Despite (or perhaps because of) last year’s failed climate talks in Copenhagen, the demand for tools and software programs that help companies track greenhouse gas (GHG) emissions has increased dramatically over the past year.
A 2009 study by Massachusetts-based Groom Energy Research estimated that approximately 60 companies worldwide offer GHG accounting software, and more than US$46 million was invested in GHG accounting software start-ups in 2009. According to a recent report by Colorado-based Pike Research, the global market for GHG accounting software and support services grew by nearly 84 percent from 2008 to 2009, representing a total market of US$384 million. They predict the market will achieve 40 percent compounded annual growth through 2017. Australia’s S2 Intelligence reports that worldwide spending on green accounting systems will total US$595 billion through 2015, which includes both GHG accounting software and environmental accounting software more broadly.
With new regulations from the U.S. Securities and Exchange Commission, and increasing pressure from other regulatory bodies, as well as investors and customers, GHG accounting has become an expected practice for multinational enterprises. The Carbon Disclosure Project alone contacted more than 1,000 companies through their investor and supply chain programs in 2009 to measure and disclosure their carbon footprint. And large buyers such as IBM, Tesco, and Walmart are also setting precedents by asking suppliers to report on—and reduce—their annual carbon footprint.
Any company that aims to effectively respond to the mounting pressure and establish a comprehensive climate strategy must start with GHG accounting. That’s relatively simple for companies with only one site, but for companies with larger operations, GHG accounting becomes a complex challenge of gathering a large volume of decentralized data on a regular basis.
That’s where GHG accounting tools come in.
The market, however, is nascent and rapidly changing, which makes it difficult for companies to evaluate and commit to a solution.
Types of Tools
GHG accounting tools range from those that focus solely on carbon measurement to those that enable companies to trade carbon credits. Before purchasing a tool, it’s important to understand the options and select a tool that best meets your objectives. The range of tools can be categorized as follows:
- Historical analysis: Many of the early tools on the market focused strictly on backward-looking tabulations of annual corporate GHG emissions. These tools are typically straightforward to use and provide a good point of entry into GHG accounting, particularly for companies that do not have a strategy for proactively managing business risks associated with climate change and energy consumption. These tools also typically enable participation in reporting initiatives, GHG registries, and GHG trading programs. The most basic example is the suite of excel-based tools provided by the World Resource Institute in support of the Greenhouse Gas Protocol.
- Historical analysis plus forward projections: Many tools not only provide a backward-looking accounting of corporate GHG emissions, but also a forward-looking projection of future emissions based on different scenarios. Projections can include a range of areas, including business-as-usual emissions trajectories and project-specific emissions forecasts (for example, the impact on annual emissions as a result of investments in energy-efficient lighting). These are particularly helpful for enterprise resource planning (ERP).
- Life-cycle-analysis-based: Companies interested in product carbon footprinting should consider tools that estimate a product’s total carbon impact based on a life-cycle analysis (LCA). GHG emissions for a product are estimated based on macroeconomic assumptions about process emissions. A listing of LCA-based resources and software solutions can be found at www.life-cycle.org.
- Supply chain-based: Some tools focus on gathering data from a company’s supply chain partners. Unlike LCA-based tools, these tools focus on gathering primary data from suppliers. If taking this approach, companies should prioritize key suppliers to focus on, such as major manufacturers or logistics and transportation providers. In some tools, carbon-data gathering can also be integrated into supplier labor compliance assessments.
- Operational integration: This newest category of tools seamlessly integrates GHG accounting into existing corporate operating systems (such as financial accounting or ERP), setting companies up to report on both environmental and operational performance on a quarterly basis. These tools could include other features, such as projections and scenario planning, or may focus just on historical accounting and analysis.
- Ecosystem services-based: Some software providers are anticipating companies’ need for accounting tools that look beyond GHG emissions to include other environmental issues, such as water and waste, and the interplay between environmental issues on broader ecosystems. This category of tools looks at GHG emissions as one element in a company’s impact on ecosystem services and the business risks presented by a company’s dependence on ecosystem services. A 2010 report by BSR reviews many of the leading ecosystem services tools available today.
