Demystifying Emissions Reporting With Doug Hileman

utiliVisor: You have a background at a Big 4 accounting firm and work with companies around sustainability compliance, reporting, and assurance. What do you think are the biggest issues in sustainability reporting for companies that are required to report?

Doug Hileman: On the engineering-operations-efficiency-cost side, people are trying to dial back the consumption of electricity to save money, and the tenants in all these [commercial] buildings have to get to the granular level for what they consume in their locations as a matter of practice. But they don't have the quality of data they need for that. So what they have to do is estimate. What buildings need is data that is ever more granular to allow the right data to be provided to an array of users that is suitable for a variety of purposes.

On the reporting side, I’d say the issue is rigor. If you’re subject to an assurance (which is a more intensive version of an “audit”), you’ve got to be sure that what you’re providing is right and that the way you got it can be supported. The COSO framework for internal controls was always intended to be “topic-neutral.” It is almost universally adopted for financial reporting; now it is emerging as the go-to model to ensure rigor in data and information for sustainability reporting, including for energy use and carbon emissions.

Here’s the difference. Say a tenant can’t get the electricity consumption for their use or even for the entire building. They can look up some general emissions factor that someone (say, a university) came up with five years ago for the electricity consumption of an office building of a specific type of construction.  Perhaps it was built in a certain decade and/or the energy consumption is for a particular city or region. How much better is it to know down to the kilowatt what the usage actually was?

Why Traditional Accounting Systems Aren't Enough

One of the thornier issues in reporting is around accounting systems. The problem with accounting is that those arrangements are usually established to track money and costs and payback, but they don't track the operational input like kilowatt-hours that’s needed for the CO2e.

For example, if a tenant reimbursed a building owner $1800 last year for using EV chargers in the parking garage, how many kWh was that? The cost per kWh changes over time, even by time of day, and we don’t have that operational information. Few companies have the accounting systems set up to pull that data out. So if a company decided, “As long as we're charging EVs, let's not use coal-fired electricity to do that. We're going to insist on using renewable energy to charge EVs. Let's do that.” But how many kilowatt-hours is that? You’ve got to do the accounting on both the dollar side and the operational side. The lack of robust, useful information inhibits accurate reporting.  It also inhibits companies’ ability to develop strategies and programs to reduce carbon emissions.  Which, by the way, can also reduce costs.

A platform that can make that info easily accessible is useful to the tenants. It is a differentiator, and tenant interest in such things is growing. There's now even a demand to put together the carbon inventory for events like a football game or a soccer match. The Olympics are coming here (to Los Angeles, where Hileman is located). They're already on the Olympics [committee] to say, What's going to be the emissions of the Olympics?

utiliVisor: California has new climate disclosure laws coming into effect this year for reporting in 2026. What do you wish companies knew about these laws?

Hileman: Many people regard the California laws as massive, new, onerous requirements. They lament that California has (once again) created something new, unique, and burdensome. In fact, California cut companies a break in that they followed precedents that are already widely adopted.

The California laws apply to entities (public and private) “doing business in California”; the definition comes from state tax law and is lower than many people expect. Furthermore, the disclosure requirements are on the company’s consolidated basis – everywhere they operate, not just operations in California. This seems burdensome at first blush.

However, if companies are using TCFD, they are doing this already. The GHG Protocol provisions for dual reporting will accelerate the need for companies to obtain market-based emissions factors. This has been notoriously difficult to obtain from many electricity providers. AND you’ll need accurate data on the electricity consumed.

There are still some matters with the California laws that need to be resolved, such as where and when disclosures are made. To be fair, these matters could cause confusion. But the underlying requirements of what companies must do remain the same.  

utiliVisor: What effect do you think the California climate laws will have nationally?

Hileman: If your company does business in California, then you are required to make these disclosures for your company on a consolidated basis. You will now have to do the submittal reporting of your carbon emissions for all of your locations at the consolidated level (i.e., for the whole company). Other states have introduced similar laws, with New York and Illinois in the lead. The regulated community should be relieved to know that they are taking cues from the California law, to avoid a patchwork of (up to) 50 different laws requiring information on the same thing.

utiliVisor: What does reporting look like?

Hileman: The content falls into two categories, if you will. There is the narrative category: which is “describe your policy, describe your procedures, describe your governance process, what is the committee set up in place to do QC.” Who is responsible for it? What committee where? How did you decide what to include and what not to include? Who decided all that?

Then there's the quantitative category: what is the data, what is the basis, and how were the calculations done?

