In today's world, the need for sustainable business practices has never been more pressing. The negative impact of human activities on the environment and the impact of climate change have brought the issue of carbon accounting to the forefront. Indeed, climate change could cut the global economy by $23 Trillion in 2050, making it imperative for our global economy to invest in decarbonisation solutions.
On the other hand, sustainability leaders face a complex and rapidly evolving landscape, with increasing pressure to become financially profitable and climate-resilient. The early adopters of low-carbon business models are the ones who are ahead of the game, generating higher value for their shareholders and stakeholders. To achieve this, a company needs to have the right emissions baseline and manage its carbon emissions effectively, making carbon accounting and technology crucial solutions for sustainability.
Carbon accounting refers to the systematic methodologies, measurement, and monitoring used to evaluate and quantify how much carbon dioxide equivalents (CO2e) an entity or activity emits. Carbon accounting measures emissions of all greenhouse gases and includes CO2, methane, nitrous oxide, and fluorinated gases. Gases other than carbon are expressed in terms of carbon equivalents.
Carbon accounting is essential in tracking the progress of reducing emissions and implementing effective strategies to reach a net-zero future. The role of technology in carbon accounting is vital, and this article will explore how technology has transformed the carbon accounting field and why it is necessary for companies to embrace it.
The history of carbon accounting
The history of carbon accounting dates back to 1974 when R.G. Hunt published the Life Cycle Assessment (LCA). The LCA was a method for evaluating the environmental impact of a product or service through all stages of its life cycle. This method became an integral part of carbon accounting and was later adapted for use by corporations.
In the 1990s, companies started to take action on their impact on the environment, and many began to invest in alternative energy technology and explore alternative packaging. For example, Procter and Gamble, one of the world’s largest plastic users, started to look at alternative packaging. Even software companies, with seemingly low emissions, started to think about energy-efficient offices. However, they soon realised that they lacked the means to accurately measure their emissions, and evaluate the impact of such sustainability initiatives.
In 2001, a major milestone in carbon accounting was reached with the publication of the Greenhouse Gas Protocol Corporate Standard. This standard provided the accounting platform for nearly every corporate GHG reporting program in the world. Today, at least 85% of companies reporting to the CDP use the GHG Corporate Standard.
The role of technology in carbon accounting
In recent years, technology has transformed the way companies approach carbon accounting. Automation and complete digitisation have made the process of collecting, processing, and analysing massive amounts of emissions data much easier. The use of technology has also made it possible to identify emissions hotspots, develop data-driven decarbonisation pathways, and automate sustainability reporting.
One of the key benefits of technology in carbon accounting is that it enables companies to continuously monitor and track their emissions in real time. This provides organisations with valuable insights into the impact of their operations on the environment and helps to identify areas where emissions can be reduced. In addition, technology-based carbon accounting platforms allow companies to reduce the time and resources required to produce accurate and comprehensive carbon reports, which makes it easier for companies to comply with regulatory requirements and prioritise climate action.
Thus, there is an established correlation between technology and achieving sustainability targets. In a recent Bain survey, 40% of respondents said digital technologies positively impact their sustainability goals, but technology holds even more advantages. Technology is considered to speed up companies’ journey to net-zero.
For example, a study found that for an organisation of approximately 80 000 people, the combination of process automation, sustainable business models and carbon data transparency may reduce emissions by 45 to 70%, with carbon data transparency accounting for up to 40% of reduction alone.
The benefits of using technology in carbon accounting are clear, and companies that embrace it are better equipped to manage their carbon footprint and achieve their sustainability goals.
Climate change costs exceed the ones for carbon accounting and decarbonisation
With a 150% increase in climate-related disaster costs estimated at $2.25 Trillionn from 1998-2017, this number is expected to grow 10 times higher by 2050. The earlier you start your carbon accounting journey, the more financially sustainable you will be as a business due to new regulations and carbon credits' growing cost.
To give you an example, the current price of offsetting carbon ranges from $8 per tonne to $70 per tonne. Analysts predict its cost will rise to $120 or more per tonne in coming years as more stringent and harmonised criteria come into play. So, for a smaller fashion company that produces 7,000 tonnes of carbon emissions per year, this could be a $1M cost item. Once you make the mathematics, you will realise that your company is destined to spend more on carbon costs than it will earn revenues.
It is never too late to start. For example, GANNI, a leading fashion brand company, partnered with Plan A, a sustainability platform created in 2017 to provide companies with tools to manage their net-zero journey. As a result, GANNI achieved a 44% reduction in emissions associated with used materials and has set a 45% target reduction target by 2025. GANNI improved its sustainability performance by using collaboration and technology and became a leader in its industry.
The future of carbon accounting and technology
As the importance of sustainability continues to grow, carbon accounting will likely become even more important in the coming years. Companies will be under increasing pressure to reduce their carbon footprint, and the use of technology in carbon accounting will be essential to streamline and automate the reporting process.
The European Commission’s recent proposal for the Corporate Sustainability Reporting Directive (CSRD) is an important step in the future of carbon accounting. This legislation, replacing the current Non-Financial Reporting Directive (NFRD), requires nearly 50,000 EU companies to report their climate and environmental impact beginning with the 2023 financial year. This will make carbon accounting a de facto requirement for large businesses based in or operating in the EU.
In conclusion, technology plays a crucial role in carbon accounting, and companies that embrace it are better equipped to manage their carbon footprint and achieve their sustainability goals. By leveraging the power of technology and data, companies can reduce their carbon footprint and make a positive impact on the environment. The future of carbon accounting is bright, and companies that embrace it will be well-positioned to succeed in the sustainability space.
The use of technology has made it possible to collect, process, and analyse massive amounts of data, develop data-driven decarbonisation pathways, and automate reporting. The CSRD has put pressure on companies to embrace technology, and those that do will be better positioned to comply with the requirements and achieve their sustainability goals.
If you still have doubts about carbon accounting, imagine going through life without a watch to measure time. How disorienting that could be. The same applies to carbon management, you need the technology to guide you through this exciting net-zero journey and do the big data work for you.