Podcast | Demystifying Carbon Reporting – with Alyse Mauro Mason, Sam Stark and Michael Vigario

Alyse Mauro Mason: Welcome to the Board Perspectives podcast, brought to you by Protiviti, a global consulting firm, where we explored numerous challenges and areas of interest for boards of directors around the world. I am Alyse Mauro Mason, and I help lead the ESG and Sustainability practice at Protiviti.

I’m joined today by Michael Vigario from ACT Commodities and Sam Stark from the Green Project. Mike joined ACT in its North American infancy. Prior to ACT, Mike worked at several startups in New York City over the prior four years, helping scale and build the financial functions. Mike started his career at Deloitte and Barclays and is a New York state–licensed CPA.

Sam founded the Green Project three years ago after working in sustainability at Goldman Sachs. During that time, Sam saw financial institutions struggling to achieve accurate Scope 3 emission calculations from their portfolio companies and suppliers who tended to be less sophisticated in the greenhouse-gas-inventory space. And because of this observation and need, Sam founded the Green Project to provide a more accessible software to help with Scope 3 engagement. Today, the Green Project now has a customer base of over 500 clients, including 50 private-equity firms.

Today, we’re going to discuss emissions reporting and, hopefully, help demystify some of the common fears and misinterpretations we hear in the market and discuss some areas of opportunity. We are joining you today in our personal capacity to share our experience, expertise and insights with you, and although Mike is a licensed CPA, he is not providing financial advice today.

Sam, I’d love to start with you. Could you provide a summary of what emissions reporting is?

Sam Stark: Emissions reporting has definitely evolved a lot over time, and it is something that can be seen as quite complex from an outside point of view. But put simply, every company has different emitting activities: You have business travel, you have your energy usage in your buildings, you have the stuff you purchased, and every one of those activities has some sort of emissions associated with it. There are scientific databases that pair emission factors that convert every activity you do, whether it’s traveling or your energy, into greenhouse-gas emissions. It’s a multiplication of your activities you’re doing times an emission factor.

There’s been this framework that’s been developed over time called the Greenhouse Gas Protocol that provides a standardised way of being able to report on your greenhouse-gas emissions — like GAAP for financial accounting. It’s evolved over time, but it’s become something to standardise this method of how you calculate emissions.

Alyse Mauro Mason: From what I’m hearing, it’s a mathematical problem, but there’s also an art and a science to it. Mike, it might also be helpful to talk about the history of ACT and the Green Project, and how you and Sam work together.

Michael Vigario: Sam and I met at a green conference in early 2022. After hearing his initial pitch, I thought, after hearing multiple emissions-reporting-company pitches, “There could be a good partnership here. We could really work together.” We started working together in some capacity, before then moving on to thinking, “Maybe we can grow this from just a partnership to being a part of ACT.” After a few months of discussions I had internally and Sam, of course, had with his team, we decided after some trials and tribulations to partner up and ACT then acquired the majority interest in the Green Project and brought Sam and the team onto the ACT family in early 2023. So far, it’s been a great ride. We see a symbiotic relationship, and we have a lot more value to add.

Alyse Mauro Mason: That’s great to hear. Sam, when you think about the regulatory environment and how it has changed over the last three years — and, frankly, changed rapidly — how do you recommend to boards and companies how they should manage to understand this growing set of regulations? And which ones should companies be most concerned about?

Sam Stark: First, this is something more companies need to look at from the same perspective they look at financial reporting. This needs buy-in and stakeholders from all over an organisation. Most of the organisations we work with don’t have a sustainability person, but whether you do or you don’t, this is something that involves, because of regulations, the same level of rigorousness you need for financial reporting. You need the CFO involved in this decision. You need stakeholders from HR, from facilities managers, all coming together. What I always recommend for companies is, the first step is, create an ESG task force or ESG advisory board to try to have a starting place so that you have stakeholders from various places within the business. After that, it’s then exploring what regulations are relevant to our business.

And there is an alphabet soup of regulations coming out. Luckily, a lot of them follow standardisation that the ISSB, the International Sustainability Standards Board, has converged on. When you hear “CSRD” and you hear “California SB 251, 263,” there is a lot of crossover between these frameworks. Some are more intensive; some are less intensive. But one of the great things is that emissions reporting is standardised across all of them. Pretty much all of them require you to report on your greenhouse-gas emissions. Some require only Scope 1 and 2. Some require you to go all the way to Scope 3 — and we’ll dive into the differences later. But a good starting place for any of these frameworks is to start reporting on your emissions.

