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- 📊 Climate Tech Brief #013 — Carbon Accounting
📊 Climate Tech Brief #013 — Carbon Accounting
What gets measured gets improved
Happy Tuesday!
Public companies currently prioritize maximizing financial performance to benefit their shareholders. However, the SEC is expected to adopt ESG reporting requirements soon, signaling a shift towards considering stakeholders beyond just shareholders, including those impacted by the company's actions.
As a result of these ESG reporting requirements, the adoption of climate management solutions such as carbon accounting, carbon offsets, and carbon removal should increase.
Some public companies, such as Google and Microsoft, have already adopted carbon accounting. But it’s a complex methodology to adopt. So let’s dive in.
📣 Why it matters
Businesses are a major contributor to greenhouse gas emissions. What gets measured gets improved.
😬 Problem
Businesses don’t have a reliable way to measure their environmental impact. Without a quantitative measurement of carbon emissions, firms have a higher risk of damaging their reputation, increasing operating costs, and failing regulatory compliance.
🎯 Solution
Carbon accounting is a systematic approach to measuring, reporting, and tracking the amount of carbon dioxide emissions produced. By quantifying carbon emissions, the environmental impact of an organization can be managed and ultimately reduced while also reducing operating costs and overall climate risk.
Greenhouse Gas Protocol (GHGP)
The Greenhouse Gas Protocol (GHGP) is the most widely-used standard for accounting and reporting greenhouse gas emissions. It is a globally recognized framework for businesses and governments to measure, manage, and report on their greenhouse gas emissions.
Carbon Accounting Methodologies
The spend-based method estimates GHG emissions by multiplying the financial value of a purchased good or service by an emission factor, derived from environmentally extended input-output models. This method calculates the average emissions associated with each unit of money paid to a company in a specific industry and region, but lacks specificity since emission factors are based on industry averages.
The activity-based method measures how much of a product or material a company has purchased, such as liters of fuel or kilograms of textile.
The hybrid methodology combines spend-based and activity-based data using emission factors, often from scientific studies, to estimate emissions output. Activity data provides more accurate estimates but can be time-consuming to gather, so the hybrid model is recommended by the Greenhouse Gas Protocol. It uses all available activity-based data and spend-based methods for the rest.
Scope 1, 2 and 3, Emissions
The Greenhouse Gas Protocol defines three levels of scope for emissions.
Scope 1
Organization-owned or controlled sources of emissions are referred to as direct emissions. This includes on-site fuel combustion and company-owned vehicle or equipment emissions.
Emissions from on-site combustion of fossil fuels such as natural gas, oil, and coal to generate energy for heating, cooling, and manufacturing processes.
Emissions from company-owned vehicles and equipment.
Emissions from refrigerant and air conditioning systems.
Scope 2
Indirect emissions come from purchased electricity, heat, or steam, including those from utility or other suppliers' production.
Indirect emissions from the consumption of purchased electricity, heat, or steam.
Emissions associated with transmission and distribution of purchased electricity, heat, or steam.
Scope 3
Scope 3 emissions are all other indirect emissions in the organization's value chain, from suppliers, transportation, and product use by customers. They are often the largest source of emissions for organizations.
Emissions from suppliers, such as raw material extraction and processing, manufacturing, packaging, and transportation.
Emissions from the use of products and services by customers.
Emissions from the end-of-life treatment of products, such as recycling or disposal.
Employee commuting and business travel.
Upstream and downstream transportation and distribution of products.
Source: Normative.io
💪🏼 Innovators
Greenly makes carbon accounting simple and intuitive for SMEs
Legacy simplifies and automated your carbon accounting
Normative.io is a carbon accounting engine that helps businesses achieve net zero emissions.
Cedara provides a carbon management SaaS platform helping organizations to measure, reduce, offset, and report on all carbon emissions.
Planet FWD is a carbon management platform for consumer products that helps brands calculate their carbon footprint.
Carbon Direct combines scientific expertise and financial capital to scale global carbon management and removal.
Iconic Air is a real-time platform that offers emissions mapping and analytics solutions.
SailPlan is an emissions optimization platform that helps marine operators monitor, report, and reduce emissions while saving money.
Bend makes CO2e emissions data programmable and queryable. Track companies as they cut carbon, and measure your supply chain footprint.
⚡️ Opportunities
Real-time emissions monitoring using remote sensors and machine learning to analyze energy consumption.
Project Canary is a B-Corp that reduces GHG emissions and impacts in the energy, waste, and agriculture sectors through sensor measurement.
Kuva Systems provides continuous emissions monitoring and quantification of methane and VOC across upstream oil & gas operations.
Focus emissions tracking on supply chains
Optera platform tracks emissions upstream and downstream in a company’s supply chain.
Build or partner with a carbon offset marketplace. Organizations with high emissions will want or need to offset their environmental impact.
Don’t stop at measurement and tracking. Offer insights to reduce emission and operating costs for clear ROI.
Connect carbon accounting output with climate risk associated with organization’s emissions.
Climate X delivers climate risk-related ratings and asset level financial impacts for extreme weather events linked to climate change.
Betterview is a property intelligence platform that assists property insurers in analyzing, scoring, managing, and monitoring property risk.
Share and pass off carbon emissions to consumers.
EcoCart is a climate and sustainability-focused eCommerce enablement startup pitching consumers on ways to offset their carbon emissions.
⚠️ Challenges
An overwhelming amount of emissions come from deep in an organizations value chain, from 70-92%. Global supply chains are complex and difficult to change.
SINAI Technologies builds enterprise decarbonization software to monitor, analyze, and reduce carbon emissions.
Complex and unstandardized reporting requirements
Data availability and accuracy can prevent accurate carbon account. This can be compounded by Scope 3 operations across different countries and companies.
Fashion supply chains are drastically different than medicine or food. Focus on solving for a single vertical.
ClearTrace is a software company that provides automated energy and carbon accounting for investors, enterprises, and real estate owners
Carbonfact provides fast, scalable life-cycle assessments to help fashion brands lower their scope 3 emissions.
🚀 Takeaways
Carbon accounting is a systematic approach to measuring, reporting, and tracking the amount of carbon dioxide emissions produced by an organization.
The Greenhouse Gas Protocol (GHGP) is the most widely-used standard for accounting and reporting greenhouse gas emissions, with three levels of scope for emissions: scope 1, 2, and 3.
Innovators are making carbon accounting simpler, automated, and more intuitive for SMEs, while there are various opportunities for real-time emissions monitoring, emissions tracking on supply chains, building carbon offset marketplaces, and offering insights to reduce emissions and operating costs.