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10 Business Use Cases of Carbon Accounting
Why should an organization or corporate entity put in the effort to at minimum, thoroughly understand carbon accounting, and ideally undergo the process itself? What sorts of business goals may be served unexpectedly while undergoing carbon accounting and how can you leverage the resulting emissions data to drive growth opportunities? Corporations that integrate carbon accounting into their operational strategy are seeing the competitive advantages of doing so, including reducing costs and attracting new investors. Furthermore, it makes good business sense for companies to understand their position in relation to their greenhouse gas emissions in order to ensure long-term financial success in an economy that is actively undergoing an energy transition.
In this article, we explore how corporations can leverage carbon accounting to gain a competitive advantage within their business strategy.
1. Climate change ethics
Increased adoption of reliable carbon accounting is critical to achieving the goals set out under the Paris Agreement to limit the temperature increase to 1.5°C above pre-industrial levels.
2. Goal tracking for sustainability
An entity looking to track and disclose its performance against commitments to achieving net zero or conduct measurement and verification techniques for other emissions reduction initiatives will require accurate emissions inventories and accounting.
3. Managing climate risks and identifying focused emission reduction opportunities
Cost savings opportunities can be identified in conjunction with emission reduction strategies. Emissions inventories may also reveal inefficient processes or leakages that allow companies to address these operational disadvantages. Understanding reliance on emissions through emissions accounting can reveal potential exposure to future risk associated with volatile carbon markets, and the potential of future resource scarcity associated with climate change and environmental degradation.
4. Stakeholder pressure
Addressing the demands of stakeholders is tantamount to a business’s success. GHG accounting may be necessary whether it is mandated by investor requirements and policy, or you are trying to reap the benefits of voluntary action with front-facing consumer claims towards climate goals.
- want to manage the risk exposures through their portfolio of assets by assessing the validity of public targets and ensuring portfolio-wide progress on decarbonization as well as minimizing asset risk exposure to climate-related activities
- Policymakers and enforcement agencies:
- are working to develop policy and incentive structures on asset, corporate, and product levels in ways that maintain a level playing field in the market and avoid unintended consequences
- are increasingly demanding sustainable products, and manufacturers are demanding visibility for the “embodied carbon” in the products and services they procure
5. Participating in GHG markets
Governments are making national policies including emissions trading programs, voluntary programs, carbon or energy taxes, regulations, and standards on energy efficiency and emissions. Understanding your own emissions inventory will allow you to participate in carbon trading markets or incentive programs if desired.
6. Participating in mandatory reporting programs
Facilities in Europe under the Integrated Pollution Prevention and Control (IPPC) Directive are required to report emissions. Additionally, new SEC-related disclosure initiatives may necessitate carbon accounting in the U.S. in the near future in order to abide by the outlined climate risk disclosures.
7. Receive voluntary scores or benchmarking from ESG and sustainability reporting standards and rating indices
Voluntary ESG reporting frameworks that boost business credibility and data transparency often require disclosure of environmental impact, which includes GHG emissions.
8. GHG and financial accounting may eventually work in tandem
GHG accounting is becoming increasingly linked to financial incentives through price premiums, regulations, and cost of capital or corporate value. Proposed SEC climate disclosure rules (as of 2022) may link US financial disclosures to emissions disclosures and banks and insurance agencies are increasingly looking to incorporate sustainability metrics into their lending strategies.
9. Recognition for early voluntary action in public-facing media
Demonstrating leadership and corporate responsibility for tracking and abating emissions can lead to positive public feedback and incentivize investment in your business.
10. Growing interest in material-specific supply chain guidance
Industry-driven initiatives (e.g. Responsible Steel), have been able to make progress toward certification schemes. Specific guidance designed around industry-focused concerns, instead of broader corporate concerns, will allow for more focused reporting and emissions reduction pathways
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