After that, you have to see which ones we’re going to be in scope for. All of them have different filing requirements and different areas, but if you are a large corporation, there’s a good chance, if you’re doing business in California or in Europe, you’re going to be under one of those regulations. But even if you’re not one of these large corporations, you still might be under these regulations more indirectly because a lot of these large corporations are going to have to engage their supply chains for both climate-related risk and for their emissions data as part of this Scope 3 problem we always hear about. Because of that, you might be a private company saying, “I don’t hit the revenue threshold for California’s regulation,” but a California-regulated company might need to request this data from you as a private company or even a smaller business. That’s been something we’ve seen coming increasingly in focus.

One thing I always recommend is, create a task force — and it won’t hurt, no matter what regulation you’re under, to start tracking your emissions as a starting place. Then, you might have to do supplemental things to that.

Alyse Mauro Mason: When we say there’s a lot of crossover and convergence, it’s easy to say that, but we’re seeing it now. Two years ago, you looked at the regulatory landscape, you looked at frameworks and different guidance requirements, and there were 10, 20 on a page. Now, what you’re seeing truly is that convergence. You already mentioned ISSB, a great guiding force there. Then, when you think about the hardest to comply with, if you start with that regulation and you work your way down, there is significant crossover. Is that a fair representation?

Sam Stark: That is definitely the way to look at it. For instance, if you’re under CSR deregulation with this double materiality assessment you have to do, it is probably going to be the most rigorous you’re going to be doing out of any of these frameworks. Most of the data you use for that can also be used for California’s regulation or Australia’s, or any of these other regulations that have come out.

I would take this bird’s-eye view of saying, “Let’s start with, what are all the requirements?” That requires you to do a materiality assessment, and that could be with an outside consultant, or that could be with internal stakeholders. You need to find out, “What data are we even needing to be collecting?” as a step.

For almost every framework, you’re going to have to be collecting emissions, so it doesn’t hurt to start doing that. But there are some additional metrics you’re going to have to figure out, and this materiality assessment can help you figure out good starting places. That can be overwhelming for a lot of businesses that have lots of priorities going on, but we’re in a phase where everything is changing from a good-to-have — it’s good to have a program — to a must-have. Whether you’re a large corporation or a small business, you’re now going to have to start doing this because of different stakeholders. Again, some might be regulatory, or some might be your clients.

Starting now is important because you don’t want to be caught off-guard next year, when these regulations start taking place, and all of a sudden, you’re having to do a full program, including materiality assessment, including tracking all these metrics, within a few months’ span, and needing everyone all hands on deck right now. You can do it in a more phased approach if you start earlier.

Alyse Mauro Mason: Mike, when you think about the past three years for you in your role as the North American CFO, how has it changed, given the evolving and enhanced regulatory landscape for sustainability, specifically under the financial purview?

Michael Vigario: It’s been an interesting landscape overall. We’ve seen a lot of traditional regulatory reporting changes like lease accounting and revenue recognition and a couple of those things to balance. I’m a CPA, so I need to mention some of the normal, expected regulatory reporting changes, but then also mix that in with a new set of regulations around climate reporting.

As Sam mentioned, there’s the CSRD in Europe, Sam also mentioned the California regulations, SB 253 and 261, and then a whole slew of other ones: Australia, Japan, Canada, Malaysia, etc. Anyone who’s in a position at a global organisation has to face all these regulations coming at them. Thankfully, there is a convergence you both mentioned with ISSB, and that’s been a big help.

But with all these changes and this idea of measuring things that aren’t just financially focused and aren’t just in the numbers, in your contracts, this is a whole new world that introduces a little bit of science and a little bit of feel to your financial statements and your reporting and the actual numbers. It’s made finance professionals have to think in a slightly different way and truly understand what they’re reporting outside of their comfort zone — not just simply “This is my decision tree — I just report this way and this way and this way” It’s more, “How do I measure my emissions? How do I wrap my mind around all the scopes of the emissions? How do I think about this in a slightly nonfinancial way, but with a financial spin on it?”

