Carbon accounting software is designed to support companies in measuring, tracking and managing their carbon emissions footprint, and translating that information into metrics that can be accounted for in company operations – basically quantifying a company’s emissions.
- Carbon accounting software simplifies the process of estimating an entity’s greenhouse gas footprint.
- It is not the same as ESG software, which takes a broader approach to provide a report of the overall sustainability performance of the user.
- Small and medium-sized enterprises (SMEs) and big corporations may have diverging requirements and as such may need different tools.
Just like financial accounting tracks a company’s transactions, carbon accounting allows an entity to estimate its greenhouse gas emissions, usually measured across three Scopes. Scope 1 emissions come from sources that are directly controlled by the entity in question, while Scope 2 are generated during the production of energy being consumed. Finally, Scope 3 emissions encompass all of its value chain, and are usually the most challenging to estimate.
There are three main approaches to accounting for emissions under the Greenhouse Gas Protocol, the de facto standard for emissions measurement. These are spend-based, production-based, and activity-based (although a combination approach can be used). The differences are important because spend-based only takes financial cost into consideration, production-based is associated with an industry’s process of production, whereas activity-based accounting is based on real-world data from across the business.
Spend-based account will take what was spent and multiply it by an emissions factor, effectively an estimate of the emissions associated with the creation and delivery of a good or service. Production-based – where emissions are estimated based on the industry’s production processes – is simple but not always useful where there is a complex supply chain structure, and doesn’t consider use or disposal. Activity-based accounting is considered the most accurate approach because it deals with specific data that can be measured and checked.
When doing carbon accounting, however, one of the most important things to remember is that CO2 is not the only greenhouse gases which can be emitted during the course of operations – HFCs and methane are two well-known examples that have a stronger warming impact than CO2. For this reason, an emissions footprint should always be expressed in carbon dioxide equivalent, or CO2e. If you’re only measuring CO2 you’re missing a significant factor.
Incorporating carbon accounting and management into the day-to-day of a business is not only needed to limit the environmental impacts of the economy, but has plentiful benefits for companies themselves: climate disclosures are being demanded by a range of stakeholders, such as lenders and customers, and will soon become a widespread regulatory requirement across the world.
What is the difference between carbon accounting and carbon management?
Carbon accounting is a fundamental component of carbon management – you cannot establish a meaningful decarbonisation strategy without calculating your footprint. It involves assessing how much carbon dioxide equivalent is being generated and/or offset, producing standard metrics to inform climate action.
Conversely, carbon management refers to the process of planning and implementing activities to reduce an entity’s greenhouse gas emissions. Some examples include switching to low-carbon energy sources, using different technologies and materials, contracting greener suppliers and purchasing carbon credits.
How does carbon accounting software differ from ESG software?
Carbon accounting software directly measures, tracks and reports companies’ greenhouse gas emissions from a variety of sources, as well as calculate the user’s total footprint. Some of these products include carbon management tools, providing tips and recommendations on what steps to take in the user’s net zero journey.
While carbon accounting is more specific, ESG software takes a broader approach to provide a report of the overall sustainability performance of an entity. ESG software is built on three main factors: environmental, social and governance – because the environmental factors can include carbon accounting, some ESG software provides it in its offering.
The social elements include assessments of areas such as labour practices, diversity, inclusion and community engagement, while governance is about board composition, transparency and risk management.
As such, ESG software allows for a more detailed assessment of a company’s sustainability profile as opposed to its greenhouse gas footprint solely, as provided by carbon accounting tools.
What carbon accounting software is suitable for SMEs?
- Customer relationship management platform Salesforce (NYSE:CRM) has developed a service, Net Zero Cloud, which is based on the Greenhouse Gas Protocol and allows to demonstrate progress to customers, employees, and investors. It includes ESG factors such as waste and water management.
- Coolset is an online platform specifically built for SMEs. It helps calculate the data and plan a decarbonisation strategy, identifying emission hotspots. Based in Amsterdam, it follows the reporting standards of the EU Corporate Sustainability Reporting Directive (CSRD).
- Spherics, a startup based in Bristol, UK, was acquired in 2022 by Sage (LSE:SGE), a FTSE 100 provider of a variety of financial, human resources and payroll software to SMEs. It is available as a standalone product as well as through its planned integrations with other accounting software providers in the UK.
- Greenly provides a specialised solution based on a company’s maturity. Beyond the online platform, its climate experts follow clients throughout the duration of their contract in order to guide them in their net zero journey, providing carbon management support. The company is based in Paris, London and New York.
- Based in France and the UK, Sweep allows users to map carbon emissions and set achievable science-based targets, with the option to create scenarios to understand the impact of specific activity on the user’s footprint. The platform includes a section to contribute to nature-based projects around the world, such as tree planting.
What carbon accounting software is designed for large enterprises?
- Envizi, part of IT giant IBM (NYSE: IBM) as of 2022, provides carbon accounting tools as part of its wider ESG suite. Key features include reporting on all greenhouse gases including, custom emissions factors, currency and metric conversions, and market and location-based emissions reporting.
- US company Persefoni’s platform allows users to integrate their climate data with their financial disclosure through its partnership with Workiva (NYSE:WK). It also works with industries such as private equity, banking, and insurance to measure and report their carbon emissions, providing insights into their financed emissions and investment portfolios.
- Watershed has come up with methodologies for areas such as remote work, cloud computing, cryptocurrencies, food, and apparel. It helps users track emissions down to every supplier from industry averages to fine-grained calculations for specific vendors, and work with them to cut emissions – therefore providing a carbon management service.
- Germany’s Tanso focuses on companies in the manufacturing space, such as automotive suppliers, metal processing and the electrical industry. Its software helps them to manage their decarbonisation pathway based on data analysis, through automated benchmark calculations and intelligent hotspot analyses.
- Swedish company Normative holds data from over 10 million suppliers and is aligned with the Greenhouse Gas Protocol. It has over 7,500 taxonomy categorisations and claims to be “well-positioned” to predict the direction of future climate reporting legislation thanks to its partnerships with the EU and UN.
Carbon accounting started as a spreadsheet exercise but has now migrated to less time-consuming, more user-friendly tools suitable for all sorts of industries and budgets. Amid strong demand, the carbon accounting software market is expanding rapidly and is expected to grow to $64.4 billion by 2030, at a compound annual growth rate of 22.8%.
While many companies have yet to establish comprehensive decarbonisation strategies, especially SMEs, doing so will not be a voluntary practice for much longer. With upcoming legislation requiring climate disclosures or imposing carbon taxes, carbon accounting software can be a helpful tool to help companies fulfil these obligations and calculate the related costs.