- Climate starts with SEA
- 🧮 [#8] Carbon Accounting: Auditing Our Environment
🧮 [#8] Carbon Accounting: Auditing Our Environment
🧾 Ensuring no extra credit activities or double-counting
Hello! Halo! Kumusta! Xin chào! สวัสดี! မင်္ဂလာပါ! ជំរាបសួរ! ສະບາຍດີ!
📧 “Hey can you please CC me on that email thread, I’d like to be in the looped moving forward. Thanks!”
🤔 You’ve likely received a similar message from your boss or colleague, but have you ever wondered what “CC” actually stands for?
📃 So, “CC” is an acronym for “carbon copy”! It may sound strange but the origins of this phrase actually stretch back 2 centuries prior… In the 19th century, in order to make a duplicate of a document, one would use carbon paper, which is “a thin paper faced with a waxy pigmented coating so that when placed between two sheets of paper the pressure of writing or typing on the top sheet causes transfer of pigment to the bottom sheet” (Merriam Webster, 2020).
😆 Fun fact: Carbon Copy also happens to be the title of a 1981 movie where Denzel Washington got his acting debut.
♊ Jokes and random etymology lesson of common corporate jargon aside, carbon copies (i.e. duplicated carbon credits) are actually a major issue with greenhouse gas (GHG) credits because of double-counting…
🧐 How do we ensure quality in offset credits and comprehensively account for carbon (dioxide) and other GHGs?
First, let’s pick up a topic that we had touched on briefly on last week’s issue, namely what is a “quality” credit?
🥇 Defining “quality” credits
📰 As we mentioned in last week’s issue on carbon markets, in the past year this industry has recently been rocked by a couple of scandals:
🧑🏻🔬 According to MIT, AVID+ is a simple framework to use in order to determine whether greenhouse gas (GHG) offset credits are of high quality is to assess them along the following 5 dimensions:
🆕 Additional: though it sounds simple, this is arguably the toughest criterion to truly prove. To give a simple example: let’s say that a project developer offers credits to protect a portion of a rainforest in Borneo that is being threatened by a large palm oil plantation development 🌴:
First of all, even if this part of the rainforest is truly protected, what’s to stop this enterprise from finding another similar sized plot a few dozen kilometers away?
Second of all, what if the threat to that slice of rainforest 🌳 wasn’t actually material? In an extreme case, the palm oil producer enterprise could have even fabricated the deforestation threat in order to profit from the sale of such credits
✅ Verifiable: without an appropriate and rigorous measurement methodology, GHG credits may as well be fictitious. Moreover, the process of monitoring, reporting, and verification (MRV) that we mentioned as the 4th step in bringing carbon credits to market can be expensive and tough to do at scale; fortunately however, there are emerging technological innovations such as:
📨 Immediate: is the credit removing GHGs from the atmosphere sooner rather than later? For instance, if the credits are for reforestation using saplings that may take years before reaching maturity (and thus their maximum potential for carbon sequestration), then it’s less useful than say mangroves or coastal wetlands, which can sequester at 10x the rate of tropical forests (NOAA, 2023)
🪨 Durable: what is the longevity of the credit? If the credit is associated with direct air capture (DAC) that injects it far into the earth in the form of sediment then that’s pretty durable; if however it’s for tree reforestation in an area that’s prone to wildfires, then there’s a high likelihood those credits won’t be very resilient nor durable.
➕ (Plus): ideally, the offsets should also have other positive impacts such as poverty alleviation, job creation, social justice, and/or biodiversity (more on this last one in next week’s issue!)
🔭 Breaking down what’s in scope for companies’ GHG emissions
Scope 1 refers to the direct GHG emissions resulting from a company’s operations. For instance, if a company is manufacturing steel 🏭, then the carbon dioxide (CO2), methane, and other related GHGs that are emitted during the smelting process.
Scope 2 refers to the GHG emissions that a company generates indirectly from purchased energy usage, for example through using utilities such as electricity ⚡, heating & cooling of buildings 🏢, etc.
Scope 3 refers to the GHG emissions that are associated with the entire value chain—both upstream ⬆️ & downstream ⬇️—of the company’s operations and are typically the largest footprint.
👚 As an illustration, let’s consider a retail company sells clothing but subcontracts manufacturing and logistics… Their direct emissions may quite small as they are largely running the branding, marketing and sales to consumers only. However, the material production (as we discussed in our 4th issue), which includes growing and processing fibers like cotton and polyester, have a massive environmental footprint 👣 that would be included in neither scope 1 nor scope 2 emissions. Moreover, the manufacturing of such apparel products can be quite resource intensive (energy, water, etc.). Additionally, moving the raw materials around the world 🚢 also involves a large emissions footprint. Finally, the use of their clothing products by their customers also entails additional GHG emissions from activities such as laundry 🧺. Thus, for such a company, it should be no surprise that the ratio of their scope 3 to scope 1 & 2 emissions should be large!
📊 As the graph above shows, the ratio of scope 3 to scope 1 & 2 emissions is highest for companies in the retail sector because most of the emissions result indirectly from their activities across their value chain. In fact, for the average company, the ratio of scope 3 to scope 1 & 2 emissions is 5.5 (Rocky Mountain Institute, 2020). What’s interesting is that industries such as fossil fuels, power generation and materials tend to not have as skewed ratios due to the fact that they’re typically more upstream in relation to other industries.
