Many businesses are getting on board with carbon accounting practices to measure, report, and reduce their greenhouse gas (GHG) emissions. But here's the thing: Traditional carbon accounting methods - such as manual data collection and spreadsheet-based calculations - just don't cut it anymore. They simply can’t meet the demands of today's business environment.
In this blog post, we'll explore why traditional carbon accounting methods are inadequate and why companies need to adopt more advanced solutions to accurately measure and manage their carbon footprint.
The Limitations of Traditional Carbon Accounting
Manual data collection and spreadsheet-based calculations are the most commonly used carbon accounting methods. According to statistics from the Carbon Measurement Survey 2021 published by Boston Consulting Group (BCG) x BCG GAMMA, 86% of companies still record andreport their emissions manually using spreadsheets.
But manual methods have severe limitations that make them insufficient for modern-day businesses. Here’s why:
It’s Time-Consuming and Prone to Errors
Manual data collection and spreadsheet-based calculations are time-consuming and prone to errors. Gathering data on emissions from various sources can be a daunting task, and it can take months and even years to compile then necessary information.
Moreover, manual data entry is susceptible to human error, and even small mistakes can lead to significant inaccuracies in the finalemission reports.
It’s not uncommon that we experience a difference of factor 5-6 in CO2 emissions when we perform our calculations compared to the existing CO2 data. This discrepancy is usually due to data entry errors, double-counting of emissions, and inaccurate conversion factors that all lead to incorrect emission reports.
Lack of Transparency
Traditional carbon accounting methods lack transparency, making it challenging for companies to track their carbon footprint accurately.Issues such as datasilos and fragmented data sources can make it difficult to consolidate data and create a comprehensive view of a company's emissions.
Moreover, without real-time data updates, traditional carbon accounting methods are unable to provide accurate and up-to-date emission reports. This lack of transparency can make it challenging for companies to track their progress towards their carbon reduction goals and address any issues as they arise.
Inability to Handle Complex Emissions Data
Carbon emissions data is complex and usually involves multiple sources, including spend data, activity data and supplier intensity inputs. Traditional carbon accounting methods often struggle to handle this complexity, leading to incomplete or inaccurate reports.
For example, energy usage data may need to be collected frommultiple sources, including electricity bills and fuel consumption logs. Manualdata entry can make it difficult to accurately capture this information, leading to underreporting of emissions.
Incomplete Data Collection
Traditional carbon accounting methods often rely on data collected from limited sources, leading to incomplete emission reports. For instance, a company may only collect data on emissions from energy use, while ignoring emissions from transportation or waste management. This incomplete data can lead to an underestimation of a company's actual emissions, making it difficult to identify opportunities for improvement.
Doesn’t Account for Scope 3 Emissions
Traditional carbon accounting methods often focus on direct emissions (Scope 1) and indirect emissions from energy use (Scope 2). However ,Scope 3 emissions, which are indirect emissions from a company's supply chain, are becoming increasingly important to measure and manage. Traditional carbon accounting methods often lack the ability to accurately account for Scope 3 emissions, leading to incomplete emission reports and a limited understanding of a company's true carbon footprint.
10 Reasons Why Companies Need Advanced Carbon Accounting Solutions
With the limitations of traditional carbon accounting methods in mind, companies need to adopt more advanced carbon accounting solutions that can accurately measure, manage and consolidate the full scope of their carbon emissions. Here are 10 reasons why:
1. Enhanced Data Accuracy
Advanced carbon accounting solutions use comprehensive data collection methods to ensure accurate and up-to-date emissions data. This enhanced data accuracy eliminates the risk of human error and ensures that emissions reports are reliable and trustworthy. At EIVEE, we follow these steps to ensure the highest level of accuracy:
- Data collection & aggregation: Collecting all relevant data sources and aggregating them to one database by identifying unique links between sources.
- Data cleansing: Cleansing and normalising data, e.g., consolidating supplier names, number formats, removing duplicates, zero lines, etc.
