Carbon Accounting

You’re probably reading this because you’ve noticed an increased hype around counting carbon emissions. You may even be here because you’re overwhelmed by the number of companies now offering carbon-accounting tech solutions. A recent Wall Street Journal article reported that investment in the carbon-accounting software sector quintupled from 2020 to 2021 ($63 million to $365 million!). With so many players, how do companies choose which solution to use?

What’s the problem and how can carbon accounting help?

It seems that everywhere you turn, companies of all sizes are doubling down on carbon commitments: climate-positive packaging, carbon-neutral salads and burritos, #netzero by 2030—the list is endless. The impetus is partly fueled by those who truly want to save the planet, partly by consumers demanding brands do more, and partly by federal regulations that are pushing brands to think fast about reducing carbon emissions. Just last week, the Security and Exchange Commission (SEC) proposed new rules for companies regarding climate-related disclosures. The SEC plans on requiring disclosures on direct greenhouse gas (GHG) emissions (Scope 1), indirect GHG emissions (Scope 2), and “GHG emissions from upstream and downstream activities” in value chains (Scope 3).

The goal of the SEC’s move and other similar regulatory changes in the US, EU, and elsewhere is to achieve standardized, accurate calculations of carbon credits and offsets and thereby reduce greenwashing (i.e., providing misleading information about the sustainability and carbon-neutrality of products to consumers). Carbon accounting done correctly would help achieve that goal—providing real-time traceability to carbon emissions. This would allow brands to tell the story of the true, verifiable impact they’re having on the environment and the steps they’re taking to reduce that impact to net zero.

Seems simple? It is…and it isn’t.

This flurry of decarbonization activity has brought a myriad of new players to the carbon-accounting space, many of them with sleek, eye-catching analytic dashboards and metrics. The problem is that, unless they can track from cradle to grave across the supply chain, they are just as prone to greenwashing as brands. So, to avoid waking up in 2030 and realizing that we were duped into believing we were saving our planet when we really weren’t, here are three questions brands (and consumers) need to ask themselves about counting carbon emissions:

1. Do you have verified, real-time source data?

To put the question more simply: Do you know the farmer? If you don’t know the farmer, the size of their plot of land, and the regenerative agriculture techniques they’re using, there is no way to know how much carbon you’re sequestering in the soil across your supply chain. The same holds true for recycling: If you don’t know the waste collector, you can’t prove the plastic moving through your supply chain was ocean-bound.

Many companies claim traceability to this level, but on closer inspection, you may find that they rely on distribution centers—not independent, secure data—to back up claims of carbon neutrality. This holds true for fair-trade certifications or third-party auditing entities as well. Data aggregation at buyback centers and processors, or any mass balancing along the supply chain, will result in skewed data and flawed metrics.

Also, note that most carbon-accounting software uses satellite feeds, publicly available data from ports, and other forms of secondary data to calculate credits. Some, particularly those using blockchain, say that they mirror your supply chain and provide near real-time data. Just keep in mind that mirroring is not tracking. And near real-time data is not real-time data. Upcoming regulations will require information on the material and its parameters in motion, which can’t be tracked by these secondary methods.

2. Can you verify you’re not double-counting carbon offset projects?

Companies often buy offsets from carbon-accounting auditors to achieve their #netzero goals. These offsets are typically purchased through a software platform that claims to plant trees and then provides the company with a calculated carbon credit. But provenance is just as essential in this instance as it was in verifiable source data. If the solution you’ve chosen is not counting the trees and geo-locating the plot of land they’re sitting on, you won’t know if you’re counting the same landmass as another company.

3. Does your solution benefit the people who source your products?

Sustainability is not just about the environment. Your carbon offsets wouldn’t exist without farmers and without those planting your trees. Your recycled plastics wouldn’t be possible without waste collectors. Climate issues, gender inequality, and extreme poverty are inseparably connected in supply chains. True sustainability means that we tackle all three problems simultaneously, meaning that people in supply chains have a living wage, have access to a better life, and benefit from the premium brands receive for the carbon-neutral products they help to create.

What’s the Solution?

Here’s a four-step carbon-accounting solution we would suggest you consider:

1. Map your supply chain as far as you can go

Don’t rely on downstream partners to provide information on material sourcing. Own, map, and audit your own value chain. Start with two or three high-risk materials and start working backward. If your suppliers won’t or can’t give information on their suppliers, start rolling out a blockchain traceability solution tier by tier. As you add each tier, the supply chain map will become much clearer and truly auditable.

2. Require chain of custody all the way to the first mile, including material transformation

To get accurate GHG and carbon emissions measurements, you need accurate information from your suppliers and your suppliers’ suppliers. That means mandating traceability all the way to the farmer—tracking the raw material before it is aggregated, where it is aggregated, and when it is transformed. This will likely require some process changes on the part of suppliers (e.g., ending mass balancing).

3. Embed and track ESG metrics at every step

Gender equality, carbon-neutrality, labor rights, fair wages, economic circularity—all of this can be tracked along with the flow of goods in your supply chain. Make the most of your carbon accounting and/or supply chain management software by ensuring this is built-in from the first mile to post-consumer.Tracking ESG metrics has never been easier than now.

4. Be prepared to mitigate risks

With this level of transparency, we can promise you that you will find something you didn’t want to see. Be ready to respond in a way that puts the farmer, waste collector, or laborer first. They are the most essential part of your value chain.

At BanQu, we believe the solution toward more transparent and equitable business practices – that are truly #green and #carbonneutral – lies not simply in carbon accounting. The solution requires building transparency throughout your entire value chain— all the way down to the laborer – getting the data you need at every level to help you go green, mean it, and prove it…without an ounce of greenwashing.