Something people may not think about is timing. Some of the new legal requirements apply for the calendar year (CY) 2025. That’s now. It is unwise to defer effort until 2026. On the narrative side, for example, if you don’t have a policy statement, you can’t (or shouldn’t!) report that you did. It’s not good practice to backdate a policy statement. Same thing for a governance committee, technical review process, etc.

Similarly, if you start to collect 2025 data this time next year, and you find yourself awash in estimates that are lousy, you can't go back and re-create measurements you didn't take. So now is a really good time to get started if you know you're going to have to compile this data. Look at where you get the biggest bang for your buck on real supportable data and start collecting that now.

utiliVisor: Some companies report location-based emissions, some market-based, and some are required to report both (aka dual reporting). What’s the difference?

Hileman: The location-based emissions are calculated based on the average for power generated in that state over a defined period. Market-based emissions are calculated using the information you get from your specific utility provider. There are several electricity providers in each state, each with their own default “carbon profile.” Market-based emissions also include any power purchase agreements, RECs, and the like. The Greenhouse Gas (GHG) Protocol is the standard for calculating GHG emissions; it is mentioned in virtually every law, regulation, or related standard involving GHG emissions reporting. The GHG Protocol stipulates “dual reporting” - that is, reporting emissions using both location-based and market-based emissions factors, if the entity has any location in a deregulated jurisdiction. 

Calculating emissions both ways is helpful because then companies can use the results to look at both the cost to purchase or produce power as well as to determine how to reduce greenhouse gas emissions across your company. Say you’re in two locations, maybe Washington State and Mississippi. Washington has a lot of hydro, so its emissions intensity is comparatively low. Utilities in Mississippi use different sources for electricity, so the emissions intensity is higher. So if a project manager is looking across the company’s portfolio, they might find they can do the same project for similar utility costs in either place. But if you’ve got pressure to reduce your carbon footprint, you’ll get a bigger bang for your buck by locating the project in the location where reducing kilowatts reduces comparatively more CO2e emissions - in this case, Mississippi. But you can only do that [comparison] if you have accurate, granular data. You can’t do that with estimates.

Thousands of entities (companies, government entities) respond to questionnaires issued by the CDP (formerly the Carbon Disclosure Project); GHG emissions inventory is among the questions. Many companies have obtained assurance voluntarily for their GHG emissions. Several laws (EU and California among them) will require assurance in the coming years. Accounting firms and technical firms have been performing independent verification/ assurance for some time. The trend is towards assurance by the Big Four or other accounting firms. And the auditor is going to say, “How do you know that all the sources of information where you have operational control in the number you're reporting? Is there anything you're leaving out?” When it comes to reasonable assurance, they will test the calculations and the basis for them. Where estimates are used, what is the basis for them, and do the calculations pencil out? Granular data can make a big difference in confidence in the calculations and the results of the company’s efforts.

utiliVisor: How do you respond to people who say, “Why isn't the data I’m using now good enough?” Why won’t estimating emissions data continue to work?

Hileman: The trend in emissions reporting is for more granularity and more accuracy and for more comparability over time at your company and greater comparability between your company and other companies.

Estimates are one factor that contributes to inaccurate data or uncertainties. Estimates are a fact of life. There are places in financial reporting where you have to make estimates because you just don't know. Estimates are often used to predict costs or liabilities for things that are to occur in the future. Let’s say, for example, our company owns and is responsible for five contaminated sites, and we're going to have to clean them. A company may not know how much it's going to cost: how effective will the remediation be; what additional contaminants could be discovered; will the clean-up levels change, etc. So, companies must consider what they know and prepare an estimate. It shouldn’t be completely arbitrary; there should be a process and a sound basis for the estimate. The company has to put that on the balance sheet as what’s called a contingent liability.

But by and large, the trend is for greater accuracy for anything that's an estimate over time, so that you can run your business more effectively. This is also so people who are interested in your business, let's say the capital markets, have confidence that you understand your business and they know what they're investing in. In the world of investment, you can look at a lot of different factors when assessing risk.

But climate – climate affects everybody. With the trend towards accuracy and the need to make investment decisions about reducing emissions over time, you'll be able to make more effective decisions if those decisions are based on data rather than on estimates. What does it take to run a business effectively? It takes data.

Why You Need a Process, Even if You Have to Estimate

Companies often “muscle through” their first iteration, with manual processes done by different people at different times, without a clear objective. There isn't a clear process, or transparency on how they calculated the number. The basis for estimates isn’t documented; indeed, people may not realize that they have been making estimates. They may be so focused on calculating “the number” that they miss other, fundamental components that are necessary for reporting. For example, there are three options [financial control, operational control, equity share] for organizational boundaries for the reporting. Selection of the organizational boundary affects the operational inputs and the end result.

utiliVisor: What are companies commonly missing at the beginning of their reporting journey?

