Carbon tracking is more relevant than ever, and you should expect to see it knocking on your door.
Open data is going to enable a range of new use cases, but one we are particularly excited about is carbon accounting. As businesses strive to become sustainable, interpreting carbon emissions is more relevant and important than ever before. Traditionally this has been a challenging task, but with the aid of open data, it could be a simpler process. Carbon accountants, experts in carbon data, will collect, measure, track, and analyse emissions and aid businesses in finding solutions. Not only helping businesses to reduce their emissions, but finding opportunities for growth, profitability, and positive impact.
This opportunity has arrived at the perfect time as the demand for carbon transparency is growing. Here are some of the drivers that will be relevant and important for you to keep an eye out for.
This article explores how these factors are growing in influence, how they affect change independently from one another, what markets they have influence over, and highlights how this creates an opportunity for carbon accounting.
Customers – The customers always right
Customers have the power of choice. When deciding on what to buy, consumers consciously and unconsciously rate brands and products. Over the last 5 years, sustainability and environmental values are being weighed higher.
60% of people rate sustainability as an important purchase criterion. (*1)
Customers are increasingly educated and selective with their purchasing power as many see it as their direct link to affecting positive change.
1/3 of people will spend more money on an environmentally sustainable product when compared to a non-sustainable competitor. (*1)
Sustainability has become a brand feature. Brands that are adopting sustainability features early have a leg up on those that don’t. Features such as biodegradable packaging, sustainable resources, reducing waste, and being carbon neutral. It is an opportunity to build customer loyalty, increase product value, and eventually drive higher profits. This drive affects all B2C models and influences B2B models as well. In B2B, hiring a company with a poor carbon footprint influences your own footprint, so sustainability is valued as a way to reduce both entities’ emissions.
However, as more customers value sustainability, this unique point of difference will become a point of parity.
Nearly 2/3 of customers believe they have the power to force a brand to change. (*2)
Companies will be expected to understand and reduce their carbon emissions over time to keep face with their customers. Ignoring their customers’ values will deteriorate trust in the brand, and trust is an almighty connection between brand and consumer. Becoming environmentally active early allows businesses to benefit from this trend before it becomes mandatory. It’s an opportunity to surpass companies that are ignoring the issue and in the process, earn respect and gain customers. It's an opportunity that can’t be left to later - it's now or never.
Regulation – Bring it up to code
For many businesses, regulation is the clearest drive of carbon accounting. Businesses are increasingly being required to report on their emissions. During the Paris Agreement, over 150 countries committed to reaching zero emissions in the “race to net zero.” Some of these countries are already proving their commitment by setting it into law. New Zealand, the UK, Sweden, Denmark, and France are all examples of this.
Mandatory carbon reporting is the first step governments will take. Accurate carbon data allows for governments to make goals, understand which specific industries create the most emissions, and work towards supporting businesses through such a dramatic change.
7600 US companies are currently required to report their emissions, which only accounts for 50% of the nation's CO2e. (*3)
While these changes currently only apply to larger listed businesses, every business has emissions and in order to reach net-zero everyone needs to be accounted for. In the EU, smaller listed entities will be expected to report by 2027. Reporting is an inevitability for everyone in order to reach this goal, the only decision is how soon each business incorporates sustainability.
Governments are encouraging voluntary reporting. We are currently in a grace period where businesses can start feeling comfortable with how to report and what you can do with that data, with no consequence of getting it wrong. Organisations like the IFRS have set up sustainability standards like the ISSB for businesses to hold themselves accountable before governments do, and dozens of nation/industry specific sustainability certification entities have emerged over the past decade that aid businesses through this process. It’s unavoidable, so incorporating sustainability initiatives early will make businesses feel prepared once it is required.
Procurement – It takes a village
As larger businesses are required to report, they will be increasingly expected to understand and report their scope 3 emissions - Emissions that originate from different parts of their supply chain. Raw materials, transportation, retail services, end-of-life care, etc.
For many businesses, almost 70% of their emissions are in their supply chain. (*4)
This implies that businesses throughout the supply chain can play a key role in engaging with emissions. It is very likely in the future that businesses supplying government entities, banks, or any large enterprise, will be required to engage with their emissions. What is their carbon footprint? How do they work towards decarbonisation?
Businesses will be expected to provide evidence of their carbon footprint to remain/become a supplier.
