Carbon accounting is the process of measuring, managing, and reporting on an company's carbon emissions and other GHGs. As the world continues to grapple with the urgent issue of our climate crisis, carbon accounting has emerged as a critical and necessary activity to set emissions targets and policies, and to monitor progress towards meeting those targets.
Many companies, particularly those in retail, manufacturing, and transportation, are starting to implement company-wide and rigorous carbon accounting systems in order to track their full carbon footprint and reduce emissions across scope 1, 2 and 3.
As the world moves towards a low-carbon reality, it’s clearly evident that carbon accounting will become even more prominent, especially with growing stakeholder pressure from investors, customers and legislators.
Here are some trends and predictions for the future of carbon accounting:
Just as financial accounting is audited to ensure the data integrity, so will be the case for carbon accounting.
A trend we’ll see in the future of carbon accounting is the growing importance of transparency, disclosure, and accountability. Just as financial accounting is audited to ensure the data integrity, so will be the case for carbon accounting. As the world become more aware of the environmental impact of the products and services they use, there’s increasing pressure on companies to be more open about their carbon emissions. This is evident through a growing interest in standards, initiatives and guidelines for reporting on carbon emissions, such as the Global Reporting Initiative (GRI), the Carbon Disclosure Project (CDP), and the Science Based Targets initiative (SBTi).
The Financial Sector
...we now see banks starting to reward companies that go green with lower interest rates.
One area in particular where carbon accounting is expected to have a significant impact is in the financial sector. It's important for the financial sector because it enables investors, lenders, and insurers to assess the carbon-related risks and opportunities associated with their investments, loans, and insurance policies. Carbon emissions can have a variety of impacts on a company, including regulatory, reputational, and physical risks. For example, if a company is heavily reliant on fossil fuels and has high carbon emissions, it may be at risk of future regulatory changes or consumer backlash, which could negatively impact its financial performance. On the other hand, a company that has low carbon emissions and is well-positioned to take advantage of the transition to a low-carbon economy will be percieved as a more attractive investment. By accounting for carbon emissions, financial institutions can better understand and manage these risks and opportunities, and make more informed decisions about where to allocate their capital. We're already seeing banks starting to reward companies that go green with lower interest rates.
...the Corporate Sustainability Reporting Directive (CSRD) is a notable example of this, expanding the scope of reporting to nearly 50,000 companies...
As governments around the world are introducing specific regulations on carbon emissions, it's evident that these regulations will become more stringent in the future. In the EU, the Corporate Sustainability Reporting Directive (CSRD) is a notable example of this, expanding the scope of reporting to nearly 50,000 companies, which will all be expected to report sustainability information in more detail than before, as well as be prepared for audits. Companies that fail to meet carbon emissions targets may face fines or other penalties. As a result, it is becoming increasingly important for businesses to accurately measure and report their carbon emissions.
Carbon taxes are levied on the carbon content of fossil fuels, and the revenue generated from these taxes is often used to fund renewable energy or other environmental initiatives...
One of the most significant trends in carbon accounting is the increasing use of carbon pricing mechanisms. These mechanisms, such as carbon taxes and cap-and-trade systems, put a price on GHG emissions and provide incentives for organisations to reduce their emissions. Carbon taxes are levied on the carbon content of fossil fuels, and the revenue generated from these taxes is often used to fund renewable energy or other environmental initiatives. Cap-and-trade systems seta limit on the total amount of GHGs that can be emitted, and companies can buy and sell allowances to emit GHGs within this cap. Both carbon taxes and cap-and-trade systems have been implemented in a number of countries and regions around the world, and they have been effective in reducing GHG emissions.
Use of Software
At EIVEE, we use both technology and human expertise to gain the highest level of quality in the data.
A final key trend in the future of carbon accounting is the increasing use of software technology such as AI and machine learning to automate and streamline the process. For carbon accounting to be used strategically, it must be comprehensive and accurate, which means performing a lot of data calculations on an ongoing basis. Some ‘work hard’ while others are ‘work smart’ to achieve this. The hardworking do the calculations manually in spreadsheets, while the 'smart working' make use of software and technology to automate the carbon accounting process, making it more efficient and accurate. At EIVEE, we use both technology and human expertise to gain the highest level of quality in the data. Despite advancements in AI and machine learning, human brainpower is still needed to validate the data, and we encounter large discrepancies in datasets between software-only and combined human/software approaches. At the end of the day, it’s all about finding the most efficient way possible to achieve the highest level of precision in the data.
In conclusion, carbon accounting is poised to play a pivotal role in the transition to a low-carbon economy. The future of carbon accounting will be shaped by trends such as the increasing use of technology, the growing importance of transparency and disclosure, and the need for more comprehensive and accurate measurement and reporting. These trends are helping to improve the accuracy and effectiveness of carbon accounting, and are making it easier for businesses to reduce their carbon emissions and take meaningful action to act against climate change.