Sam Stark: It’s been interesting for ACT to go through their own experience with this because obviously, both the Green Project and ACT have been offering these services to clients. But ACT is a company that’s going to be under CSRD regulation, and so it’s ACT’s CFO who’s going to be putting out this public disclosure and everything with what they’re doing. It’s been a great experiment to learn about what stakeholders you need involved. In the end, it does report up to the CFO, so that’s the person ultimately responsible.   
Even when I was working at Goldman three or four years ago, it was siloed: You had the sustainability team as one individual team. Now, all of a sudden, this is part of financial reporting, and the stakes are much higher when you do put out a disclosure.

Alyse Mauro Mason: There are CFOs around the world who are trying to navigate questions like “Where do I start? What do I need to learn? What is the financial office’s role in all of this?” What advice would you give to your peers when they’re thinking about these big questions? I hope nobody’s staying up at night or waking up at night thinking about these. But what would your advice be?

Michael Vigario: My advice would always be, to Sam’s point earlier, start measuring. We started measuring quite a few years ago. Of course, we’re in the environmental-commodity space, so we’d be an early adopter and early mover. But you have to start with measuring to know what you can and cannot easily abate and take care of to ultimately achieve your goals — whatever those goals may be as they differ between companies.

Alyse Mauro Mason: These are important topics, and it’s the element of learning with people and learning from people. I’d love to get back to the emissions-reporting part of our conversation. Sam, thinking about how you see companies getting started with reporting emissions, is it truly looking at where you are today, and where technology comes into play throughout that journey?

Sam Stark: A company’s emissions, it sounds simple: It’s the activities you do, multiplied by an emission factor. But those activities are a lot. Scope 1 and 2 emissions are broken into these categories called scopes. Scope 1 and 2 are considered your operational emissions, and they’re more straightforward: It’s the fuel you’re burning on-site or from your company-owned vehicles. It’s the electricity you’re consuming, the natural gas you’re consuming, for your buildings. That, a lot of places can get their minds around, but it still can be a ton of data because you might have 50 or 100 or 500 buildings, and so it’s a ton of data to be ingested, and that can be quite overwhelming.

Scope 3 is its own beast because Scope 3 is the indirect emissions from every other thing you’re doing. That’s your supply chain, all the materials you’re purchasing, that’s your business — travel on third-party-owned planes and everything like that. First, a company should get ahold of what is in scope for our company. They need to understand, “How many buildings do we have to be collecting data for?” “Where is the data for our supply chain located?” You’ll see that the Greenhouse Gas Protocol has these subcategories within the scopes — Scope 3 has 15 subcategories. You have to find out which of those categories are even relevant for us.

After that, it comes to actual data collection, and this is where technology can be super helpful. I’m not just saying this because of the Green Project. Places are finding this left and right because if you’re financial reporting without using any sort of software, it would be — and Mike can attest to this — a mess. A lot of places have started this journey on Excel spreadsheets, and that might be OK as a first pass, but you start getting thousands or tens of thousands — we’ve seen even hundreds of thousands of data points coming in from all your buildings, all your suppliers, all these places. Technology can be a way to streamline that — have an audit trail associated to all that — because limited and reasonable assurance is coming with these regulations. You can’t just say a number. You have to back it with data.

It’s important to have some technology to help streamline that process. Doing it on Excel, we’ve seen this — mistakes happen all the time. We’ve seen it even from the best consultants who aren’t purposely trying to make an error, but there are so many data points coming in that it’s easy to make a mistake. That’s where I see technology becoming super important.

Alyse Mauro Mason: The Scope 3 challenge, is it as scary as everybody thinks it is?

Sam Stark: Yes and no. Where emissions reporting differs a bit from financial reporting is, there is a methodology behind things, but there’s a bit more flexibility. Financial reporting does have some flexibility, but less than with emissions reporting.

Scope 3, there are a few ways you can do it. One way, which I call the easy method — you can still get audited for this, but it’s not going to be very insightful — is called the spend-based approach. This is where you’re looking at all your expenditure from your general ledger on all the items you purchased: I spent $50,000 on technology, equipment or whatever it might be, and it’s associating that spend data to an emission factor. Again, you’re going to be directionally right with your emissions, but it really doesn’t help you, especially if you’re looking to improve emissions, because it treats every computer you buy the same, or every material you buy the same from a supplier. And some suppliers are greener, some suppliers are less green.

