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Carbon Accounting: The Real Way to Put Greenwashers Out of Business

It’s time to get rid of greenwashers once and for all, and the only way to do it is to make it so hard to greenwash that it’s just not worth it anymore.

Despite some of the obvious weaknesses of our markets and reporting structures, the United States business community is still a leader in financial accounting. We must develop carbon accounting to this level to force environmental transparency for businesses. Public disclosure of carbon accounting records by all businesses would prevent greenwashing by providing an empirical measure of environmental track record. Enterprise Carbon Accounting (ECA) software could parallel traditional accounting software to help us manage and record corporate America’s environmental footprint, but we still need clear action in five key areas for carbon accounting to become widespread enough to make greenwashing obsolete:

?      Clear government action on regulations

?      Adoption of carbon accounting principles

?      Expansion of “scope 3” emissions accounting

?      Better business incentives to go green

?      Demanding, informed consumers

Clear Government Action on Regulations

If corporations are to be held accountable for green claims, we need orders from the top. But the U.S. has been relatively slow to pass laws with lasting environmental impacts. The Environmental Protection Agency (EPA) and Congress are at a stalemate in agreeing upon carbon emission regulations. Legislation often gets caught up in political gridlock – such as the American Clean Energy and Security Act, which would introduce an emissions trading plan not unlike Britain’s CRC Energy Efficiency Scheme. The bill passed the House in 2009 but has yet to be addressed by the Senate.

However, steps are being taken in the right direction – like the EPA’s Mandatory Greenhouse Gas Reporting Rule, which requires companies that emit 25,000 metric tons or more of greenhouse gases annually to disclose emissions information to the EPA. There’s also progress at the state level. California’s Global Warming Solutions Act of 2006 aims to reduce the state’s carbon emissions to 1990 levels by 2020. The increasing role of government-imposed requirements over the coming years will develop transparent carbon accounting into the norm and prevent deception.

Adoption of Carbon Accounting Principles

We have GAAP and the International Financial Reporting Standards (IFRS) as standards for financial reporting; we need similar principles for environmental accounting. These principles make sure that each corporation is reporting apples-to-apples numbers. The current most widely used set of international carbon accounting standards, the Greenhouse Gas (GHG) Protocol, is still maturing. When a business is required to disclose its carbon footprint according to broadly accepted standards, consumers will all be able to see who’s truly green and who’s just greenwashing. Companies like Dell, Apple, IBM, and Wal-Mart have already begun to adopt nascent carbon accounting principles.

As ECA and similar innovations arise, carbon accounting will become more widespread and lessen the potential for greenwashing. As more companies face requirements to track and disclose emissions, others will voluntarily do so as the process becomes more standardized and manageable. Once carbon accounting has been adopted by most businesses, disclosure of the company’s carbon footprint will be a prerequisite for businesses to make any sort of claims of environmental friendliness.

Expansion of “Scope 3” Emissions Accounting

Requiring Scope 3 emissions to be included in every single carbon accounting report would prevent companies from cutting corners to artificially report a smaller carbon footprint. Take Dell’s report of its carbon “neutrality” for example – in 2008, Dell claimed to have become “carbon neutral,” but estimates had neglected to account for Scope 3 emissions. Intentional or not, Dell was grossly under-reporting its carbon footprint and claiming false credit for distorted reports – a form of greenwashing. With a rigid set of carbon accounting standards that include mandatory Scope 3 disclosure, this never would have occurred. In the GHG Protocol, tracking Scope 3 emissions is currently optional. As more companies voluntarily track Scope 3, though, it’s only a matter of time before it becomes a requirement and is fully incorporated into ECA software capabilities – making it nearly impossible to “pull a Dell.”

Scope 3 disclosure requirements will force wider adoption of comprehensive carbon accounting among related businesses. A viral effect will spread adoption, killing the potential for greenwashing throughout the supply chain. With Scope 3 requirements, the suppliers of carbon-reporting companies will have to request the same of their own suppliers – and so on. With carbon accounting requirements and a standardized Scope 3-inclusive reporting scheme, the number of businesses with full emissions records will explode – dealing a critical blow to greenwashing potential in the process. Consumers will adjust and begin to demand full and public disclosure of all emissions before they buy into a new green marketing campaign.

Better Business Incentives to Go Green

As sustainable cost savings and revenue generation incentives increase, truly beneficial green actions will take hold and the need for artificial greenwashing will fade. For example, nearly one-third of small businesses face energy costs as their largest expense. They have an economic incentive to trim these costs, reducing their waste and carbon footprint. When it becomes easier to identify cost-saving opportunities, as with the use of a mature ECA software system, carbon footprints will shrink naturally.

Government incentives are also cost-saving opportunities for businesses with environmental responsibility. Tax incentives are awarded for using hybrid or green diesel for transportation, for example. A global survey this year by workspace solutions provider Regus concluded that 63% of U.S. companies need more tax breaks to accelerate green investments. The government will likely expand financial incentives for green businesses as environmental stewardship becomes more of a national priority. Similar to compliance capabilities in other software systems, ECA software could develop to alert users to new opportunities to take advantage of government incentives. When a cap-and-trade scheme or similar system is finally implemented, the economic incentives will skyrocket, further spreading carbon accounting practices. Greenwashers won’t look green at all when the majority of businesses disclose their emissions.

Demanding, Informed Consumers

As green buyers become more savvy, greenwashers will no longer be able to conceal fraudulent claims. This year’s third annual environmental consumer behavior survey by the National Geographic Society and GlobeScan polled consumers in seventeen countries, determining that they perceived greenwashing as the biggest obstacle to environmental improvement. Consumers are demanding product sustainability information before believing the green hype. Wal-Mart plans to use supplier-provided carbon accounting information to start a system of product labels for customer reference. As detailed sustainability information develops into the new norm, claims of green marketing will fizzle without hard evidence. Greenwashers will obtain ECA software to comply and the resulting transparency will effectively destroy false marketing potential. With these five areas fulfilled, greenwashing will become nothing more than a history lesson.

Hunter Richards is accounting market analyst at Software Advice. To read more, visit the Software Advice Blog, a blog on business software technology, topics and trends by Software Advice.

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One thought on “Carbon Accounting: The Real Way to Put Greenwashers Out of Business

  1. Good points here, especially in regards to being honest and accountable for Scope 3 emissions. But with the Republican win-back of the House, I think you can forget about “clear government action” for a while, especially in regards to a revival and passage of a Waxman-Markey type bill with cap & trade. The part about “better business incentives,” has a chance, however.

    Thanks for pointing out the part about Dell’s hollow claims (no Scope 3)on being carbon neutral. We need this sort of media filtering and analysis of what’s really green. And it’s not just all about GHG emissions. There are issues like water use/conservation, and what big companies are really focusing on with their development dollars. For instance, the Big Oil companies like to brag in their TIV ads about having scientists working on algae as a source of renewable energy, but as a percentage of their R&D spend, how much is really spent on algae versus how to squeeze more fossil fuel out of questionable resources like offshore drilling or Canada’s oil sands? Blowing the covers off of that question could do a lot to expose some green washing, I would think.

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