Kristian Rönn, CEO and Co-founder, Normative, discusses how businesses can achieve ESG compliance with AI tools and create centralised data to help track Scope 3 emissions and plug the data gap.
As the global regulatory landscape around sustainability tightens, particularly with the introduction of the Corporate Sustainability Reporting Directive (CSRD), businesses are increasingly held accountable for the carbon emissions they emit. This regulation will require a wider range of companies to meticulously track and report on how they impact the environment and society, particularly their carbon footprint, in unprecedented detail.
Many large companies are already mandated to report their carbon emissions under the new CSRD legislation, and the rules will be rolled out to more businesses between 2024 and 2029. As part of this shift, CIOs will play an instrumental role in ensuring their organisations not only comply with the stringent regulatory demands but also meet the growing expectations of investors and consumers who are increasingly prioritising transparency and sustainability.
CIOs must enhance their capabilities to ensure they have the right knowledge and tools to gather accurate carbon data, especially when it comes to quantifying Scope 3 emissions – those emissions that occur along a company’s entire value chain.
These value chain emissions can be very complex and time-consuming for businesses to report on accurately. However, carbon accounting tools can help CIOs overcome these challenges, ensure compliance with evolving regulations and turn carbon reporting into a strategic business advantage.
Making carbon visible and tracking Scope 3 emissions
Scope 3 emissions represent the largest and most complex portion of a company’s carbon footprint. Unlike Scope 1 (direct emissions) and Scope 2 (indirect emissions from purchased energy), Scope 3 encompasses all indirect emissions from both upstream and downstream activities. This includes emissions from raw material sourcing, transportation and even the end-use and disposal of products.
The sheer breadth of Scope 3 means that businesses must rely on data from numerous external partners, such as suppliers, logistics providers and customers. Without the right tools and expertise, collecting, processing and verifying this data can be a time-consuming challenge.
A lack of visibility into Scope 3 emissions is a major obstacle. Without comprehensive data, businesses struggle to grasp the full extent of their carbon footprint, let alone take action to reduce it. As a result, they risk falling short of regulatory requirements such as the CSRD and other ESG legislation and missing the opportunity to address the largest share of their emissions.
In addition, companies may struggle to set realistic reduction targets, putting themselves at risk of facing future setbacks. This underscores the importance of accurate carbon accounting, which can empower businesses to identify emissions hotspots, uncover hidden efficiencies and make more informed sustainability decisions.
Leveraging carbon accounting technology
This is where carbon accounting technology becomes indispensable for businesses. Carbon accounting platforms serve as centralised systems that collect, process and report emissions data from across a company’s operations and supply chain.
Beyond reporting compliance, carbon accounting tools also serve as a robust shield for data protection. By automating the collection of emissions data from multiple points across a supply chain, these tools ensure that both internal and supplier data are securely managed, safeguarding sensitive information while streamlining reporting processes. With data spread across a wide network of suppliers, having a centralised platform is essential not only for accurate reporting but also for maintaining the highest standards of data security and compliance.
Another key role technology plays is transforming raw emissions data into actionable insights. By leveraging data analytics, carbon accounting tools automate the processing of data from suppliers, business activities and customer use. These tools not only gather data but also analyse and standardise it, making it easier to identify carbon hotspots, calculate total emissions and prepare audit-ready reports.
Furthermore, a major benefit for technology and finance departments is the ability of these tools to address the data gaps that often hinder Scope 3 emissions tracking. By integrating with existing enterprise resource planning (ERP) and supply chain management systems, carbon accounting platforms can pull data from multiple sources, filling in the blanks where manual data collection methods fall short. This ensures a more complete and accurate picture of a company’s carbon footprint.
It’s critical that accurate carbon accounting is built on a foundation of scientific integrity. The accuracy of carbon reporting depends on reliable data sources, verified emissions factors and transparent methodologies. Carbon accounting relies on scientifically-based databases to translate business activities into greenhouse gas equivalents, ensuring that businesses use credible data when calculating their emissions.
This interconnected approach not only ensures more accurate data but also fosters collaboration. By sharing carbon data in real-time, businesses and suppliers can work together to identify reduction opportunities and foster more resilient supply chains. Climate action is a global incentive, and this collective action is critical as no business can tackle its entire value chain in isolation.
From compliance to strategic business value
Here is the exciting part. Carbon accounting is increasingly being used to bring benefits beyond compliance to the business. While regulatory compliance is a key driver for carbon accounting, it’s not the only benefit. The technology behind carbon accounting platforms offers businesses deeper insights into their operations, enabling them to turn emissions data into strategic opportunities.
With accurate data, businesses can identify carbon hotspots, optimise their operations and reduce costs. Moreover, by modelling different emissions scenarios, businesses can avoid future financial risks related to carbon taxes, while also finding efficiency gains and cost savings. As McKinsey stated: “Failure to decarbonise could, on average, risk up to 20% in economic profit for companies by 2030, based on factors including stranded assets, increasing cost of capital, and loss of market share.”
Driving long-term sustainability
The ultimate goal of carbon accounting is to drive long-term sustainability. With continuous access to emissions data and actionable insights, businesses can set and track achievable carbon reduction targets.
In this rapidly evolving market, business leaders are at the forefront of the sustainability transformation, with the power to leverage technology to enhance carbon reporting and ensure regulatory compliance. With the right technology in place, businesses can not only meet ESG requirements like the CSRD but also turn carbon reporting into a strategic business advantage – driving both sustainability and growth in the process.