In the end, that is too much of an estimation-based approach, but it is a good place to start. Ninety-nine percent of companies start with this approach. You can get audited, and it’s a way to get an idea of your emissions. But the next step is going in deep into your biggest emitting areas. There are two ways you can do this: You can do a product carbon footprint — an analysis on the specific product you’re doing — or you can do a supplier-given footprint, where you engage your supplier you’re purchasing from. If you’re buying computers from Dell or whoever, you’d send out requests to Dell and capture the data from them directly. That’s a good way of doing this because as Dell improves their emissions, or any company improves their emissions, you’ll be able to lower your own emissions over time. That’s where you head toward the gold standard, and that’s where we focus at the Green Project.

But don’t start there, because that is overwhelming. You could have tens of thousands of suppliers. You have lots of data coming in. Starting with the spend-based approach is much more manageable as you’re doing this for the first time, and it’s not that overwhelming because again, it’s just pulling your spend data.

Alyse Mauro Mason: Mike, I’d like to come back to your personal evolution around Scope 3 and how it’s evolved over the years.

Michael Vigario: Scope 3, for me, was a difficult concept to grasp: Why should I, as company A, have to worry so much about what people do with my product, or how I paid certain vendors in order to get certain pieces of my product, or how it was transported to me, or so on and so forth? Why do I care about the emissions I financed? All these things were tough for me to grasp initially because I usually go back to the numbers and fact-based and all of that, but now there’s a theoretical nature being introduced to it.

And Scope 3 made it more of a difficult, more theoretical topic. But of course, know that you need to understand it’s being talked about in regulatory circles and in reporting circles. Go to webinars — learn how to deal with this, what it is, what it means — so you can ask questions to get you further and understand, and that’s how I’ve gotten to understand.

I’ve asked Sam a ton of questions. There have been a lot of conversation around Scope 3 and the categories within it to get my mind around it and understand what it means. Now, I can at least have a conversation about it, and now I know the spend-based approach exists. But then the traceability of your supply and everything gets pretty complex pretty quickly. But understanding the reasoning behind it and the categories and all that, and the logic behind it, helped me grasp it and understand what Scope 3 is and be able to move into talking about it.

Alyse Mauro Mason: Mike, when you think about emissions integrity and, specifically, when we start talking about assurance, what’s the first word that comes to mind for you as a North American CFO?

Michael Vigario: The first word is probably expensive because all these new regulatory requirements — all these reporting requirements — come with dollar signs. That’s a tough thing to wrap your mind around at first: Why do I need to spend more money in order to do x, y and z? Not to mention all we’ve been talking about before, where you don’t necessarily understand it, and now you also need to spend money on it. It is a tough pill to swallow.

But if you don’t have the assurance part, it becomes the Wild West, where everyone’s writing whatever they want to write and you have no comparability between what I’m writing in my report, what Sam’s writing in his report and what you’re writing in your report. And if there’s no comparability, why are we doing it? It becomes, everybody does whatever they want, and, fine, but it’s important that we have that assurance piece to maintain the integrity of the entire reporting structure.

It’s come a long way, and thanks to a lot of the companies that have come up and done some great work around climate tech, it’s also gotten cheaper. As with almost everything that’s technologically advancing, you start out where things are manual and you need a consulting firm to come in with pen and paper or a million Excel spreadsheets and come up with some ideas. Now, a lot of this can be automated, and we can use smart things. We can even use machine learning or AI, but also just formulas and coding, to get us to a place where it’s not quite so manual. And now the price point also decreases to make it more achievable for the general companies out there. I start with terrible things — spend more money. Scary. And then we get to where we’ve gotten to a more efficient place and so much more achievable.

Sam Stark: At the Green Project, our mission has always been making this accessible and user-friendly for the businesses that can’t afford expensive software or consultants. But there is a business case here. It’s not just “How cheap can we get our reporting and everything?” There’s a business case for clients that their own stakeholders and clients are requesting this from them. If you want to start doing business with some of the largest corporations in the world that have these ambitious climate goals, you need to start having your own reporting and climate goals as well. That’s where we’re starting to see this trickle-down effect from the large corporations.

