Are your executives misleading you in their emissions reports? Poor carbon accounting practices can easily lead to greenwashing — intentional or not. We share four signs to look out for, and five actions to demand.
The buck stops with the board
Boardrooms can no longer turn a blind eye to corporate greenhouse gas (GHG) emissions. Carbon accounting is becoming as vital as financial accounting. CEOs must show you they are taking carbon risk seriously and have an executive-level strategy to manage emissions — which starts with measuring them.
In turn, board members have a responsibility to shareholders and owners to monitor and scrutinize those plans. Investors are increasingly making decisions based on environmental performance, and financial institutions and consumers are demanding transparency on a company’s carbon footprint.
Carbon accounting is still largely voluntary. Without widespread regulation, auditing or mandatory standards, it’s easy for a company to play tricks in carbon accounting or for genuine efforts to fall short — in scope, accuracy and quality. This can lead to serious calculation errors, misleading or greenwashing announcements, empty targets, and poor offsetting strategies.
Four red flags to look for
- Noone’s seen the methodology: Which board member is responsible for methodology? If you don’t know who, you’ll need to step up and take control. Start by investigating the key areas where methods could undermine the credibility of emissions reports. First, is it clear and easy to see which methods have been used? Second, do these methods meet best practice (e.g. abiding by the Greenhouse Gas (GHG) Protocol)? Which emissions data sources were used in the calculations and why? Third, is the company transparent externally about calculation methodologies, wherever its GHG emissions inventory and targets are reported? Fourth, are the methodologies consistent (particularly when comparing emissions over time)? If not, are the changes and rationale documented?
- There’s no Scope 3: If supply chain (Scope 3) emissions are not accounted for, the company faces a significant underestimation of carbon risk exposure and is unprepared for the growing demand for disclosure. If climate targets and net-zero goals only cover Scopes 1 and 2, they won’t survive greenwashing scrutiny. Since supply chain emissions are the most challenging to calculate, and are still optional in global reporting standards, this is likely to be a major area of weakness in most companies’ carbon accounting.
- Short-term CEO tenure and outlook: A transformation in regulation is coming. If your C-Suite is unlikely to have tenure beyond 2023 and 2024, their carbon strategy may be short-sighted and unable to cope with upcoming legislation. Embedding the most robust, best-practice processes now will prepare your company for changes. In the next couple of years we expect to see the inclusion of shipping in the EU’s emissions trading system, mechanisms to prevent carbon leakage over borders, and mandatory disclosure. You should also ensure that your executives aren’t taking shortcuts in methodology and verification for short-term publicity and financial gains that won’t stand the test of time. The current CEO might not be around to regret this, but your brand and reputation will.
- Carbon accounting illiteracy: Does all the expertise and intellectual property for your company’s carbon accounting sit exclusively with a third party? Sustainability is becoming the language of business. To survive the net-zero transition, carbon management has to be integrated into business models and day-to-day operations. Otherwise, you won’t be able to take meaningful action — and investors and customers know this. Risks and opportunities need to be identified by the right team members at the right time: for example, using time-sensitive carbon data to bake emissions reductions into multi-year procurement agreements now.
Five actions to demand
To avoid those pitfalls and prevent greenwashing, use your leverage and ask for these immediate improvements:
- Better methodology and transparency
Although it’s still a largely voluntary activity, and although there’s still an alphabet soup of reporting frameworks, there are already widely accepted standards for carbon accounting. Best practice is clear and will likely be the required norm in 5-10 years. Ensure the company is:
- Following the Greenhouse Gas (GHG) Protocol and its five guiding principles (relevance, completeness, consistency, transparency, and accuracy);
- Itemizing assets and categorizing by scopes;
- Being transparent and detailed about chosen methodologies (see BHP’s 2021 report as an example);
- Reporting through TCFD-aligned platforms like CDP to align methodological choices with likely mandatory requirements.
CarbonChain recommends giving methodology its own agenda point in your C-Suite meetings. Ask for a topline summary that can be shared with shareholders, investors or lenders about why methods were chosen, their shortcomings, and any methodological changes.
- Include Scope 3 and be open about its challenges
Just because Scope 3 emissions tracking is optional and challenging, it’s no less vital. It’s important to start the journey and be transparent about shortcomings. Broad-based methods (based on product, spend or revenue) fall short in accuracy, but they’re the fastest and easiest to undertake in-house for immediate benchmarking and rough estimates of where carbon hotspots lie. But for truly actionable insights — and to know exactly what proportion of your emissions are in fact Scope 3 and find reduction opportunities — companies must make the move to more granular and accurate methods based on activity data.
- Own the strategy internally and improve organization-wide literacy
A senior leader in the organization needs to own the carbon management strategy. If they have carbon accounting expertise, even better; that way, you can outsource only the administrative burden of data collection, calculation, and verification to third party providers. Implement a knowledge management plan to embed carbon literacy across the organization. Teams need to know the basics of emissions scopes, boundaries, and types of target-setting. It's the new competitive advantage: the more insight that’s held within the organization, the more continuity there is, and the better it can seize opportunities and address risks earlier (for example, empowering the procurement team to identify low-carbon suppliers before competitors do).
- Be rigorous about third-party support
Boston Consulting Group found that over 90% of surveyed companies aren’t calculating emissions correctly, sometimes underestimating by 40%. Don’t let this happen under your watch. Don’t default to outsourcing simply for convenience, and don’t turn to financial accounting firms who aren’t yet specialists in carbon emissions accounting. The integrity of your numbers counts for more in the long term than the logo on the report.
- Board-level governance
In its latest recommendations, the Task Force on Climate-Related Financial Disclosures (TCFD) requires board oversight of climate-related risks. This means sign-off on emissions inventories sits with you — which gets easier if you demand the above actions. Demonstrate adequate governance to shareholders and external bodies, and back this up with genuine scrutiny.
A last chance to lead the way
Companies continue to get kudos for voluntary annual reporting, no matter how complete the disclosure is or how robust or transparent the methodology is. But ‘just trying’ will no longer be enough. The risks are clear. Poor calculations make it harder to manage carbon risk, and leave companies unprepared for regulation. And false or misleading claims that a business gets away with now won’t survive future scrutiny or regulation.
With no more time to waste, businesses must act now to remain competitive and accelerate the transition to a net-zero economy. Board members must use their leverage to ensure robust carbon accounting that enables data-driven action, before shareholders start demanding boardroom change.
CarbonChain is made for commodities companies, traders, financiers, and logistics firms. We automate your supply chain carbon accounting, so you can tackle climate risks, reduce emissions, and accelerate the transition to a net-zero economy.