By Uday Baral, principal Pioneer Solutions LLC
In the past, the objective of carbon accounting has been geared towards one of two things: being eco-friendly and environmental compliance. Today, the facts are that environmental compliance is expected, and publishing a carbon footprint is meaningless without an active plan to manage and reduce that footprint. What then is the objective of carbon accounting, both now and in the future?
Companies now realize that carbon accounting can be used to improve organizational efficiencies and reduce risks. That means a better and more predictable bottom line. Decision-makers realize that environmental risk is now a real threat to organizations, and there is an opportunity to use environmental data to streamline operations and reduce risk exposure simultaneously.
In the past, financial statements were used for analyzing operational efficiency. The idea was that efficiency always saves money. However, today’s savvy CFOs couple financial data and analysis with environmental data (and other data in some cases), gleaning the most meaningful operational analysis.
For example, financial statements in two concurrent years might show that an organization’s purchased electricity costs decreased 8 percent year-over-year. Great news! But wait – the electricity consumption increased 3 percent and because of office consolidations, operations are being handled in 20 percent less square footage in the most recent year. The financial, environmental and operating data all show only one piece of the puzzle. Only by looking at the data collectively can the organization see the entire story: building efficiency decreased severely, but a drop in electricity prices most likely contributed to the overall decrease in costs. In short, the organization is dumping money out the window and can cut costs and reduce electricity price risk by improving the efficiency of electricity- consuming operations and other contributing factors.
The analysis is simple in concept, but presents a huge challenge in the form of managing multiple, diverse data sets.Organizations will have to adapt. Spreadsheets, although cumbersome, can handle simple carbon footprint reporting and even some compliance activities. However, an in-depth, companywide analysis is more complicated than our simple example and cannot be handled efficiently without a system to help gather, manage and report on diverse data sets in meaningful ways.
Why is data management such a challenge? The data to be managed is often more complex than in the past. In the environmental space, Scope 2 and Scope 3 emissions are where most value and risk lie. This means managing many more types of data than are involved in Scope 1 emissions, which mainly relate to compliance.
Also, many financial systems are not setup to work with environmental data, and many environmental solutions were built for compliance purposes and are not in their current form flexible enough to handle analysis of wider scope or integrate easily with other systems. Finding a solution with this flexibility can be challenging, but it is possible. In fact, the largest challenge may be convincing others in the organization that environmental data can save money and reduce risk.
The benefits are worth the effort. As industries evolve, the use of environmental data in operational analysis and the resulting operational improvements are how organizations will set themselves apart from their competition.
Uday Baral specializes in Enterprise-wide risk management solutions, implementation and integration. Uday’s focus has been on trading and risk management, environmental trading and compliance, and back office solutions. Uday has more than 16 years of experience. Prior to founding Pioneer Solutions 2003, Uday was a managing director at BearingPoint (formerly KPMG Consulting) where he led the Enterprise-wide Risk Management group in Utility segment. Prior to BearingPoint, Uday also worked at Arthur Andersen and Deloitte & Touche Consulting. Uday holds a masters in engineering degree from Massachusetts Institute of Technology and MBA from Carnegie Mellon University.