Then there’s Scope 3 — going to all their suppliers or all their portfolio companies — and if you don’t do it, you’re going to fall behind. It’s like being a software company in my world and not having SOC 2, which is a cybersecurity certification. If you don’t have it, you can’t do business with some of these large corporations. That’s becoming a rite of passage to do business with a lot of companies. And if you’re not doing it, even though it might affect costs from a CFO’s perspective, you’re going to start taking a hit to revenues if you’re not doing these.

Alyse Mauro Mason: Sam, that’s right. It costs money to comply with some of these elements. But it also will cost money for noncompliance. If you have major customers that walk because you are not meeting their sustainability requirements and expectations, that’s an impact to the bottom line. Thinking about that, Sam, when you’re talking to companies and you’re thinking about reporting and compliance and disclosures with customers, are you seeing companies begin to rethink the reduction element of sustainability?

Sam Stark: Obviously, part of this is disclosure, and that’s what the regulations are forcing places to disclose. But the reason it’s becoming a disclosure is for places to start making decisions based on this, whether financial decisions from investors or client decisions about who companies want to work with. That is because the goal is to improve and reduce emissions.

You have initiatives coming out, like the Science Based Targets Initiative, which is having companies commit to reducing their emissions and aligning with the Paris climate agreement goals. If your only goal is to disclose, that’ll help you check the box on the regulatory part, but it won’t help you check the box on stakeholders who want to see actual improvement, so companies need to have this. This is why it’s such a journey, because the first part of the journey is finding out, what are our emissions? What do we need to be tracking? What is in scope for us? But the next part is not just “Let’s continue to track.” It’s “Let’s improve.” That’s always been the thesis with the Green Project plus ACT, because ACT is always focused on the reduction side, and we’ve always focused more on the disclosure side. That’s a really important part — there are these two sides of the equation.

The earlier you start disclosing, the earlier you can start having a climate transition plan or a climate-reduction plan, because these goals are starting to come sooner than we think. Science Based Target’s big first year is 2030, and that’s a 50% reduction from your baseline emissions. That’s coming sooner than we think now. If you don’t start in the next couple of years, all you’ll be able to do is disclose your emissions, and you’ll never show the progress you need to actually achieve in reduction.

Alyse Mauro Mason: Excellent points — and both can be true: Be compliant, and be working toward reducing and thinking about the overall business strategy.   
Mike, you touched on this briefly, and I’d love to come back to it — the board audience and when there is a capital investment that’s required to meet some of these requirements. What has your business case looked like in the past, and how do you present some of these capital requests to the board level?

Michael Vigario: If it’s a regulatory requirement, it becomes an easy ask because you have to comply. If it’s in preparation for some of these, it’s about what you’re trying to achieve here: Are you trying to achieve benefits internally for your employees? We’ve seen a lot of employees at companies, and I have friends and colleagues and other peers, who care about this. This is a very important thing to know: if their company does or does not emit more than an industry-standard amount of carbon emissions. Are you making it an interesting place for employees to work? Is your consumer base focused on this? Is your private equity fund that’s funding you focused on this? Are the capital markets focused on this? It depends on who your stakeholders are and how you want to frame it.

But ultimately, since we’ve gotten to a point where you can achieve a majority of these goals for a relatively low cost, it’s been a much easier sell in the beginning. From the employee perspective, it’s also important because those are the people who have to get you the information. It’s those corporate sustainability teams that are reaching out to the office managers or reaching out to the HR team or reaching out to the procurement team. There ends up being a lot of different hands in the pie, and you need the teams to be bought into why you’re doing this, how you’re doing this and how this ultimately benefits the company as a whole.

The analysis could be complex depending on who your stakeholders are, but it does have a lot of stakeholders and can give a lot of benefits, having this information at hand. Similar to what we were talking about earlier, that first step is always measurement. Measuring, you can’t go wrong. It’s something everyone is going to eventually need to do, so why not start there? That’s a small ask and a small spend, and then you have incremental spends on top of that — so you can also treat this stepwise so that you’re not asking for a big-bang $200,000 expense all of a sudden for something that’s a bit abstract and not regulatorily required. You can treat this little by little and take small steps.

