In recent years, businesses have faced growing scrutiny for the role they play in climate change.
Confronted by internal and external pressure to measure, report, and reduce their carbon emissions—both those directly produced by business activities as well as indirect greenhouse gas emissions within their value chain—more corporations are adopting carbon accounting as a tool to address this issue.
Just decades ago, accurately measuring and quantifying a company’s direct and indirect carbon emissions was a Sisyphean task. Now, thanks to powerful carbon accounting software, companies are optimally positioned to take control and ownership over the impact their business activities have on the planet.
So, why is carbon accounting important?
6 benefits of carbon accounting
There are six primary reasons your company should opt for carbon accounting for emissions reductions and stand out as a forward-thinker in your industry:
1. Regulatory risk mitigation
Historically, carbon accounting has been conducted voluntarily. But, without the looming threat of non-compliance penalties, few companies have actually performed a rigorous self-analysis. A 2021 survey revealed that only 9% of organizations could comprehensively and accurately measure their total GHG.
In response, both the SEC and EU have made carbon accounting and disclosures a regulatory priority. Now, with existing regulations like the EU’s Sustainable Finance Disclosure Regulation (SFDR), the Corporate Sustainability Reporting Directive (CSRD), and the SEC’s proposed climate risk disclosure rule, the tide is turning.
American and European companies need to stay ahead and on top of regulatory sustainability requirements. This is why carbon accounting is important. It empowers businesses to paint a clear picture of their direct and indirect carbon emissions and thus mitigate the risk of penalties, fines, and reputational damage if and when GHG regulations do become status quo.
2. Energy and cost savings
Carbon accounting provides comprehensive visibility over the entirety of an organization’s activities and its supply chain. It can tell you:
- The amount of carbon being emitted
- The parts of the business or value chain responsible for emissions
- Where carbon reduction opportunities exist within the business
By identifying inefficiencies within its operations, a company can make necessary changes, eliminate GHG hotspots, and, ultimately, optimize its resource efficiency.
Over time, this can result in significant cost savings—for example, LED retrofits have payback periods of 1–3 years—as well as environmental and reputational benefits. It also enables proactive companies to identify new business opportunities and enhance their competitive advantage in the future low-carbon economy.
3. Supply chain resilience and efficiencies
Scope 3 emissions—greenhouse gas emissions not directly produced by the company, but by participants up and down its value chain—tend to make up 80%-90% of an organization’s total emissions.
Carbon accounting enables businesses to identify scope 3 risks and opportunities within the supply chain, particularly emissions hot spots (i.e., carbon-intensive value chain participants or activities).
For instance, carbon-intensive suppliers will inevitably be more vulnerable to changes in the regulatory landscape. Or, certain suppliers may be overly exposed to climate risks such as resource scarcity or extreme weather events.
Equipped with carbon accounting insights, businesses can develop strategies for carbon reduction—like diversifying their supply chain or reshoring—to increase resilience and efficiency along the entire value chain.
4. Future-proofing the business
Climate-related financial risks, such as extreme weather patterns, rising global temperatures, stranded assets, and increased pricing of emissions, threaten business profits across the globe.
Per a 2019 CDP report, the world’s largest companies face $1 trillion in climate-related financial risks, with a significant portion of this blowback expected to hit within the next five years. Their findings included the following statistics:
- Companies reported a potential $250 billion in losses due to the write-offs of assets
- Climate business opportunities were calculated at $2.1 trillion
- The potential value of sustainable business opportunities was estimated to be almost 7x the cost of realizing them
- Financial companies forecast $1.2 trillion in potential revenue from low-emissions products and services
Many businesses are entirely unaware of the financial risks associated with climate change. But, one of the major benefits of carbon accounting is that businesses will be better informed and positioned to make smart investments and operational choices in the face of this looming threat.
5. Brand positioning
As mentioned before, sustainability is top-of-mind for consumers, investors, stakeholders, and employees. According to PWC, “Consumers and employees want businesses to invest in making sustainable improvements to the environment and society, not just comply with regulation, and they’re prepared to reward (or penalize) brands accordingly. Overwhelming majorities of both consumers and employees said they’re more likely to buy from or work for companies that share their values across the various elements of ESG.”
Put simply, performing carbon accounting and taking the necessary steps to reduce GHG emissions is a signaling mechanism brands can leverage to demonstrate their commitment to the cause. By being proactive rather than reactive, a business can differentiate itself from competitors, stand out as a thought leader, and appeal to environmentally conscious customers and investors.
6. Environmental and social benefits
Aside from the direct impact on a company’s bottom line and reputation, carbon accounting empowers a business to play an essential role in the overall effort to combat climate change. By reducing its carbon footprint, a company can contribute to the fight and promote sustainable development for future generations.
Carbon accounting with Sustain.Life
Wondering how to start carbon accounting? Carbon accounting software is a tool growing businesses need to reorient to the green new world. Equipped with these powerful carbon accounting platforms, a company can take the necessary steps to embark on a path to net-zero.
Those that do will enjoy the benefits discussed above. And, if you’re looking for the best carbon accounting software for your business, Sustain.Life is the answer.
Our comprehensive sustainability management software is designed to future-proof your business by helping you measure your environmental data, manage your carbon emissions to improve energy efficiency, and report that data to regulators and other stakeholders.
Sources
1. BCG, “New BCG GAMMA Survey Reveals That Only 9% of Organizations Are Able to Measure Their Total Greenhouse Gas Emissions Comprehensively” https://www.bcg.com/press/13october2021-only-nine-percent-of-organizations-measure-emissions-comprehensively Accessed March 20, 2023
2. EPA, “Scope 3 Inventory Guidance” https://www.epa.gov/climateleadership/scope-3-inventory-guidance Accessed March 20, 2023
3. CDP, “World’s biggest companies face $1 trillion in climate change risks” https://www.cdp.net/en/articles/media/worlds-biggest-companies-face-1-trillion-in-climate-change-risks Accessed March 20, 2023
4. PWC, “2021 Consumer Intelligence Series survey on ESG” https://www.pwc.com/us/en/services/consulting/library/consumer-intelligence-series/consumer-and-employee-esg-expectations.html Accessed March 20, 2023
