Refrigerants have an important part to play in companies’ climate and sustainability reporting, according to Rob Bradley, Managing Director of Climate Change and Sustainability Services at U.K.-based Ernst & Young (EY), one of the world’s largest financial services companies.
“Many of the companies we’re working with are saying they want a comprehensive picture of their emissions, [which] absolutely includes keeping a track of their HFCs and refrigerants,” he explained.
EY is assisting its clients in managing their refrigerants in a changing regulatory and climate-conscious business environment, he added.
Bradley delivered his remarks during his keynote presentation at the ATMOsphere (ATMO) America Summit 2023 on natural refrigerants. The conference took place June 12–13 in Washington, D.C., and was organized by ATMOsphere, publisher of R744.com.
Changing company behavior
The new mandatory climate reporting and disclosure standards being introduced in the U.S. will change company behavior, said Bradley.
In March 2022, the U.S. Securities and Exchange Commission (SEC) proposed new rules to enhance and standardize climate-related disclosures for investors. The ruling is currently being reviewed, with its finalization having been delayed multiple times. The agency hopes to publish the standard later this year.
The final set of rules will apply to all publicly traded companies in the U.S. and will likely require disclosure of greenhouse gas emissions and risk exposures, among other data. This reporting comes on top of other regulatory obligations, such as with the U.S. Environmental Protection Agency (EPA).
Greenhouse gas reporting will eventually cover all emissions from a company’s operations, facilities and value chain – i.e., scope 1 (direct), scope 2 (indirect from energy) and scope 3 (indirect from upstream and downstream activities). However, compliance requirements will be staggered over the coming years.
Refrigerants would fall under scope 1 emissions.
Quite a lot of the feedback to the proposed ruling was around the extent of scope 3 reporting, which is “potentially extremely complex,” explained Bradley.
“A lot of the companies we are working with are already thinking about where Scope 3 is going to be material to them,” he added.
According to Bradley, there are multiple drivers in why a company may want to take action on climate change and sustainable development, including regulatory compliance and customer or employee expectations. However, the predominant motivator, particularly in the U.S., is what is material to investors, he said.
“These proposals for GHG emissions disclosures would provide investors with decision-useful information to assess a registrant’s exposure to, and management of, climate-related risks, and in particular transition risks,” says the SEC on its website.
Mandatory reporting in EU
Meanwhile the EU has recently adopted the Corporate Sustainable Reporting Directive (CSRD), which includes mandatory reporting for a range of environmental, social, governance (ESG) and financial information.
It will apply to large companies that are listed in the EU-regulated market and their consolidated subsidiaries for the 2024 financial year. This is in addition to other EU reporting regulations, including the Sustainable Financial Disclosure Regulation (SFDR), the Taxonomy Regulation and the Non-Financial Reporting Directive (NFRD).
According to Bradley, the CSRD aims to enhance the reliability and comparability of sustainability information through mandatory assurance.
While it is legally binding, it still needs to be adopted into national laws across the EU’s 27 member states to be applicable.
Globally, other accounting standards bodies also have been developing rules like the International Sustainability Standards Board (ISSB) disclosure standards, meaning that life is “still pretty complicated for businesses,” he said.
EY supports its clients in a number of areas when it comes to managing refrigerants, including regulatory compliance, decarbonization strategy and technology adoption.
In addition to assessing clients’ refrigeration management practices and offering guidance on how to navigate changing regulations, EY also helps create strategies for transitioning to natural refrigerants and identify available incentive programs.
According to Bradley’s presentation, EY can assist clients in choosing and integrating software to track greenhouse gas emissions from refrigerants that will be required for future disclosures and reporting.
“Looking at how your facilities are impacted by [reporting requirements] is no longer a question of just trying to address one particular issue,” said Bradley. “You can’t just think about how to upgrade a facility, but what are all the options? How does it all add up to improving efficiency, thinking about the impacts of refrigerants and other elements in the rest of the value chain?”
During the presentation’s Q&A portion, Bradley was asked about whether potential PFAS (per- and polyfluoroalkyl substances) restrictions would be included climate-related disclosures, particularly relating to water pollution.
“If I were making investments looking at the longer term, I would be wanting to have that in mind,” he responded.