Alyse Mauro Mason: Mike, you were talking about the board audience and how to ask for that capital investment, and doing it in phased approaches so that it’s not a significant lump sum of money. What do you think about doing that? There’s also a board education and awareness component to it. Doing it in a phased approach, have you found that the board has reacted nicely to that?

Michael Vigario: We have a knowledgeable board, of course, because we’re in this space and so they already know a lot about this. But when I’ve had conversations with others outside our space, there is an educational component to this. Since it’s still the early days and not regulatorily required, and it’s a nascent industry and it’s not the way of thinking in general, there aren’t a lot of experienced board members who have a lot of knowledge about the topic.

It is up to CFOs to get knowledgeable about things, just like with any other regulatory requirement that’s coming. It is the responsibility of CFOs to speak to their peers to know what’s going on and make that case and bring people along in that stepwise way to make sure everybody feels comfortable with the decisions they’re making and feels like they understand what we’re trying to achieve by measuring or, hopefully, by abating, whether that’s by going into our supply chain and purchasing offsets or purchasing RECs or making sure we have the most efficient routes for our trains or vehicles or what have you, or avoiding airplanes when you could take a train. There are all these small changes we can make, but we all have to understand why we’re making them and how it’s impactful. That educational piece is important.

Sam Stark: We’ve worked with probably over 500 CFOs with the Green Project, and every time, when we have the most successful use cases, it’s when a CFO is bought in and is engaged in the process. They don’t need to be doing all the data collection from every location and everything, but they do need to be involved in the process and understand what’s going on. If they’re just simply passing this on to other stakeholders and getting a report, in the end that will cause issues when it comes time for actually reporting or actually improving or actually trying to get stakeholders involved to make changes. The CFO should have this as one of their hacks, of which I know they have many, and really understand the process for doing this.

Alyse Mauro Mason: One of the things I like to have people think about is, have you ever heard a CFO say that financial metric, that number, is close enough? That never happens. It’s on sustainability teams, it’s on the entire enterprise, to make sure that the CFO, the board and the enterprise are comfortable with these topics. It’s no longer a singular responsibility.   
To close out our conversation today, Mike, what are three key takeaways you hope our board audience leaves here with today?

Michael Vigario: If I go back to the accounting background in emissions reporting, I can tell you from experience, it’s not any scarier than lease accounting and the reporting that goes with that. This is definitely something that is an educational piece but totally doable. Also, start measuring. There’s really nothing to lose — you might as well start measuring. It seems to be gaining more momentum. That’s a great first step, and not particularly invasive. The third one is, make sure you stay up to date with educating the organisation as a whole — educating up and down: educating to the board and then down to the employees to make sure that everybody knows that they play a part in this because, ultimately, they do. When you’re collecting information, you need something from almost everyone, and it helps to stay up-to-date with peers. That way, you know how everybody else is going about it, and it helps you manage your own way to do it.

Sam Stark: Think about all the stakeholders involved, both currently and potentially in the future. Think about what clients you have. Are those clients committing to these things, like Science Based Targets? If so, you are definitely going to need to be disclosing and having a climate-reduction plan in place. And if you’re working with any of the Fortune 2000 companies, there’s a good chance that one of those companies you’re working with is going to be under that.

If you’re thinking about selling to a private-equity firm, or you are backed by a private-equity firm, or you’re thinking about raising capital in the capital markets or you are thinking about your consumer base, if you’re a consumer-product-focused company, think about all those stakeholders both currently and in the next 20 years, and have a roadmap of that, of where there’s a business decision — not just a moral imperative but also a business decision to be doing this. Then you can put some numbers around “Here’s, potentially, the cost if we don’t do this.” The best way to do that is, as Mike was alluding to, get stakeholders involved from across the company and start a climate or ESG or joint advisory committee within your organisation.

Alyse Mauro Mason: I want to thank Sam and Mike for being here today and sharing their insights and valuable guidance with us. And thank you for being loyal listeners. We hope you enjoyed our discussion today about emissions reporting from the perspective of a CFO, technology enablement and the practical application of emissions reporting. We hope it is a little less scary as you sit here today. If you have any questions, please reach out to us at Protiviti and our friends at ACT Commodities and the Green Project. Until next time, take good care.