Path to net zero: The why, what and how for NFPs starting out
Out-of-the-box thinking will be needed to find solutions where not-for-profits can avoid or reduce generating emissions (Getty Images/kupicoo)
A growing number of companies have established plans to achieve Canada’s net-zero goal by 2050. In October 2021, CPA Canada publicly pledged its commitment, joining fellow members of the Accounting Bodies Network dedicated to creating a greener and more resilient economy. [Understand the vital role CPAs play in leading the journey.]
With execution now under way, we spoke to Norman Hait, director, third party risk management and operational support at CPA Canada, and Paul Havey, CPA, chief financial officer, about preliminary learnings and action items that not-for-profits will find valuable as they work toward their net-zero carbon-reduction goals.
CPA CANADA: What does achieving net zero actually mean?
Norman Hait (NH): Achieving net zero means reducing greenhouse gas emissions to zero through an avoidance, reduction or offsetting of emissions inventory. While net zero refers to all greenhouse gases, the immediate focus is on CO2 emissions.
Paul Havey (PH): There are certain steps organizations can take to get as close as they can to net zero, but if they have residual greenhouse gas emissions the only solution is to purchase offset credits.
CPA CANADA: What are the benefits of becoming a net-zero business?
NH: A net-zero business can become a leader and role model for others. In addition to the environmental impact, it’s a social obligation. This is about doing the right thing and being leaders for our own businesses and those who look to us for guidance in this area.
PH: I also think a net-zero organization appeals to employees, stakeholders and partners who are increasingly supportive of climate change. Clearly, this would enhance the long-term resiliency of our organization.
CPA CANADA: Why is the finance department best positioned to oversee the establishment and implementation of a net-zero plan?
PH: Finance is best positioned for this oversight due to their discipline, objectivity and capability to meet the any voluntary reporting and disclosure requirements as adopted, or mandatory requirements once they emerge within the NFP sector.
NH: Finance is effectively positioned for oversight—data collection, monitoring and reporting—as the discipline aligns to practices of accounting and financial management. Implementation of the plan will rely on cross-functional effort from all business units where they are responsible for managing their significant activities.
CPA CANADA: What are the biggest sources of emissions for NFPs and how can they reduce them?
PH: Natural gas for heating is the key area within Scope 1, which relate to direct emissions, Scope 2 includes indirect emissions from the generation of purchased energy and Scope 3 are all other indirect emissions linked to the company’s operations such as paper usage, travel, employee commute and upstream/downstream logistics.
NH: It will require out-of-the-box thinking in some places to find solutions. Where applicable, it is essential to look to areas where an organization can avoid or reduce generating emissions, such as hybrid work models, reducing travel, virtual technologies and electronic delivery methods. With that, organizations also need to consider the technology costs, as well as the tradeoffs needed to accept changes in the practice.
CPA CANADA: Where does the net-zero journey start for not-for-profits?
NH: Once the commitment is made to progress down the path to net zero, the first step is to establish a current inventory for Scope 1 and 2 and a baseline in Scope 3 activities. This involves looking at all the drivers and business activities that make up a company’s contribution to emissions.
At CPA Canada, we will be setting target dates within the first half of 2023 once we have identified those drivers and activities. The next step will be to organize a feasibility workshop and assessment to uncover opportunities for low-hanging fruit.
CPA CANADA: What should be the basis for an NFP’s net-zero targets?
PH: Scope 1, 2 and 3 emissions are the accepted basis for net-zero targets. Organizations can use them to develop an emissions inventory, possibly with the help of an external consultant. The biggest source for most will be Scope 3 as it refers to activities such as travel, commuting and print operations which are easily implemented and can deliver the quickest results. In our view, Scope 3 will deliver the biggest reduction in emissions than the aggregate of 1 and 2.
For example, switching away from print to digital distribution of information or transitioning to a hybrid work model in Scope 3 can deliver immediate benefits versus longer-term planned initiatives with Scope 1 and 2, which will largely be tied to real estate location and footprint.
NH: The tricky part is determining the baseline year. The last two years our operational practices have still been in a modified state due to the pandemic disruption. So the question with a baseline is: “What period is normal?” This is a case where we won’t find the perfect answer but have to pick a point, understand the ambiguity, understand the assumptions, apply materiality and move forward.
CPA CANADA: How does a reporting framework fit into the plan?
PH: A reporting framework will be key, as it provides the input needed to make decisions on implementing emission-reduction projects and tracking against timelines and goals.
NH: Reporting standards and a framework are still being developed. Nevertheless, we are already working ahead at CPA Canada by starting to collect and gain an understanding of the data internally. It is important to note that there is no external reporting requirement for most NFPs, although requirements exist for emission intensive activities.
CPA CANADA: What are some challenges that NFPs can face in this journey?
PH: For some NFPs, affordability buying offset credits could be a challenge in terms of affordability. As an industry association, CPA Canada is in a much better position than perhaps a charity that needs to balance tight budgets with very little excess funds. But if everyone does their part, hopefully those that do more can offset those that can’t.
NH: For all the different inputs there are multiple different data collection and conversions needed to calculate tonnes of CO2 emissions. Another challenge that comes into play for reporting organizations and service providers is understanding where reporting stops within the supply chain. Yet another is keeping up with ongoing data gathering. This is difficult right now because data is not consistent and can be housed in different systems depending on the category you are measuring. It will take time for technology to catch up. In the meantime, the integration work will be significantly manual.
CPA CANADA: What one piece of advice do you have for NFPs starting on this journey?
NH: To succeed we will need to engage in dialogues with other similar entities to share problems and solutions. We must be part of a larger community that can design and build as we go. For example, through the Accounting Bodies Network, CPA Canada is working with 14 accounting bodies that made the commitment in the fall of 2021.
GET ON BOARD
Learn more about Canada’s transition to net zero and CPA Canada’s own commitment. See how CPAs can play a central role in the journey to net zero and how they can lead ESG initiatives. Plus, delve deeper into the role of sustainable finance.