The technology broom for carbon dust

Have you ever come across a hawk in a five-star beach resort that had the hotel’s badge? Have you ever passed by a liveried monkey while climbing towards the gates of a boarding school? The sight may appear strange at first, but once you get to know the reason behind choosing this unusual staff, it will all make sense. Who better than a sharp hawk to shoo away the seagulls! Who would save the kids’ food from the mischievous hands of rowdy monkeys if not a monkey on guard, appointed and trained by the school itself!

At the risk of comparing technology to animals, let us think about how far we have come on the same lane. Science, tools, and tech-enabled innovations have fuelled the rise of capitalism and industrial growth. But they have also endangered the future and safety of this world by adding the weight of carbon emissions on this already-crumbling planet – and through every big and small business activity. But how can one measure the impact of activities that cross the line somewhere? And how can one get a grip on the extent to which a company affects the environment as well as its capacity to help? Well, of course, the answer is technology!

The perpetrator can be the savior again.

That should explain why carbon accounting software is not an odd word to hear these days. It is beyond lip service or some greenwashing advertisement. It is actual money backing a company’s intent to control its carbon impact. After all, the software has been helping companies to measure and manage data of all stripes – from supply chains to customer sentiments, refinery value, machine downtime, accident risks, and oil leakage. It can, then, measure carbon emission data too, right!

And surely much more.

The best way to stub out that cigarette – track it

A good carbon accounting intervention is designed to achieve the maximum of these four aims – measuring how much a company harms or can harm the planet, reporting the emissions to regulators and stakeholders, managing these emissions over a well-laid-out map, and converting the mitigation efforts into tangible numbers through trading in carbon offsets.

For instance, if you are a player in the real estate market, you can choose good accounting software to accurately monitor each building’s energy use – and also track onsite and offsite energy areas. You can report this data to compliance authorities. You can find out the best ways to reduce or control energy where the tendency of wastage is high or the scope of savings is possible. One can start using this information to manage one’s environmental footprint and impact. And this data can also be used for business – in the form of buying or selling carbon offsets.

Similarly, in almost every kind of industry, the use of carbon accounting solutions can help in the accurate and real-time identification of emission spots. One can also convert data into insights that can translate well for risk maps and energy-control decisions. The solutions can further assess one’s sustainability stance from a pragmatic and on-ground angle, and businesses can devise and manage better-informed efforts on sustainability – with stakeholders across the value chain. The use of carbon accounting software can be highly useful in maintaining compliance with regard to reporting and disclosures. Furthermore, it can support engagement in ROI through data for trading in carbon offsets.

According to CleanTechnica, the corporate carbon accounting market is emitting a lot of growth signals, especially as voluntary standards such as Carbon Disclosure Project (CDP) and metrics guidelines such as Sustainability Accounting Standards Board (SASB) gain higher and higher adoption curves. It looks like many leading companies have opted to embrace environmental performance transparency. As many as 42% of the companies above USD 10 billion market cap are already disclosing some climate-relevant information.

No wonder space is growing at a tremendous pace. By Mordor Intelligence’s reckoning, the carbon management system market stood at about USD 10.93 billion in 2020 and is expected to touch USD 21.70 billion by 2026. This can be pegged to many factors but the chief ones are not so hard to guess. There is now a big need to reduce wastage and utilise resources efficiently, no matter why you want to do it – whether for compliance or a profitable business model. Additionally, as governments across the globe keep tightening regulations on carbon emission norms for businesses, the need for continuous monitoring of carbon management would keep exploding.

Another report from MarketsandMarkets shows that the global carbon footprint management market size could easily be seen billowing from USD 9.0 billion in 2020 to USD 12.2 billion in 2025. This is primarily due to the adoption of carbon footprint management software across verticals, emanating from the basic need of adhering to carbon emission compliances. In fact, the report also points to how an increasing span of government initiatives across the world could further provide an impetus to this carbon footprint management market. For instance, look at how the UK has begun the countdown requiring all companies to disclose the climate change impacts of their business by 2025.

Recently, there was some noteworthy buzz in the US on how environmental, social, and governance (ESG) issues are becoming central to the mission of the US Securities and Exchange Commission (SEC), outlining the distinction between ‘what is good’ and ‘what is profitable’. In the near future, rigor could be expected in standardised reporting and mandatory climate disclosures.

