IMPORTANCE OF CARBON AUDITING & ESG REPORTING
Written by: Dr. Kate Kwan
What is carbon auditing?
Carbon audit is a means of measuring and recording the greenhouse gas (GHG) emissions of an organization or building within a defined system boundary. Types of buildings that are applicable for carbon audit includes:
- Commercial buildings, which include offices, retails, restaurants or hotels
- Residential buildings
- Buildings used for institutional purposes, which include schools / universities, community centres, sports complexes
In order to assist the users and management of buildings to measure their GHG emission performance, the Hong Kong Government through Electrical and Mechanical Services Department (EMSD) and Environmental Protection Department has prepared “Guidelines to Account for and Report on Greenhouse Gas Emissions and Removals for Buildings (Commercial, Residential or Institutional Purposes) in Hong Kong” . The Guidelines provide a systematic and scientific approach to account for and report on the GHG emissions and removals from buildings in Hong Kong. 
Some companies provide carbon audit services that would include but not limited to:
- Setting up operational/physical boundaries
- Getting building information
- Quantifying GHG emissions
- Writing of Carbon Audit reports
- (optional) Tailor-made “Carbon Offset” Scheme
- Providing information and assistance to application of government funding
In Hong Kong, Hong Kong Stock Exchange promulgated an ESG Reporting Guide (ESG Guide) as early as in 2012 for listed companies to report on ESG developments on a voluntary basis. Listed companies are recommended to report their GHG emissions and intensity and to describe measures adopted to mitigate emissions and the results achieved.
Starting 2020, Hong Kong Stock Exchange has imposed the rule of ESG reporting on a mandatory basis on ESG governance, reporting principles and boundary, with “comply or explain” for general disclosures as well as all key performance indicators (KPIs). The management of listed companies can set their own criteria for the scope on ESG with respect to their own business natures.
There is a “comply or explain” provision that allows for flexibility in special circumstances. However, non-compliance without considered reasons is not acceptable under the ESG reporting requirements. The reporting principles underpin the preparation, content and presentation of the report. Reporting is required when ESG threshold becomes materially important to the business, and such report should be unbiased in showing the ESG performance of the company, KPI needs to be measurable with consistent methodology on the reporting to allow comparison overtime.
ESG reporting requirements:
Difference between ESG Guide and Carbon Audit
There are similarities between ESG Guide and Carbon audit:
Investors are becoming increasingly aware that corporate financial statements alone are not sufficient in determining the company’s access to capital, cost of capital, the likely environmental and social risks that it may face, and the way in which these risks are managed. Whilst in the past investors may have made decisions based largely on a company’s track record, they are increasingly looking to the future. ESG reporting reflects management strength and engenders investor confidence in the long-term prospects of the company.
ACH facilitates clients to adopt agile and creative methods for value creation and reaching a new horizon of success. In the new era for ESG, ACH will launch a series of ESG services and solutions to clients, including ESG Index, ESG calculator, and other ESG solutions to meet the new ESG standards for ESG reportings.