Hileman: Companies often “muscle through” their first iteration, with manual processes done by different people at different times, without a clear objective. There isn't a clear process, or transparency on how they calculated the number. The basis for estimates isn’t documented; indeed, people may not realize that they have been making estimates. They may be so focused on calculating “the number” that they miss other, fundamental components that are necessary for reporting. For example, there are three options [financial control, operational control, equity share] for organizational boundaries for the reporting. Selection of the organizational boundary affects the operational inputs and the end result. 

Let’s illustrate with an example. Consider a large building at a university with one meter for electricity consumption. The university subcontracts to Aramark to operate the cafeteria, to Pitney Bowes to run the mail room and office supplies, and to someone else to do janitorial services. There's one meter for the building, so who gets what share of the electricity consumption? Now suppose one vendor seeks data to support their GHG emissions calculations. The only direct measurement is for the entire building. The tenants won’t be able to calculate their emissions for the space where they have operational control. 

Submetering (if done properly) can provide direct measurements to the tenants. This can help the tenants with their calculations. However, climate laws, risk management, and programs also involve the future. Companies must disclose strategies, risk, and metrics, as we already discussed. If they have established reduction targets (and many have), they must disclose those, and their progress toward those goals. Here’s where it can get complicated. Suppose the tenant wishes to procure 20% of their electricity from renewable sources. They don’t have a direct line to the utility provider. The network of accounting (both costs and emissions) and communications needs to be developed. 

There are commercial solutions providers that do calculations. What’s not as clear to me yet is how they enable strategies, provide flexibility for different tenants (suppose Pitney Bowes wanted 40% renewables), and fulfill the criteria for “internal controls” that assurance providers will expect. 

utiliVisor: You mentioned the CDP earlier. What is that and what impact does it have?

Hileman: CDP began as the Carbon Disclosure Project. At least 25 years ago , there was already a call for attention to reducing carbon emissions. When it became apparent that a regulation was not coming, CDP was formed to encourage companies to voluntarily disclose their carbon emissions. It gained traction, first with larger companies and companies who already saw Sustainability (and climate change) as relevant to their business. From the start, submittals to CDP were public. CDP published progress reports that included the top companies by market cap in each sector that had not made a submittal. That inevitably got to management - via NGOs, environmental groups, or their own employees. 

CDP is by far the largest single portal for disclosures on climate. They’re now at ~25,000 entities (including government entities and non-profits) that submit. CDP raises the bar on content of the questionnaire every year. And anyone can register for an account and can get access to any company's most recent CDP submittal.

Back to the California climate disclosure laws: it will be up to the California Air Resources Board (CARB) to determine how companies make disclosures. Many are hoping they will not create a separate disclosure mechanism in California for what everybody is already doing via CDP. 

utiliVisor: What changes do you recommend to help clients starting on this journey?

Hileman: Once companies have identified what’s in scope for carbon reporting, begin the journey to collect accurate, reliable data on relevant operational activities. The Accounting department typically has cost information; begin collecting electricity usage. The tools, technology, or techniques may vary. But however you do it, document the process and be prepared to walk an auditor through it and get the same results. 

Remember that carbon reporting is like financial reporting (and our taxes - ugh!) in one way. It pertains to a defined reporting period. The calendar year is a standard reporting period. Some companies use their (non-calendar year) fiscal year. Data must be complete, accurate and verifiable. Operational input should be used in one - and only one - reporting period. We know that if we’re sent on [business] assignment mid-December and return mid-January, you can’t deduct all the expenses from that trip in both calendar years. The same holds true for carbon reporting. 

Begin efforts to collect market-based emissions factors from electricity providers. This can take longer (and be less fruitful) than you might expect. They will apply to a calendar year, and will change each year. 

utiliVisor: Do you recommend changing lease terms away from pro rata shares of utility usage and toward actual usage?

Hileman: I’m not an attorney or a real estate professional, so I don’t feel like I have standing to recommend lease terms. We’ve talked about the importance of accuracy and relevance. From the perspective of obtaining useful information to support calculation of carbon emissions, clarity counts. If a building manager provides information to a tenant, what is that, exactly? 