Players such as Salesforce, SAP, IBM, ClearTrace, Watershed, Sinai Carbon Footprint, Schneider Electric, Trinity Consultants, Dakota Software, Enviance, ProcessMAP, NativeEnergy, EnergyCAP, Locus Technologies, Eco track, and FigBytes have started emerging as the top names on the carbon accounting radar. Similarly, the other big names include Accuvio (UK), Envizi (Australia), ENGIE and Enablon (France), IsoMetrix (South Africa), Envirosoft, and Intelex (Canada), and Carbon EMS (New Zealand). Their customers reflect a wide spectrum of companies from IT to financial behemoths to heavy-legacy firms like Babcock International, Microsoft, West Fraser, Brookfield Renewable, JPMorgan Chase, ArcelorMittal, Accenture, CBRE, Cushman & Wakefield, Akamai, and Taylor Farms.

Tani Colbert-Sangree, Program Officer, GHG Management Institute, explains what is driving this market. “The Science Based Targets initiative (SBTi) explains many reasons, but, in general, I would say companies have many different drivers – certainly for compliance, as well as for reasons beyond it (such as data for carbon offset market or better branding or building customer trust or cost-reduction mandates). I think it boils down to branding generally, whether a company wants to be seen as part of the solution vs. part of the problem.”

Many enterprises invest in carbon accounting software for compliance reasons, argues Dr. Rajesh Kumar Singh, Senior Director, Sphera India. “However, the reasons for enterprises vary according to their maturity in their sustainability strategy and adoption, reaching from reducing risks and costs, increasing brand value to becoming a market leader.”

Dr. Singh further adds that the role of carbon accounting is changing as it is the foundational element towards fighting climate change. “Companies cannot only offset their carbon emission (which is the final step in the carbon accounting process). With the increased interest of investors, rating agencies, and financial institutions, carbon management as part of the overall ESG data has become an important consideration for the C-level, as it will influence a company’s overall rating and access to capital (e.g. BlackRock announcements, especially for the Asia Pacific).”

He reasons that to demonstrate leadership and build customer trust, one needs a comprehensive carbon management approach. “Collect and manage data, set targets and run scenario analysis on carbon mitigation, reduce carbon emission by analysing Scope 1-3 emissions, and finally offset what cannot be reduced or avoided. A carbon accounting software offers standardisation, hotspot identification, monitoring and review through intuitive dashboards, and flexibility to respond to various frameworks/standards.”

So how much of this possibility or promise is transpiring into action?

No smoking room, please!

How much adoption has taken place and how much can we expect in the next two years? And has the technology matured enough for enterprise-grade needs? “Yes, certainly,” says Colbert-Sangree. “The largest companies in the world are engaged in carbon accounting. Organisations worth citing here include SBTi, CDP, TCR, and the various initiatives led by CERES and many others.”

However, increased adoption due to regulations vary between countries and industries, points out Dr. Singh. “In addition, with the increased interest of investors and one of the key carbon disclosure requirements through CDP, the board level has understood that actions need to be taken and carbon management strategies need to be implemented across the company’s operations and divisions.” That said, he maintains that sustainability (including carbon accounting) software adoption is on the rise, not just by a few companies, and the mass of the market has advanced in maturity. “It is currently the phase of ‘wild west’: more standardisation is likely to happen with increasing importance.”

Ron Robins, Founder, and Analyst, Investing for the Soul also feel that shareholders, stakeholders, and regulators are increasingly requiring companies to track their carbon emissions. “Since most large companies are either reporting or planning to report on their carbon emissions, I can only assume that such software is the way they’ll likely handle it.”

Is India ready to take the smoke test?

How can India stay behind in this imperative expedition of carbon accounting? And why should it, especially, when we are talking about helping the world and helping businesses in the long-term here.

Sustainability is gaining importance within the global business landscape, surmises DD Mishra, Senior Director Analyst at Gartner. “The way the conversations shape into actions globally will certainly have an impact on Indian businesses. Multinationals will implement the policies globally and demand for sustainable practices will increase. They will look for sustainable suppliers and Indian companies cannot ignore their competitiveness by not being part of it. The time is right for sustainability to take a centre stage in India – this will be beneficial for Indian organisations to stay ahead of these shifts.”

