What does it mean to hold businesses accountable for climate change?
The relationship between the private sector and climate change is complicated. While business-driven economic activity creates most greenhouse gas emissions, innovative businesses also hold the solutions to prevent, mitigate and adapt to climate change and its adverse impacts on our planet and its people.
At GreenBiz 22, GreenBiz’s annual conference on the business of sustainability in Scottsdale, Arizona earlier this month, corporations discussed how they are planning and already taking action to avert future climate disaster and ensure climate equity and justice. During the keynote talk, “Holding Business to Account: Corporate-Determined Contributions to Address the Climate Emergency,” GreenBiz Chairman and co-founder Joel Makower addressed these issues with Ellis Jones, vice president and CSO of Goodyear; Amy Luers, global sustainability lead at Microsoft; and Bill Sisson, executive director of North American for the World Business Council for Sustainable Development.
The key word on everybody’s mind? Accountability. These business leaders are thinking about the right way to approach carbon accounting, the process of quantifying emissions and climate impact and overall corporate climate accountability — holding companies to their climate commitments.
“We’re at that moment that started in Paris and found its way to Glasgow, where there’s a recognition that business needs to be more involved and represented in the climate accounting challenge,” Sisson said.
Climate accounting is still an emerging field and lacks an accurate, standard system for businesses. Without this type of framework, disclosing emissions and making meaningful pledges around reductions is nearly impossible. Both carbon accounting and climate accountability are two sides of the same coin, and it’s crucial for the private sector to get them right, the panelists suggested.
“Corporations, once we set a goal, want to be held accountable,” Jones said.
So what will it take to properly undertake corporate accounting and be held accountable for their emissions?
The scope of the climate accounting challenge
Corporate carbon accounting is based on corporate financial reporting, a well-established framework. This type of audit reveals how much a company earns, how much it spent, and how much it owes, all reported publicly.
Holistic carbon accounting, unlike financial accounting, is often voluntary and based on voluntary standards. Governments use the Intergovernmental Panel on Climate Change (IPCC) methodology to estimate their greenhouse gas emissions and removals.
But companies don’t have one standard, reliable framework — they turn to various climate accounting software applications or use the popular GHG Protocol framework. Some even develop their own methods.
“The greenhouse gas inventory infrastructure that was established over 20 years was not set up to address the carbon accounting challenges that we have today,” Luers said. “We need to be able to track carbon through products, among companies, across borders, in and out of nature.”
Determining the emissions that companies directly produce (Scope 1) is relatively straightforward, and some compliance markets such as the European Union’s Emissions Trading System do require companies to provide accurate Scope 1 carbon emissions on an asset-by-asset level. However, measuring emissions from businesses’ supply chain or users of their products (called Scope 3) becomes trickier. These measurements are largely based on assumptions.
“We’re all challenged by Scope 3 emissions,” Jones said.
Luers described how the current carbon accounting system fails. “GHG accounting for corporations is inconsistent, incomplete and not transparent,” she continued, also describing the process as “unreliable” and “siloed.”
Luers called for “mobilizing resources and actions to develop reliable and interoperable carbon accounting, from product to planet … these two words have to be the pillars of our carbon accountability and carbon accounting work moving forward. By reliability, I mean accessibility, accuracy, and consistency of the data that underpins our carbon accounting system … For interoperability, I mean the ability to exchange information between companies … and all the way up to the scientific community that’s doing this planetary accounting.”
A new framework: Corporate Determined Contributions
Sisson described the solution that his organization, the World Business Council for Sustainable Development, has been developing: a new global framework, building on the United Nations methodology for reporting country-level emissions — Nationally Determined Contributions (NDCs) — that describes the impact of businesses. It calls this measure Corporate Determined Contributions (CDCs).
“We need a global reporting mechanism owned by COP by the U.N. to be the thriving standard,” Sisson said. He called for a new, improved “mechanism that helps us do that aggregate accounting that’s consistent, credible and comparable — the three Cs.”
According to Sisson, CDCs would reflect reported targets and progress in emissions reduction for annual assessment at the COP. They would accomplish several things:
- Assess business progress and delivery against climate action targets to align with the process of setting and delivering national plans, or NDCs
- Offer a transparent and measurable approach that would enable business to build trust with regulators, policymakers and consumers
- Mitigate the potential for greenwashing
The framework could help companies understand not only the emissions they’re directly and indirectly producing, it could also help set them actionable targets for reduction with standardized measuring and reporting, according to Sisson.
Ellis agreed in principle: “The more consistent data, the more reliable, the more auditable, the more our leaders feel that this [carbon accounting] is part of our business.”
This type of new paradigm is much-needed, Luers noted. “The carbon accounting structure we’re building today is what we need to rely on for us to collectively manage how we are spending the remaining carbon budget, and how we are using the limited carbon removal capacity that the planet has given us.”
She remains optimistic about solving these challenges. “Traditionally, it’s been really hard to connect those planetary truths to what we put in our books in our carbon accounting in our companies,” she said. “But that’s changing. New data streams, advances in scientific understanding, [artificial intelligence], cloud computing, are allowing us to connect those dots in ways that we couldn’t before. It’s not there today, but we need to accelerate where that’s coming and we can make that happen.”
How to hold businesses accountable for their emissions
With the right framework to measure and report on emissions, companies would be able to hold themselves accountable for their climate commitments. Governments and the public would also be able to hold them more accountable.
“When we talk about climate, we’ve defined winning,” Ellis said of Goodyear’s sustainability plans. “We know what we’re trying to achieve. Now we’re aligning the globe around winning. We’re creating this line of sight for everyone that says, ‘here’s my contribution to winning.’ I see this as the next obvious step when we talk about accountability … The learning you can get from seeing everyone on the same measurement scale, everyone understanding how it’s being accomplished, helps others who don’t know how to get there.”
Luers agreed and elaborated on Microsoft’s accountability mission. Microsoft recently announced a new initiative called The Carbon Call, which aims to improve carbon accounting, expand reporting and overall boost accountability.
“We’re mobilizing companies to commit to reporting on GHG emissions as well as removals in an annual way, comprehensively and transparently,” Luers said.
She continued: “The ultimate source of truth for our carbon counting is the planet. It’s our planetary carbon accounting system, which, whether we like it or not, tracks how humanity is spending down our remaining carbon budget. What do I mean by that? The amount of greenhouse gases that we can emit to the atmosphere without crossing catastrophic climate thresholds.”
Like Luers, Sisson wants to direct this growing urgency around climate change into meaningful action. “We all know what we need to achieve by 2050, by 2030,” he said.
“We understand the gap we need to close,” he added. “That can drive regulation. That can drive business performance. That can drive and accelerate scale and scope. That creates momentum when we’re aware of how much we need to do.”