Verification of Greenhouse Gas Inventory - what is involved for an audit?
Are you interested in having your Greenhouse Gas Inventory verified and curious as to what is involved?
This article will provide you with an overview of what is involved in a Greenhouse Gas (GHG) Inventory Verification process, why you may want to have an audit, as well as describing some of the technical terminology used during an audit.
What is the difference between an 'audit', 'verification' and 'certification'?
The words audit, assurance and verification are used interchangeably in the audit industry, which means you can use any one of these words. It is common to use the word 'verification' when performing an audit of a GHG Inventory e.g. an auditor will produce "a GHG Inventory Verification Report".
A Qualified Auditor is regulated to only use the words audit, assurance and verification when they have applied the appropriate audit standards.
A 'certification' is different to an audit/ verification. Obtaining a certification will often mean that your organisation has meet the rules and requirements of the certifying body. In comparison, an audit/ verification is performed against criteria which can be selected such as ISO 14064 and/ or the Greenhouse Protocol and/ or other relevant standards.
In summary, a Qualified Auditor can audit you against a standard relevant to you. A certification has been developed by a specific organisation which has it's own rules and requirements.
Do I need to get my GHG Inventory audited?
Organisations are coming at this from different directions:
All Public Sector agencies are now mandated to have their GHG Inventory audited. This has occurred through the Carbon Neutral Government Programme (CNGP) where there is a target for the public sector to be carbon neutral by 2025.
All large listed companies on the New Zealand Stock Exchange (NZX) are now mandated to measure and report their carbon footprint (GHG Inventory) and have this audited/ verified.
There is now a flow on effect in the supply chain around New Zealand: Public Sector agencies and NZX listed companies are now asking their supply chain partners to provide their carbon footprint in relation to the work they perform for them. The accuracy and robustness of those numbers is very important therefore third party auditors are now being asked to validate the accuracy of the GHG Inventory.
Having your carbon footprint audited demonstrates to your customers and stakeholders that your numbers are accurate and in line with the applicable standards (often ISO 14064).
What qualifications do auditors have?
You should do your homework before picking an auditor. Ensure they are a member of an oversight regime. In New Zealand the three common auditing bodies are:
A professional recognition from the New Zealand Institute of Chartered Accountants (NZICA)
A carbon auditor certification from Carbon and Energy Professionals New Zealand (CEP)
Organisations accredited to ISO 14064-3 (Verification of GHG Statements)
What is the difference between Limited Assurance and Reasonable Assurance?
Before you commence your audit you should determine if you are seeking to achieve Limited Assurance or Reasonable Assurance. You can discuss this with you auditor.
This will impact the type and extent of audit procedures the auditor performs. Reasonable Assurance is a higher threshold than Limited Assurance. More audit procedures are performed for Reasonable Assurance therefore the end users of the GHG Statements receive a higher comfort level that the Statement is accurate, reliable and in line with the ISO standards.
Does it matter what carbon calculator tool or software I use to prepare my GHG Inventory?
No it does not matter what carbon calculator tool or software you use. The auditor will look at the Activity Data you have entered into the tool and the emission factors that have been applied. It is important that you understand what emission factors are in your carbon calculator. At the end of the day the auditor is auditing your organisation, not your software provider, therefore you are responsible for the accuracy and reliability of your data in the tool.
What is audit materiality?
Most people will have heard about audit materiality. It is a method used by an audit team to determine where to focus their audit procedures and how to address errors when they occur. An audit materiality threshold of 5% can be common but it does depend on the specific circumstances and auditors need to calculate the materiality they will apply at the beginning of each audit (therefore it could be different).
Auditors will ensure they have examined all the material emission sources (and often a sample of non-material sources too).
In addition, when an auditor is issuing their audit opinion/ conclusion at the end of the engagement, they will declare that 'the GHG Statement is materially accurate'. In the context of audit materiality this means the tCO2e figures stated are within 5%. In practice, if errors are identified during the audit process, they will be remediated by management immediately and applied to the final GHG Statement.
It is important to note that auditors will also be aware that a number of small individual errors may sum up to being greater than 5%.
What is involved in an audit?
A summary of some key audit areas includes:
Ensuring the relevant standard has been applied correctly, for example, each requirement within ISO 14064: 2019.
Have all emission sources been identified?
This requires a sound understanding of the organisation and the activity it undertakes.
Validating the accuracy of the tCO2e for each emission source:
Matching back to source documents: this can be as simple as matching back to electricity invoices for kWh, or may be more complicated for freight emissions if there are different data sets with incomplete information.
Modelling can be common for certain emission sources: check accuracy of the model, assumptions applied, formulas; appropriateness of extrapolation techniques used when moving from a sample to extrapolate to the whole population e.g. Staff commuting to work emissions; or staff working from home emissions, that have originated from a staff survey.
Have the correct emission factors been applied?
In New Zealand, the Ministry for Environment emission factors are the common base set to be used. Currently these are revised each year. Other emission factors are available for use as well.
Appropriateness of spend based emission factors
These have become more common in recent years as organisations measure their Scope 3 supply chain emissions, however care must be taken in applying them as the incorrect application can result in incorrect emissions reported.
Documentation of your data limitations and data uncertainty levels is important to be transparent with the readers of your GHG Statement.
How are audits conducted?
It is common for the auditor to ask for your draft GHG Statement to be provided along with the supporting data files and documentation. It is often best to perform a walkthrough with your auditor of the files so they clearly understand the process you performed to measure each emissions source.
Andrew Douglas is a New Zealand based Qualified Auditor with CAANZ with over 20 years experience performing audits, including Greenhouse Gas Statement audits in the United Kingdom and New Zealand.