The Basics

Understanding the ROI of carbon accounting software

Carbon accounting software offers a comprehensive solution that streamlines the process of measuring, reporting, and analyzing carbon emissions - but the upfront costs can feel like they outweigh the necessity to use them in the first place. With regulation around carbon reporting becoming increasingly more stringent, the need for businesses to utilize carbon accounting platforms will only intensify. Here, Minimum looks into the ROI of carbon accounting software. 

Why carbon accounting matters

Just this year, the  UN’s IPCC just published its first comprehensive report since the 2015 Paris Agreement, and it found that there are issues with net zero pledges being made by organizations, which are often too ambitious for businesses to realistically meet. As such, progress since the Paris Agreement has not accelerated as fast as once hoped, with the 2030 target of reducing emissions by 45% against levels in 2010 fast approaching. With this, the need for organizations to amp up their commitments to reducing their carbon emissions had intensified. 

Many countries require organizations to report their Greenhouse Gas emissions and demonstrate compliance with environmental regulations. Carbon accounting ensures accurate measurement and reporting, enabling organizations to meet legal obligations and avoid penalties - which often have very high costs associated with them.

Benefits of carbon accounting

Carbon accounting provides a quantitative assessment of the carbon footprint of organizations, products, services, and events - which fundamentally helps companies to identify areas of high emissions and implement strategies to reduce them. There are further significant benefits of carbon accounting, such as:

  • Risk Management -  Understanding and managing carbon emissions can help organizations identify and manage climate-related risks, which enables proactive risk management and enhances long-term sustainability.
  • Compliance and Reporting - Many jurisdictions have implemented or are considering regulations and reporting frameworks related to GHG emissions. Carbon accounting enables organizations to comply with such requirements and report their emissions accurately.
  • Sustainable Development Goals - Carbon accounting aligns with the United Nations Sustainable Development Goals (SDGs). It provides a means to measure progress towards SDG 13 (Climate Action) and supports the integration of sustainability into organizational strategies, contributing to broader social and environmental goals.
  • Investor and Financial Considerations - Increasingly, investors are evaluating the climate risk exposure of companies before making investment decisions, which can be influenced by an organization’s history of carbon reporting. 

Key features of carbon accounting software to get the most for your money

Increasingly, businesses can’t afford to not invest in proper carbon accounting systems - for example, with an Enterprise Resource Planning (ERP) system. ERPs are designed to integrate and manage core business processes and functions within an organization, which is especially useful when it comes to tracking and measuring carbon outputs across the organization and third parties as they provide real-time visibility into inventory levels, demand, and supply chain data. 

An ERP system can help with carbon accounting and cost saving in the following ways:

Supplier Management

ERP systems with supplier management capabilities enable organizations to evaluate and collaborate with suppliers based on sustainability criteria. This allows businesses to assess supplier practices related to emissions, waste management, energy efficiency, and other environmental factors, which in turn can lead to cost savings as streamlining processes are identified. 

Reporting and Compliance

Carbon accounting often involves reporting emissions data to regulatory bodies, stakeholders, and customers. An ERP system can generate standardized reports and provide the necessary data for carbon accounting disclosures. By complying with regulation, businesses not only futureproof themselves, but also limit the risk of hefty fines for not adhering to protocols.

Performance Monitoring

ERP systems allow organizations to monitor their carbon accounting performance over time, allowing organizations to assess the effectiveness of emissions reduction strategies, and adjust their sustainability initiatives accordingly. In the long term, this can save businesses money as the strategy is adapted as the business grows.

How to calculate the ROI of carbon accounting software

Calculating the return on investment (ROI) of carbon accounting software is crucial for organizations seeking to assess the financial benefits of implementing such solutions. By quantifying the financial gains and efficiency improvements, organizations can make informed decisions regarding the adoption of carbon accounting software and effectively communicate the value proposition to stakeholders.

Intangible costs

Carbon accounting software can help with intangible business costs by providing organizations with the necessary tools and data to identify, measure, and manage their environmental impact. Not all of the financial benefits will be measurable, but some of the intangible benefits of carbon accounting software include:

Enabling meeting of ESG and sustainability goals

Failure to meet ESG and sustainability goals can result in significant costs for organizations, including reputational damage, loss of investor confidence, regulatory non-compliance penalties, and missed business opportunities.

