Regulation will see organisations change ESG reporting
While carbon emissions reporting has largely been a voluntary exercise to this point, emerging environmental, social, and governance (ESG) regulations and standards will change how organisations report on ESG initiatives.
International Data Corporation (IDC) predicts that by 2024, 75% of large enterprise firms will implement purpose specific ESG data management and reporting software as a response to increased regulatory and stakeholder expectations.
Most organisations today view carbon accounting primarily as a risk and compliance exercise, offsetting the risks associated with high carbon intensity and responding to the developing regulatory requirements to report on this risk. However, as the practice matures, future cases will develop that focus on the positive impacts that carbon management can have on the business.
"Top business value-enhancing implications include heightened sustainability performance, enhanced brand perception, and improved financial and operational performance," says Amy Cravens, research manager, ESG Management and Reporting Technologies at IDC.
"Understanding the organisation's current carbon footprint and leveraging analytics tools will enable organisations to improve processes in favour of reduced carbon consumption, a process which can have positive financial effects for the organisation," she says.
"Furthermore, as deal flow is increasingly tied to ESG performance, having an accurate pulse on carbon emissions will often benefit customer and investor relationships."
The landscape for carbon accounting software solutions, largely made up of start-up and niche vendors, is undergoing a tectonic shift as large independent software vendors (ISVs) and hyperscalers are entering the ESG software space and introducing carbon accounting tools.
While the niche vendors have more established solutions with a longer deployment history, the ISVs and hyperscalers entering the market have scale and resources available that the small vendors do not. The battleground for market share will likely result in rapid product development and evolution.
One of the key development areas for carbon accounting solutions is in the sourcing and ingestion of data used to derive carbon emissions. For carbon accounting to be useful (for internal operationalisation, investors, clients, etc.), the data ingested needs to be actual, accurate, and current. Estimations should only be used where actual data is unavailable. However, to accomplish this, solutions need to have easy to implement integrations and connectors to various data sources including other enterprise software platforms, billing platforms, and operational technology (OT) devices.
Implementation risk for carbon accounting software is relatively low. Solution cost is relatively low in that most platforms are modular in design and employ consumption-based pricing. Furthermore, the ecosystem of solutions that carbon accounting solutions integrate with are largely often in place, requiring minimal supplementary investment. The nascency of the market carries an element of risk, however, and organisations should select a vendor that has a strong road map that accounts for anticipated and evolving market changes.
"The success of a carbon accounting solution is dependent on the policy, processes, and technology implemented," Cravens says.
"Establishing a process with a solid foundation in data sourcing and data governance is essential to successful carbon accounting. In addition, carbon tracking is a trans-organisational activity and requires cross-departmental support, so well-established processes and workflows for reporting processes should be established," she says.
"Finally, select a carbon accounting tool that is right sized for the organisation's present needs but allows for expansion in scope and intent as these needs change and market expectations continue to evolve."