Carbon Accounting: Will Adoption follow the Money?

Over the past two years, some of the leading carbon accounting platforms have received close to a billion dollars in funding. The sector, once a darling of the climate tech investors, is finally coming of age or so it seems.

Carbon accounting, also known as greenhouse gas (GHG) accounting, is a critical tool used by businesses, organizations, and governments to measure, track, and manage their greenhouse gas emissions. It involves identifying and quantifying GHG emissions from various sources, such as energy consumption, transportation, and industrial processes. This information is then used to develop strategies to reduce emissions, improve environmental performance, and meet sustainability goals.

Today, carbon accounting plays a pivotal role in addressing climate change, one of the most pressing global challenges of our time. By understanding their GHG emissions footprint, businesses, organizations, and governments can take concrete steps to reduce their impact on the environment and contribute to a more sustainable future.

Until recently, few companies in the supply chain of global corporations really bothered accounting for their carbon emissions. Lack of regulation coupled with costs and complexities deterred most of these suppliers from adopting carbon accounting.

Meanwhile, global corporations reported only their Scope 1 and Scope 2 emissions thus leaving out between 50% to 85% of their Scope 3 emissions depending on the sector.

However, things are changing rapidly with the EU’s Corporate Sustainability Reporting Directive and the Carbon Border Adjustment Mechanism (CBAM) regulations. Both these regulations require firms, depending on their size and scale, to report Scope 3 emissions.

Suddenly, the number of companies that will need to account for their carbon emissions has risen from a few hundreds to tens of thousands. This has boosted the market potential for the carbon accounting platforms.

Hence, the carbon accounting space has seen a flurry of Mergers & Acquisition (M&A) activities signaling consolidation in anticipation of widespread adoption. After all, the first step towards a Net Zero world is knowing your emissions before reducing or offsetting them.

Will carbon accounting live up to the hype?