By Jess Higgs | 30th Nov 2021
Hailed as the smart way to lead us towards net-zero, carbon accounting works by calculating how much carbon is emitted into the atmosphere so companies can work out how to reduce, mitigate and remove as much as possible. Sounds simple enough, but is carbon accounting all it's cracked up to be? In this article, we explore some of the flaws behind the system and look at how the business and innovation community can be at the forefront of correcting the listing ship.
Perhaps the biggest problem with carbon accounting is that it's self-regulated. Governments and regulatory bodies have been incredibly slow to create rules that must be adhered to and impose consequences if those standards aren't met. If a company gets its financial accounting wrong, it can expect hefty fines and even prison time for the company directors. With carbon accounting, companies get praised for simply trying, regardless of the outcome. Carbon accounting happens voluntarily and, as a result, is rife with inaccuracies, assumptions and guesstimates.
So, what tools are companies using to calculate their emissions for carbon accounting? There's no single unified system for carbon accounting, but the most widely used is the Greenhouse Gas (GHG) Protocol. The protocol splits emissions into three groups labelled as 'scopes'; Scope 1 covers direct emissions; Scope 2 covers indirect emissions from the generation of energy purchased; Scope 3 includes all other indirect emissions that occur in a company's value chain. You can probably see where we're going with this, but essentially companies can be pretty accurate with Scopes 1 and 2, but Scope 3 presents a real opportunity for getting it completely wrong. And companies do. Frequently.
The third issue with carbon accounting is that people often fudge the statistics with offsetting rather than removal. Companies often justify continued investment in and usage of fossil fuels by 'offsetting' their carbon. For instance, Mark Carney's $600bn Brookfield Asset Management portfolio has been described as carbon neutral despite its fossil fuel investment because investments in renewables offset them. So while carbon accounting sounds good, the reality is anything but. This attitude won't get us to net-zero, and until there is a weightier focus put on discontinuing emissions rather than offsetting them, we never will.
However, there is a reason for optimism, and technology and innovation are at the heart of it. In October 2021, Microsoft announced the launch of the Microsoft Cloud for Sustainability which aims to make carbon accounting easier for businesses. The tool addresses three core issues: unifying data from multiple sources and integrating it into one source of truth, providing reports so companies can properly analyse this data, and giving actionable recommendations to help businesses reduce their emissions. And, it's not only big businesses like Microsoft that are getting in on the act. UK startups like Emitwise are taking it one step further and using artificial intelligence to enable companies to monitor, measure and ultimately report on their carbon footprints across all three Scopes. Another exciting startup to watch is Circulor, an organisation focusing on giving businesses traceability data for complex supply chains, enabling them to make more responsible decisions regarding sourcing and recycling products. Tech like this and the wave of exciting startups looking to tackle climate change at every level should give us all reason for hope.
The message is clear: we will never hit net-zero unless we can accurately measure carbon emissions. For that, we need better carbon accounting models and strict regulation. But with technology constantly evolving and businesses dedicating themselves to addressing these issues, we might just get there. So is carbon accounting all it's cracked up to be? No. But it certainly could be.