For example, I've had discussions on whether data provided is inclusive of common areas or exclusive of common areas? Does it include an allocated share from a parking structure? Are charging stations provided for electrical vehicles? If so, who pays? [GHG Protocol says that Scope 2 emissions arise from purchased electricity.] The driver (e.g., with a credit card), a charge code to the tenant, or allocated using the same formula as used for the common area?

A company with many leased locations may find there are many different models in their leases. Consider a scenario of a company with 20 leased locations. After researching this topic, they learn that electricity costs include the common area on a prorated basis for 5 locations. Three report that their electricity charges do not include the common area. The others do not respond. How should the company proceed? There is no single – or “right” – answer. Except that, however the company proceeds, they should document their approach and the basis for the approach, follow their own process, and document that they did so. 

utiliVisor: All this sounds like additional costs. Is there any upside from this effort? 

Hileman: Yes. Data analytics can reveal all sorts of surprises. Time of use data, for example, is really powerful. One example stands out. A professional services firm paid their building manager for utility use. The monthly charges included a “base load” charge and an incremental charge for off-hours electricity use. The company hadn’t noticed this before. Furthermore, the charges exceeded the base load charges – a lot of money! 

The building was configured such that the HVAC system didn't just work for your suite; you had to heat or cool an entire wing of the building. So you paid dearly for off-hours electricity use. Employees would routinely request off-hours HVAC if they “might decide to stay late.” They didn’t always stay late, and it wasn’t often work-related. So the company established criteria for staying late in the office. What began as an effort to calculate carbon emissions wound up saving the company thousands of dollars per year. 

utiliVisor: How can sustainability reporting change the way a company operates, for example, as it pertains to supply chains? 

Hileman: Many companies (pharma, for example) use contract manufacturers extensively. Contract manufacturers have many customers, each with their own policies and information needs. The contractor may run the same line, changing from one customer to another. Or, customers may insist on dedicated buildings – say to protect confidential information. The requirements to calculate and publish GHG emissions are hitting everyone – the contract manufacturer and their customers alike. 

The contract manufacturer is stuck in the middle. Each of their customers wants data that pertains to them. Nobody wants anyone else’s emissions. Customers probably have different business objectives. The contractor should account for electricity use, and exactly once. This may call for a combination of increased direct metering and submetering. It will become important for each party to be clear on information needs, and to understand the information they received and the basis for it. 

utiliVisor: What should a company do if it doesn’t have actual consumption data – those direct measurements – for all its locations? How should they handle that?

Hileman: That’s a common problem. I suggest a hierarchy of data quality. Direct measurements provide the most reliable data. This goes for electricity, natural gas, and (for companies who disclose this) water usage. 

If direct measurements are not available, indirect measurements can be the next best thing. It may be reasonable to begin with a direct measurement and apply a logical factor. Consider a scenario where you lease 10,000 square feet in a 100,000-square-foot building – with one electricity meter. You may elect to use 10% of the building’s consumption. 

The next rung of the hierarchy are the estimates. There are a range of sources for estimates, some better than others. Some can be derived from internal information, such as “We have excellent data for our facility in Charlotte, but we have no data for our facility in Baltimore. It’s the same operation but half the size. So we’ll estimate it’s 50% of the emissions in Charlotte.” Estimates can be derived from information available from peer companies, industry groups, academia, or online research. Each preparer must decide for themselves. 

The goal is always to move the quality of your data up that hierarchy. And as I see it, direct measurements – such as the kind utiliVisor provides with submetering – is at the top.

utiliVisor: Much of the attention on this topic goes to electricity use. What should people know about fossil fuel usage?

Hileman: Combustion of fossil fuels is a significant part of how GHG emissions arise. Emissions from direct combustion are considered Scope 1 emissions under the GHG Protocol. This includes combustion of natural gas. It also includes combustion of oil, propane, refined petroleum products (gasoline, diesel or jet fuel). Many buildings are connected to local utilities for natural gas. Metering (including the submetering provided by utiliVisor) is an excellent source of data for usage. Some buildings may have back-up generators powered by propane. The procurement isn’t typically through a local utility company, so companies must seek other records to get information on usage. 

utiliVisor: Are Scope 2 calculations straightforward, or are there tips that can make those calculations easier?

Hileman: I’m glad you asked! In fact, it’s a piece that many people miss - and it’s right there on utiliVisor’s dashboard. 

Recall that Scope 2 emissions arise from indirect combustion - essentially, when you pay another entity to do the combustion for you. Purchase of electricity is the classic example. Preparers look to data from meters as the preferred source of accurate operational data. 

