the elephant's ear and believes that the elephant is like a fan.
• The third man touches the elephant's leg and thinks that the elephant is like a tree.

Each of the three blind men is partially accurate in their description of the elephant, but none are completely accurate. By putting all of their observations together, they can form a more accurate understanding of what an elephant is like.

While it is true that Scope 1 emissions reporting can be challenging and that inaccurate data may be a concern, it is important to note that accurate emissions reporting is critical for addressing investor needs and promoting accuracy in company disclosures. The SEC and ESMA's proposed requirements for audits of emissions data reflect a growing recognition of the importance of accurate reporting and transparency in this area.

Some industry or political pushback on the challenges of emissions reporting may be understandable, given the complexities involved and the potential costs associated with compliance. However, the complexities exemplify the need for better reporting. Companies with a lower level of detailed awareness would indicate a lower level of system maturity. The costs of allowing these companies to report emissions inaccurately (Lying or the modern word - greenwashing) may ultimately have a far greater impact on the balance sheet than the costs of implementing more rigorous emissions reporting standards.

By requiring audits of emissions data and promoting greater transparency and accuracy in reporting, the SEC and ESMA are taking important steps toward ensuring that businesses are accountable for their information disclosures and that accurate data is available to inform policy and decision-making. Ultimately, this can help to drive progress toward a more sustainable future for all. Still, markets should primarily focus on accuracy in disclosures as they focus on accuracy in financials.

This story of the elephant is similar to the challenges we face in the ESG scope 1 Reporting marketplace. Its greater message is about the importance of quality data and accuracy. The blind men are pious in their desire to understand the elephant, but their accuracy is limited by their individual experiences and perceptions. Only by working together and sharing their observations can they come closer to an accurate understanding of the elephant.