The Groom Energy Research study provides a short description of several perceived leading tools that span these categories, including Enablon, Enviance, Hara, IHS, Johnson Controls, PE International, ProcessMAP and SAP Carbon Impact.
|Historical Analysis||Projections and Scenario Planning||LCA-Based||Supply Chain-Based||Operational Integration||Ecosystem Services-Based|
Selecting the Right Tool
Each tool offers a different set of functions and comes with a different price tag. With so many tools on the market, there is no longer reason to settle for something less than optimal or build a custom solution from scratch.
At the same time, comparisons are difficult since many tools are still untested, and not all tools are comprehensive. You may need to piece together two solutions—for example, using a financially integrated tool for your operations and a transportation-specific tool (such as the Clean Cargo Working Group’s Intermodal Emissions Calculator) for your transportation supply chain emissions. Here are some factors to help you weigh the pros and cons of each tool:
First, clarify your primary objective/purpose. You must establish clear needs and objectives for your GHG accounting activities so that you look at the category of tools that best meets those needs. Objectives could include: GHG performance management (goal setting and tracking against goals), risk mitigation, participation in carbon markets, and public reporting.
For example, if you are most interested in GHG accounting for the purposes of risk mitigation, and you know that a majority of your company’s climate impact comes from your supply chain, selecting an LCA-based or supply chain-focused tool will be critical to achieving your objectives. If you are focused on GHG performance management for your operations, you will need to select a tool that enables both historical accounting of annual emissions (based on primary data) and projections; LCA-based tools will be less relevant since they reflect your supply chain and typically rely on modeled data. The point is, there are trade-offs with each tool, so it is important to have a primary purpose based on clear objectives that will enable you to weigh one tool over another.
- Determine critical functionality versus “nice to have’s.” The difference between tools will be most apparent when you dig into specific features and functionality. Your selection of a specific tool should also be driven by your needs across the following areas:
- User interface: While there is an obvious distinction between offline spreadsheets, software, and web-based platforms, there are countless nuances regarding how data are entered and extracted within those options. Having a global, decentralized business might dictate the need for a web-based platform that can be accessed by employees in multiple locations.
- Data demands: Some tools require more primary data than others in order to calculate your company’s corporate carbon footprint. Be realistic about the primary data available in your company, the time required to enter data, and what calculations will need to be based on estimates from pre-loaded databases.
- Use of standards: The tool should be based on a recognized global standard for GHG accounting, such as the GHG Protocol and ISO 14064 series.
- Output: From visual mappings to exportable tables, and high-level summary information to detailed accounting, the tool’s output should align with your company’s primary purpose and key objectives.
- Timeliness: The tool should allow you to input data on a regular, sustainable schedule that enables at least quarterly review, comparison between reporting periods, and external reporting.
- Verifiability: The ability to document and trace data sources within the tool is an increasingly important feature, and critical for companies engaged in external reporting and carbon markets.
- Assess likely ease of integration and flexibility. As GHG accounting continues to grow in priority within companies, it should be further integrated into day-to-day business. The flexibility of the tool to be expanded and integrated into existing, core business processes such as quarterly financial accounting will be critical to the long-term success of your GHG accounting efforts. In addition, the best tools should link environmental performance to business value, and track the return on investment for environmental initiatives. Tools like SAP Carbon Impact are a step in this direction.
- Match cost to expected benefits. The financial impact of each solution can vary greatly depending on the vendor, your company size, and the emissions intensity of your industry. Prices can range from free (such as OpenEco) to upwards of US$200,000 per site. Small companies with only a few sites and a small carbon footprint should be able to find a solution for minimal cost. Large companies and heavy emitters should expect significant expense for a solution that tracks and organizes vast amounts of carbon data.
While the landscape of tools will continue to rapidly evolve over the coming years, these parameters should hold true whether you are selecting your first solution or upgrading to better solutions as they come to market.