Social – Follow the leader
Sustainability is being talked about across all circles of our lives. We read about it in the news, we hear about it from our friends, we see it implemented in what we buy, and perhaps there are efforts to encourage it within your work. This repetition starts influencing people's behaviour. Even the most abrasive people can see the value in using their car less or turning their unused lights off. As the issue is considered over time, change begins occurring individually through selfless, intrinsic motivation.
People that have influence in their workplace will want to start applying the values from their personal life to their work life. How can our business cut back?
We have already seen this change happen with many businesses changing their packaging material from plastics to biodegradable alternatives. It wasn’t a change that happened overnight, but years of conversations, cheaper alternatives, and evolving perspectives. The same is occurring for emissions. Every business has emissions, no matter how small; as more people recognise that, and alternatives become cheaper, leaders will be going out of their way to make sure they are carbon neutral.
Employee – What do we want?
It is well known that companies with a clear, well-defined purpose and path forward are more likely to attract and retain top talent. Employees are increasingly searching for employers that share their values. Not just in words, but in culture and action. The Great Resignation is an example of employees putting their values first. However, a more fitting name may be The Talent War. People are still looking for work, and it is up to employers to create a place worth working for.
Sustainability initiatives are a top priority for younger generations, 90% of Gen Z and millennials are making an effort to reduce their personal impact on the environment. (*5)
Sustainability is one key value that can lead to securing talent. Millennials will make up 75% of the workforce by 2025 (*6), which in time will be overtaken by Gen Z. Both groups are prioritising environmental action and will think much higher of companies that engage in it.
48% of millennials and 43% of Gen Z are putting pressure on their employers to take climate action. (*5)
This provides an opportunity for businesses to align with the values of these groups and secure their top talent. Furthermore, involving them in the sustainability process will help retain them. Clear communication, drafting common goals, and engaging with the carbon emissions will make employees happier in their work and life.
Investment – Being good pays off
The finance world has kept a close eye on the sustainability space, rewarding those who pursue it. Green lending, green funds, eco-finance, and sustainable investing, are all examples of environmentally linked money. These instruments are not limited to businesses that are rooted in sustainability like renewable energy but apply to even those simply starting their road to decarbonisation. It is incentivising change by helping businesses afford it.
By the end of the year, $41 trillion will be invested in sustainable business. (*7)
These funds come in different forms, from public investments in sustainable trusts to banks with sustainability linked loans.
These instruments are opportunities that businesses can take advantage of; a way to incentivise companies, that are good, to succeed. These funds are connected to commitment, requiring transparency and action, but if eligible, is a massive assistance in pursuing sustainability.
Where do accountants come into this?
Perhaps this all seems unrelated to accountants, a service meant for someone else, but accountants are uniquely placed to take advantage of this new need.
Accountants are experienced data specialists, who are already trusted and respected by the business world. Businesses now need accurate analysis and interpretation of a new form of data. They need assistance in setting initiatives and finding solutions. Accountants can leverage their trust and apply themselves to this new role, becoming the carbon accountant.
While very few accountants these days are dealing in this form of data, open data will facilitate businesses’ access to such information, allowing accountants to expose themselves to it and learn.
“Business as usual is no longer an option. Sustainability is an urgent, global project. The collective impact of billions of actions at local and organisational scale will make a huge difference.” - Ainslie van Onselen and Helen Brand, CEOs of CA ANZ and ACCA (*8)
Sustainability is more than finding ways to become profitable or meeting regulations. It’s about bringing our skill sets together to create positive change. Protecting our planet, and our quality of life for the future.
With time and training, accountants can take advantage of this new market, building their value proposition, furthering their consultancy skills, and playing a part in solving the climate crisis.
Where to learn more?
Here are some resources to see where accountants can take their first steps:
Giving advice and direction on implementing sustainable practices in SMEs
Familiarising yourself with these documents will help you understand what global standards are being set in terms of sustainability
A course with Chartered Accounting that teaches how to understand the new form of data, the societal context behind this new role, and how to accurately account, report and certify greenhouse gas emissions.
Resources, articles, and news related to accountants and sustainability
Global Sustainability Study 2021 - Business Wire, Oct 14, 2021
Trust, The New Brand Equity - Edelman, 2021
Learn About the Greenhouse Gas Reporting Program - EPA, 2021
Scope 1, 2, and 3 - Deloitte, 2022
Global Millennial Survey - Deloitte, 2022
Millennials in the Workplace Statistics - Teamstage, 2022
ESG by the Numbers: Sustainable Investing Setting Records in 2021 - Bloomberg, Feb 4, 2022
Action by SMEs is key to a more sustainable world - Chartered Accountants ANZ, Nov 23, 2021