Carbon Accounting Tech Evolves as ESG Demands Increase

Carbon accounting isn’t a new concept. For more than two decades, the Greenhouse Gas Protocol has guided companies toward net zero. Yet the path to progress has been choked with obstacles. For many organizations, carbon accounting methods have remained somewhat vague and confusing, while inconsistent regulation has spawned laissez-faire behavior and actions.

That’s changing. A growing array of carbon accounting standards and methodologies are emerging. Moreover, technology -- including tools such as blockchain and Ambient IoT -- are making it easier to track carbon, including pesky Scope 3 emissions. As organizations attempt to trim their carbon footprint and avoid accusations of greenwashing, the need to adopt a sound accounting framework is vital.

“We’re seeing a massive shift in thinking -- along with increased adoption of carbon accounting tools and methods,” observes Kristina Wyatt, a senior vice president for Global Regulatory Climate Disclosure at Persefoni, a sustainability consulting and software services firm. “There’s an acknowledgment that it’s now important and necessary to report greenhouse gas emissions accurately.”

For businesses, this shift toward accuracy and transparency can prove daunting. “The accounting part is really hard,” says Tim Mohin, a partner and director at Boston Consulting Group (BCG), which also offers carbon accounting software. “People have focused mostly on disclosure but getting a handle on greenhouse gas emissions is critical for success -- and for avoiding accusations of greenwashing.”

By the Numbers

In many respects, carbon accounting is a fairly straightforward task. Once an enterprise determines the cost of fuel or electricity and applies them to the entire process of assembling, transporting, selling, and disposing of an object -- anything from a box of breakfast cereal to a smartphone -- it’s possible to determine how much carbon is produced.

For years, the World Business Council for Sustainable Development and the World Resources Institute have offered standardized ways to measure and report greenhouse gas (GHG) activity. In addition, Science-based targets guide organizations toward verifiable and accurate carbon accounting methods. “Excellent tools and methods exist for building an accounting framework,” Wyatt says.

Yet, as the old saw goes: The devil is in the details. While it may be fairly simple to track basic activities and understand the fundamentals of carbon output, an airline or clothing manufacturer with thousands or even millions of materials, parts, or components can find itself quickly overwhelmed by the complexity of situation. BCG found that 66% of organizations it surveyed still do not measure critical Scope 3 emissions.

The upshot? As governmental regulations expand and consumers push for more sustainable products and companies, it’s crucial to adapt to a more stringent and accurate carbon accounting framework. It’s also crucial for smaller firms to understand that they aren’t exempt. “Sustainability is no longer relegated only to large corporations; it’s reaching down to SMBs,” states Alexis Normand, CEO and co-founder of consulting and software services firm Greenlee.

Ignoring this rapidly evolving landscape is risky. In addition to possible regulatory penalties, environmental, social and governance (ESG) programs are under growing scrutiny by the press, shareholders, and the public. In recent months, Shell Oil, Deutsche Bank, and other major companies have faced accusations of greenwashing. In fact, the law firm Norton Rose Fulbright reported in January 2023 that 28% of general counsels and others at more than 430 firms reported that their dispute exposure had increased in 2022 and 24% expect the trend to continue over the next 12 months.

Accounting for Change

BCG found that good intentions alone aren’t getting the job done. While 85% of organizations are concerned about reducing their greenhouse gas emissions, and 96% have set targets for reducing emissions in at least one scope, only 11% have cut their emissions in line with their ambitions over the past five years.

In order to inventory, track, and report emissions accurately, an organization requires the right tools, technologies and strategic framework for tracking Scope 1, 2 and 3 emissions. “You cannot rely on spreadsheets, manual tracking and brute force techniques to build a successful sustainability framework,” Wyatt says. “There’s simply too much data and it’s all too complicated.”

In fact, BCG reports that 86% of organizations continue to rely on spreadsheets to track carbon emissions. Overall, 53% of business and IT leaders say that they have trouble making and tracking decisions. In many cases, they’re unable to assemble a complete picture and understand conditions well, due to infrequent and sometimes inaccurate measurements along with manual input.

Carbon accounting software can flip the proverbial iceberg. BCG, Persefoni, Greenlee, and numerous others offer applications that aid in measuring and automating GHG emissions. This makes it possible to view carbon output on a dashboard but also drill into complex variables and understand them better. For instance, BCG’s tool, CO2 AI, pulls operational data from an ERP system. This includes materials used to make products, transportation costs, and waste streams.

Yet, for many organizations, it isn’t enough to merely automate data collection. There’s also a need for broader, deeper and more granular insights into actual carbon output. One way to get to a more evolved carbon accounting framework is through the use of blockchain or Ambient IoT tools, says Sudnyesh Itraj, principal architect at BCG. “With these tools you can calculate the entire carbon footprint through the entire process,” he explains. “You can establish a carbon passport for a particular product.”

These technologies can also automate data collection, says Steve Statler, chief marketing officer for Wiliot, a firm that produces Ambient IoT devices, dubbed IoT Pixels, that can be attached to items at a unit level. Unlike RFID, which requires a reader and delivers only occasional snapshots of events or movements, postage-size Ambient IoT tags use Low Energy Bluetooth to communicate in real time. IoT pixels cost about 10 cents each and they can last years because they harness energy from radio waves instead of a battery.

Getting to Net Zero

Carbon accounting isn’t only a job for the CIO or ESG officer, says Mike Wallace, chief decarbonization officer at Persefoni. “An initiative must start at the board level and touch various departments and groups to ensure that the right data is being used in the right way.” Third-party verification is essential. “If you don’t have accurate data -- and check to make sure the data has been updated as things change -- you risk making errors,” he says.

Amid competing products, tools and methods, an overall framework for standardization is also critical. One way to get to a high level of consistency and accuracy is through science-based targets, which have emerged as the gold standard across industries. These criteria and targets are designed to meet the goals of the United Nations 2015 Paris Agreement.

In addition, it’s wise for business and technology leaders to adhere to frameworks like The Greenhouse Gas Protocol, World Business Council for Sustainable Development and the World Resources Institute. These groups offer news, tools, resources, methods and best practices for achieving a net-zero carbon footprint.

“There is a lot of work to be done to shore up carbon accounting procedures and methodologies,” concludes BCG’s Mohin. “Companies have made great strides in recent years, but carbon accounting is at its core a massive data challenge. The more that organizations can build a structured framework and adhere to proven principles the more likely they are to succeed.”

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