Scope 2 emissions also arise from purchased heat, steam, or cooling. Tenants enjoy spaces that are heated and cooled to a comfortable range. If building managers charge tenants based on the amount of heating (and/ or cooling) provided, this matches the definition of “purchased electricity” in the GHG Protocol Corporate Standard. Tenants can’t get information on this from data provided by a Commonwealth Edison or Duke Energy. Preparers won’t find this on a public database. Technical solutions providers won’t have this information either. It’s easy for preparers to miss. It might not seem significant at first look, but think about Houston in August or Chicago in January. It can add up. If they do, their GHG emissions inventory is not complete, which is a flag to an external auditor. 

This data is in invoices, statements, or correspondence between the tenant and the building manager. If applicable, it may be among the data provided on the utiliVisor dashboard. 

utiliVisor: Is the reporting process the same from year to year? 

Hileman: No. The processes will be improved over time. This is a big and still-evolving field. 

I suggest that companies identify enhancement opportunities as they gather information and perform calculations. As they use estimates, consider (and identify) methods that may provide more accurate data. Assign priorities and make the higher-impact/ higher-value improvements in the next reporting cycle. As noted above, this includes moving from estimates to direct measurements. 

As an important aside, the GHG Protocol requires a Recalculation Policy. If a new/ better approach yields a substantially different result, this may apply. Or, you can prioritize by where it [real-time submetering data] is commercially available and easy to do.

I just did a training session for a firm on the greenhouse gas protocol. And in that corporate standard, they say Scope 2 is purchased electricity. And there's a little footnote that says we just use the term electricity for any purchased energy, including steam and chilled water. So all the vendors and many of the consultants out there are chasing bills at ConEd and so forth, but you [meaning utiliVisor] have on your statements, the quantity of chilled water and therms, etc. Most people are missing that data.

(Editor’s note: utiliVisor shines in multi-utility applications. We measure gas and electricity plus water, chilled water, steam, hot water, therms, BTUs, fuel oil, VRF/VRV, and air flow.)

utiliVisor: Any other general tips or recommendations to share?

Hileman: If you’re looking to reduce your emissions but you’re not sure how to go about it, or you’re feeling stuck in one area, spend some time on the carbon disclosure project site. Sometimes an assurance report or a company’s submittal to CDP gives clues to how a company improved the quality of its data over time to move from pie-in-the-sky estimates to better estimates to having hard data and how they they've done that, whether or not they elected to recalculate prior periods to follow what the greenhouse gas protocol calls for, that sort of thing. Not only are companies disclosing their numbers on CDP, they and their auditors are disclosing how they got the numbers and their improvements over time.

utiliVisor: Big question before we end: How are you feeling about carbon and sustainability issues, given what we know about the Trump administration's energy policies?

Hileman: Some of the trends are pretty clear. Everything at the federal level is going to be killed or ruled back. There will be no SEC climate disclosure rule. Much of what the federal government has pushed utilities, automakers, and consumers to do will be dialed back or eliminated. But that won’t be the end of this topic. 

The California climate law will stand. U.S. actions won’t derail the EU disclosure standards. There's the global accounting rule that IFRS has put out via the International Sustainability Standards Board. The voluntary disclosure of carbon emissions has been [going] 20 years now. And the demand for more complete and accurate data has only increased over that time. The TCFD (the Task Force on Climate-Related Disclosures) framework came out in 2017 and was quickly adopted and became embedded in all the other standards and frameworks. All the financial analysts - EcoVadis, Bloombergs, Standard & Poors, Moody's and others - now are plugged into the disclosure platforms to automatically pull out the data on carbon emissions and that's an input to their analysis models for climate resilience and how much climate may affect the financial performance of investments. That will stand. 

If people put pencils down on carbon because the SEC isn't going to act, they're simply kicking the can down the road. It may only be a year or two before they start getting requests from EU-based customers. “How come you're not doing your carbon reporting?” 

I've seen situations where companies get that kind of request from a customer. The customer may also have an initiative to rationalize our supply chain, and reduce the number of vendors. There's a little hint there that if you don't submit to CDP, you could be at risk of losing this customer. This isn’t public and high-profile, but it’s happening. 

The scramble to do everything at the last minute is no fun. And it’s expensive.

*About Doug Hileman

Doug Hileman is an engineer and sustainability specialist as well as an author of the new ICSR supplemental guidance on sustainability reporting. Previously, he worked at PricewaterhouseCoopers and as the senior environmental management specialist on the Volkswagen monitor team (as stipulated by the Department of Justice).

Learn more about Doug Hileman’s work in standards, compliance, and risk management here.