Indian enterprises have also started to become cognizant that IT processes (including data centre operations, delivery operations, travel, and electricity consumption) have an impact on carbon footprint. They have initiated steps to track and measure the impact by using various types of digital carbon calculators, illustrates Nisheeth Srivastava, CTIO – India, Capgemini. “At Capgemini, we have developed our own carbon calculator. When a new client engagement commences, based on the configuration of the delivery organisation and corresponding carbon factors, carbon emission estimates are calculated for all the activities, and consolidated carbon emission value estimation reports are generated.”

Many large Indian IT services companies are realising sustainability as an opportunity as well as a threat, Mishra echoes. “From a compliance perspective, they cannot choose to ignore it. Many organisations have consciously made sustainability a part of their vision. Within end-user organisations, the focus on reducing carbon footprint was initially only championed by global MNCs. However, this is getting picked up by domestic organisations too. Data centers are one of the key focus areas now. The boundaries between information technology and operations technology are diminishing.”

Regarding the outlook on the Indian market and its appetite, Srivastava is quite affirmative. “Organisations, mostly corporates, are keen on getting started on carbon accounting for a variety of reasons including potential cost-cutting implications, alignment with new incoming regulatory requirements, alignment as a supplier to its clients’ net-zero requirements, and the opportunity to showcase environmental leadership.” He explains how Indian entrepreneurs have started recognising the significance of carbon accounting – undertaking and reporting it in various public forums such as CDP and ‘sustainability reports’. The number of organisations formally reporting on climate-change mitigation strategy, emission risk hedging, and carbon accounting has increased every year over the last decade.

Blockchain, the unexpected sensor nose

There is one more question that needs to be exhaled well here. Are these accounting solutions as good as their siblings in the IT domain? Are they matching up to enterprise-grade needs?

Dr. Singh explains that some technologies are purpose-built and can cover only one use case.

“There are only a few vendors that provide the sustainability knowledge and insights behind the software in order to give an enterprise-grade solution that can help move in the maturity journey from compliance to performance, which will become a differentiating factor in the future.” But what is notable here is that mature enterprise solutions address current and evolving reporting requirements and are flexible to scale up and expand to cover additional complexities and scope of emerging metrics. “Such solutions have strong methodological foundations, analytic rigor, and reliable verification.”

That also leads to another idea or cue – how about using blockchain? After all, injecting more real-time data, decentralisation and transparency would be just the stuff that this space would love. From a quick scan, it looks like there are already players addressing this possibility. There is GreenH2chain, which aims to help customers verify and visualise the entire green hydrogen value chain in real-time. Then there is FlexiDAO, another blockchain platform to track renewable energy generation. Similarly, ClearTrace provides an immutable ledger to measure energy supplies at their source.

Colbert-Sangree avers that carbon accounting solutions can certainly be adapted to use blockchain. “I know of a few companies using blockchain to trade carbon, e.g. Nori.” Dr. Singh points out that the blockchain hype has decreased somewhat for the sustainability market, as to begin with, organisations need to take the first steps and have appropriate software solutions in place to cover the more initial functionality. “However, mature software providers today have created additional value propositions in terms of benchmarking against peers, target setting, forecasting, scenario planning, maintaining best practices libraries, etc.”

He suggests that due to the increasing complexity of environmental impacts and increasing regulation, and growing data volume and investor interest, companies should consider consulting projects to evaluate their starting point and scope of sustainability strategy. “There should be an emerging consensus on including non-financial metrics in mainstream reports such as annual financial report with the same discipline and rigor as financial reporting.”

Ingo Rübe, founder and CEO, KILT Protocol explains both the scenarios where blockchain can and cannot be useful. “If a country operates a central entity for measuring and accounting carbon emissions of companies, then the companies have no choice but to trust this central entity. In such a case, it is highly recommended to use a central database for accounting. It is much easier and cheaper to operate than blockchain.”

But on a more pragmatic side and the other end of the pendulum, Rübe says that using blockchain generally makes sense when you want to hold or exchange data or value in a trustless environment.

“If a country’s concept involves tradable carbon certificates or interaction with other countries, then it might be impossible or very cumbersome to agree on a trusted entity. In such a case, blockchain can replace the trust from an entity with mathematical truth. Governments could issue carbon certificates in limited amounts to companies, which they could trade in a regulated way in a free market, with no central entity involved. Also, cross-border certificates could be issued, allowing carbon measurement and accounting on an international level, without the need for trust between the governments involved.”