Regulatory compliance

Non-compliance with environmental regulations can result in heavy costs. By providing accurate data, tracking emissions, and facilitating regulatory reporting, carbon accounting software helps prevent fines, penalties, and legal issues while ensuring organizations stay in line with evolving environmental standards and regulations.

Reputation management

By demonstrating a commitment to sustainability and transparently disclosing emissions data, organizations can enhance their reputation, build trust with stakeholders, and mitigate potential reputational risks and associated costs.

Tangible costs

Carbon accounting software can lead to tangible cost benefits by identifying areas of energy waste, optimizing resource utilization, and streamlining processes. This can lead to financial savings for organizations in the following ways:

Operational benefits

Identifying inefficiencies, streamlining processes, and optimizing resource utilization can lead to tangible cost benefits - for example, by tracking and managing energy consumption, waste generation, and other sustainability metrics.

Capital market benefits

By demonstrating their commitment to sustainability, ESG performance, and environmental stewardship, organizations can attract responsible investors, enhance access to capital, and potentially lower borrowing costs and increased market valuation.

Market positioning

Effectively communicating environmental performance, sustainability initiatives, and carbon reduction efforts differentiates businesses from competitors, attracts environmentally conscious customers, and enhances their brand reputation in a market that values sustainability.

Risk mitigation

By identifying and managing climate-related risks, such as regulatory changes, physical impacts, and reputational risks, organizations can reduce the financial and operational risks associated with climate change and potential costs of non-compliance.

Example of carbon accounting return on investment

The carbon accounting market has experienced significant growth in recent years due to various factors. Increasing global awareness of climate change and sustainability has driven organizations to prioritize carbon emissions management. 

Growing regulatory frameworks and reporting requirements have also contributed to the demand for carbon accounting solutions. Additionally, investors, customers, and stakeholders are placing greater emphasis on environmental performance, leading organizations to adopt carbon accounting software to track, report, and improve their sustainability efforts. 

This growing market demand has spurred the development of innovative carbon accounting solutions, leading to the expansion and evolution of the carbon accounting market.

How carbon accounting software costs in

Considering the long-term return on investment rather than focusing solely on short-term expenses is crucial when evaluating carbon accounting software. While there may be upfront costs associated with implementing and maintaining the software, the long-term benefits can far outweigh these initial expenses.

Seeing a good ROI will depend on the ability to execute any strategies or recommendations that may come from the carbon accounting software. As an example of the sort of challenges that organizations might encounter: 

  • Resource Constraints - Implementing carbon reduction initiatives may require additional resources, both in terms of financial investment and personnel. 
  • Organizational Resistance - Change management can be a challenge, as employees and stakeholders may resist new processes or technologies.
  • Data Accuracy and Availability -  Organizations may face challenges in collecting accurate and comprehensive data, especially when dealing with complex supply chains or decentralized operations.
  • Integration and Collaboration - Implementing carbon reduction strategies often requires cross-functional collaboration and integration across departments.

To address these challenges and ensure successful implementation following a carbon audit, organizations can mitigate any ramifications that could lead to a poor ROI by ensuring thorough leadership and stakeholder engagement at the beginning of implementation to ensure that the core goals are communicated across the business. Organizations should also take care to implement a robust monitoring and evaluation framework that helps organizations track progress, identify bottlenecks, and make necessary adjustments to stay on track, make data-driven decisions, and demonstrate the impact of implemented measures.

Additionally, seeking guidance from sustainability consultants or experts can provide valuable insights and best practices for successful implementation. This is where Minimum can help.

How the Minimum carbon accounting platform can help

Minimum can help organizations to understand their existing carbon output, and create plans to mitigate climate related risks in the future.  Our Emissions Data Platform seamlessly collects and processes emissions data from every corner of your organization and supply chain - no matter the format. Making it the ideal platform for emissions audits and all-round business intelligence. 

Learn more about how Minimum's Emission Data Platform can help to power you all the way to Net Zero today.