📏 Measuring and reporting scope 3 GHG emissions is a challenging area, particularly for companies who are further downstream—as in the example of the retail company. In fact, 86% of executives surveyed as part of an ESG working group claimed that measuring scope 3 GHG emissions is a major challenge (Deloitte, 2022).
💳 Spend-based and activity-based methods (KrASIA, 2023) are a couple of ways of dealing with this but this problem area is a major reason why folks like our featured and interviewed startups for this week’s issue are building platforms to solve this.
📚 Want to learn more about this topic?
“How to choose carbon offsets that actually cut emissions” from MIT Sloan
“We need better carbon accounting. Here’s how to get there.” from Harvard Business Review
“Carbon markets: Why digitization will be key to success” from World Bank
“Scope 1, 2, and 3 emissions: what you need to know” from Deloitte
“Greenhouse Gas Protocol” from World Resources Institute
“The Next Frontier of Carbon Accounting” from Rocky Mountain Institute
📢 Shout-out to Unravel Carbon!
Grace & Marc of Unravel Carbon
🤖 Unravel Carbon is an AI-powered decarbonization platform that helps companies measure, track, reduce, and report their carbon emissions. It measures a company's full supply chain carbon profile in seconds, generates reduction pathways and auto-populates regulatory disclosure reports.
✔️ Their core calculation methodology has been certified by Tüv Rheinland against the GHG Protocol corporate standard for calculation of Scope 1, 2, and 3 emissions and against the ISO 14064 series of standards for GHG inventories.
🗞️ Recent News
👍🏻 Good News
🤝 BDO in Indonesia partners with carbon SaaS provider MVGX Tech to drive the decarbonisation efforts of Indonesian companies (Yahoo Finance, 21 September 2023)
📄 Singapore among the first in Asia to propose mandatory climate reporting for non-listed companies (Eco-Business, 7 July 2023)
💁🏻♂️ SMEs in Singapore to get carbon-accounting funding support by year-end (Business Times, 18 Aug, 2023)
👎🏻 Bad News
🛰️ Longitudinal satellite remote sensing data shows a significant rate of deforestation in Borneo through land use change as well as peat and forest fires (Nature, 11 August 2023)
🌴 “Palm oil plantations absorb more carbon than tropical forests”, claims Indonesian palm lobbyist (Eco-Business, 2 August 2023)
📢 Other Voices
🧮 Counting carbon: Unraveling the complexity of Scope 3 emissions tracking by Gideon Ng (KrASIA, 15 Sep 2023)
🌊 Amid perennial floods, Philippines think tank chief calls for government to strengthen climate finance accounting for key projects (Eco-Business, 18 August 2023)
🎙️ Interview with Debby of TruClimate
🌟 What is your climate mission?
🏃🏻♂️ We believe that in order to really move the needle in tackling climate change, we have to help companies jump start their decarbonization journey and transition to net zero.
🖥️ At TruClimate, we help remove the barriers and make it easier for them to start their climate journey, by providing easy-to-use enterprise carbon management platform.
💡 Why were you initially inspired to tackle carbon accounting & decarbonization?
🎓👒 At my previous company, I was hired as a Corporate Finance but ended up double-hatting as an ESG Coordinator, because the Group has not had any ESG function yet, while there was already a pressure for sustainability reporting, submitting climate-related disclosures and having a decarbonization roadmap in place.
😕 Having just learned about the whole sustainability topic due to my newly adopted role (ESG coordinator), I could imagine how confusing it can be for my previous corporate clients (I was a Corporate Banker before) to understand Greenhouse Gas accounting, also realized how costly the consultants are charging and how unknowledgeable most company executives usually are on this climate-related topics.
🛠️ How exactly is TruClimate solving it?
🙂 We build our platform to have a user-friendly interface for companies, making it much easier to measure, set targets, and report their GHG emissions.
👍🏻 For companies that want to offset their emissions, we help them connect to high-quality carbon projects.
🔍 For those who wish to develop carbon projects, our platform provides a comprehensive support, such as Eligibility Check, Pre-Feasibility Study, and even for finding investors and/or off-takers for their carbon credits.
🎬 What actions can readers take now to support your cause?
📢 If you are, or you have any friends/colleagues/family members who are working for companies looking to find out about carbon accounting and carbon project development, and please refer them to us!
🔊 Otherwise, please help to spread awareness about this climate urgency, because we urgently need everyone on board in the fight against this climate crisis!
🦸🏻 What do you do when you’re not saving the world?
When sedentary, I watch a lot of TED Talks 📺, but when I’m active, it’s usually badminton or gym 🏸. During holiday, I love travelling or go on a diving trip 🤿.
⏭️ Next week, we’ll be moving beyond CO2 and GHGs in order to discuss the importance of biodiversity and regeneration.
❓ Did you enjoy this week’s issue? If yes, please do forward to your friends who would enjoy the read as well. Also, feel free to let us know what you thought by giving us feedback at [email protected].
🌊 SEA you next week!
Karina & Massimiliano