Antony Welfare, Executive Director (Enterprise), NEM Software points out that using blockchain for carbon accounting is an effective way to ensure trust in the carbon data being used. “Using a hybrid blockchain enables users to secure the immutability of the data in the entire supply chain for both private (confidential) data and public data.”

Rübe advises that if a country has plans to open its carbon strategy for certificate trading, or strives to offer its system for an international decentralised roll-out with neighboring countries, it is surely a good idea to already have a blockchain-based solution in place, even if in the first step a centralised solution is implemented. This prevents replacing a centralised solution with a decentralised solution during the project.

Yessin Schiegg, CFO, NEAR Foundation, shares a different perspective on the impact site of the blockchain industry. “Even though we are a highly scalable blockchain, those building it are still human, living at the threshold of environmental deterioration/climate change. So we took a proactive step towards environment-friendly, sustainable blockchain development. We partnered with the South Pole, a carbon offsetting company headquartered in Zurich, Switzerland, to assess our carbon footprint, advise us on reducing it where possible, and fully compensate the remaining emissions with CO2 offsetting projects going forward.” The company has also invested in reforestation efforts in regions such as Colombia and Zimbabwe.

Other than blockchain, AI and data science can also play a key role to help scale such solutions to the next level. AI’s ability to deliver deep insights into multiple aspects of a company’s carbon footprint offers a promising route for accelerating sustainable transformation and reducing expenses. According to Capgemini Research Institute, AI will likely reduce greenhouse gas (GHG) emissions by 16 percent and assist industries to fulfill up to 45 percent of the Paris Agreement targets by 2030.

All in all, the contours of this space can change a lot from the ‘how’ of the software to the ‘why’ of these investments. Maybe in just a year or two, we will see more evidence of how carbon accounting is not just an expense but also an investment. After all, there is a huge carbon offset and insurance market that could be a game-changer for companies who are early movers in the field of sustainability.

If not anything else, just feeling responsible, alert, and accountable for environmental impact can make a contribution – now that is getting a big monkey off one’s back.

Did the pandemic slow down climate change?

It is interesting to note that contrary to common perception, the planet warmed instead of cooling down during the period of lockdowns and reduced societal activity due to the COVID-19 pandemic for several months last year.

Temperatures over parts of Earth’s land surface last spring were about 0.2-0.5 degrees Fahrenheit (0.1-0.3 degrees Celsius) warmer than what might be expected in the prevailing weather conditions. This effect was high in regions that normally are associated with substantial emissions of aerosols, with the warming reaching about 0.7 degree F (0.37 degree C) over much of the United States and Russia.

This unfolds the complex and often conflicting nature of influences of different types of emissions from power plants, motor vehicles, industrial facilities, and other sources. While aerosols brighten clouds and reflect heat from the Sun back into space, carbon dioxide and other greenhouse gases trap heat near the planet’s surface and elevate temperatures.

So while the long-term impact of the pandemic could be to slow down climate change, the immediate impact may be different – due to factors such as aerosols.

Source: A study by the National Center for Atmospheric Research (NCAR)

ROI vs. RONI: the risk of not investing

• A business-as-usual scenario would lead to CO2 levels surpassing four times the pre-industrial levels by 2100. The cost to the US economy of waiting 10 more years before passing policies to reach net-zero emissions by 2050 is huge– based on the calculation of annual costs of replacing fossil fuels with clean energy for transportation, electrification, industry, and building in the US.
• If action begins in 2030, the cost of transitioning to a clean energy economy could be 75 percent higher than taking action this year – roughly USD 750 billion each year in the 2030 scenario (for a total of about USD 8 trillion). The peak costs amount to USD 320 billion per year if early action is taken (for a total of USD 4.5 trillion).
• If we delay climate policies until 2030, it would mean building nine times more renewable energy capacity per year by the mid-2030s.
• About USD 90 trillion of investment is required to finance sustainable infrastructure and cities in the US. Also, after 2024, fines totaling as much as USD 1-1.5 trillion will be paid in order to meet enforcement of climate standards for emissions reduction.

Source: A study by the National Center for Atmospheric Research (NCAR)

Carbon accounting rungs

Scope 1: Direct emissions from owned or controlled sources –apt for O&G majors and industrial companies with direct emissions from production

Scope 2: Indirect emissions from the generation of purchased electricity, steam, heating, and cooling consumed by the reporting company – relevant mostly for software companies

Scope 3: Indirect emitters with considerable value chains

By Pratima Harigunani