- Category Tree: Development of ‘best practice’ supply-market driven procurement category tree.
- Categorisation: Using battle-proven methods for categorisation of spend data based on suppliers and general ledger (GL) accounts will ensure significant coverage.
- External data: Integrating external data to enrich data and support categorisation process.
2. Greater Transparency
Advanced carbon accounting solutions offer greater transparency, making it easier for companies to track their carbon footprint accurately and . These solutions provide real-time data updates and consolidated data views, making it easier to understand a company's emissions and track progress towards carbon reduction goals. At EIVEE, a unique feature in our platform is our drill-down option that enables you to dive into all the underlying data and calculations throughout the platform.This ensures the data integrity needed to stay compliant with regulations, for instance the CSRD.
3. Ability to Handle Complex Emissions Data
Advanced carbon accounting solutions can handle complex emissions data, making it easier to accurately capture and report emissionsfrom various sources. These solutions can integrate with existing data sources, such as energy bills and fuel consumption logs, to create a comprehensive view of a company's emissions. In 2022, the EIVEE platform processed more than 46 billion DKK in procurement spend, calculated more than 645,000 tons of CO2e, and handled more than 56,000 suppliers on behalf of our customers.
4. Improved Sustainability Performance
By adopting advanced carbon accounting solutions, companies can improve their sustainability performance and reduce their carbon footprint.Accurate and reliable emissions data can help companies identify areas for improvement and implement targeted sustainability initiatives to reduce their carbon emissions.
5. Regulatory Compliance
Governments around the world are introducing regulations to limit carbon emissions and combat climate change – in the EU, we have the upcoming Corporate Sustainability Reporting Directive. To comply with these regulations, companies must accurately measure and report their emissions – and their data will be audited by external parties. Advanced carbon accounting solutions provide companies with the tools they need to comply with these regulations, avoiding the risk of fines, penalties, and reputational damage.
6. Cost Savings
Reducing carbon emissions can result in significant cost savings for companies. Advanced carbon accounting solutions can help companies identify areas where emissions can be reduced, leading to more efficient operations and reduced energy costs. For instance, by using advanced carbon accounting software, a manufacturing company may identify a more energy-efficient production process, reducing both emissions and energy costs.
7. Competitive Advantage
As consumers become more environmentally conscious companies that can demonstrate a commitment to sustainability can gain a competitive advantage. Advanced carbon accounting solutions enable companies to accurately measure and report their emissions, demonstrating their commitment to sustainability to stakeholders such as customers, investors, and employees.This can improve a company's reputation, increase customer loyalty, and attract socially responsible investors.
8. Supply Chain Management
Many companies are now recognising the importance of managing their carbon footprint throughout their supply chain. Advanced carbon accounting solutions can help companies identify and manage emissions from their suppliers, enabling them to work with suppliers to reduce their emissions. By managing their supply chain emissions, companies can improve the sustainability of their entire supply chain, reducing their overall carbon footprint and improving their reputation.
9. Risk Management
Climate change poses significant risks to businesses, including physical risks such as extreme weather events, supply chain disruptions, and regulatory risks such as carbon pricing or carbon taxes. Advanced carbon accounting solutions can help companies identify and assess these risks, enabling them to take action to reduce their exposure to these risks. By proactively managing climate-related risks, companies can safeguard their operations, reputation, and financial performance.
10. Investor Demands
Investors are increasingly demanding that companies demonstrate their commitment to sustainability, and many investors are now using sustainability metrics as part of their investment decision-making process. We also see banks offering loans on better terms for companies that are in control of their GHG emissions with a clear strategy for reaching net-zero emissions. Advanced carbon accounting solutions can help companies accurately measure and report their emissions, enabling them to provide investors with the information they need to make informed investment decisions. By adopting advanced carbon accounting solutions, companies can improve their access to capital, reduce their cost of capital, and enhance their reputation with investors.