While much of the responsible investment industry seems to be in retreat, there is one notable and frankly surprising exception. Carbon accounting.
For many years, those working on emissions accounting felt like Estragon in Samuel Beckett’s play Waiting for Godot: “Nothing happens. Nobody comes, nobody goes. It’s awful.”
But like Estragon, two new initiatives have concluded: “I can’t go on like this.” One in the world of corporate accounting, one for the finance sector.
The corporate-led Carbon Measures initiative, launched in October, has stirred up quite the controversy, primarily because of its corporate backers – including ExxonMobil and Abu Dhabi National Oil Company.
The initiative claims on its website that its founding members are committed to “driving market-based solutions to reduce emissions at the lowest cost” and that Scope 3 reporting leads to double counting.
But the truth of the matter is that the conceit of the initiative is right.
Carbon Measures seeks to refocus the emissions accounting debate from corporates to products. And I happen to agree.
The GHG Protocol standard is sclerotic. Can I remind RI readers that Scope 3 emissions have 15 sub-categories. To quote Beckett again (this time Vladimir): “I don’t understand.”
(Of course, carbon accounting is not the only actor suffering from “complexify syndrome”. Last week, I received by email “the provisional programme of the technical expert session to inform the preparation of the technical reports of the Standing Committee on Finance in 2026.” Come again now?)
I get the case for wanting to measure everything a company does. “What you measure is what you manage” – so if the company measures business travel emissions, maybe it will be more judicious in reducing them?
At the same time, this accounting minutiae stuff can really drive you crazy. Sub-categories distracting from the bigger picture. A desire to translate everything into emissions rather than just the actual steering metric.
A recent joint statement on “Strengthening Carbon Accounting to Accelerate Decarbonisation”, signed by an illustrious group of sustainability leaders, criticises Carbon Measures for this very choice, arguing that placing products at the centre of emissions accounting risks “obscuring the system-level impacts”.
While acknowledging “legitimate frustrations” with fragmentation and data gaps, it says new initiatives such as Carbon Measures should not go it alone. Instead, they should join forces with GHG Protocol, which in parallel has announced a joint GHG Protocol-ISO working group on product carbon accounting.
This may sound sensible at first glance, but as somebody who believes we need to disrupt how we do these sorts of things, I can’t help but feel a little fragmentation and competition may be a good thing?
(On a side note, I have had plenty of experience with NGO governance and let’s just say, well, it isn’t exactly the Elysian Fields.)
Back to basics
The idea of going product-focused isn’t just some corporate concoction, by the way. Asset-level data metrics are already effectively “product footprints”. Tilt, the SME data start-up spun out by Theia Finance Labs last year, also employs a product-based approach to tracking SME emissions.
There is a certain simplicity and beauty in going back to basics. What are the products and services a company sells into the market? What is their footprint? How can it be reduced?
There are obviously core implementation questions.
Carbon Measures suggests a new standard should be based on a “gate-to-gate” approach, in the spirit of eliminating double counting.
“Gate to gate” implies a pure Scope 1 approach to carbon accounting (although Scopes in the context of product emissions accounting do not always map cleanly).
The accountant in me sympathises with the idea – finally, a coherent global ledger. Unfortunately, it doesn’t make any sense from an impact perspective (surely your impact does not end at the factory door for a car company?).
Nor does it make any sense from a risk-based perspective.
I don’t even understand what financial institutions measure at this point for a “financial product”?
I just don’t see a scenario where this gate-to-gate framework flies and will gain broader market acceptance. Which may be good for those that don’t want Carbon Measures to be successful, but disappointing for those that recognise that Carbon Measures actually has the right idea.
If we are already developing product-specific metrics, why can’t the scope (cradle to gate, gate to gate, cradle to grave, gate to grave) also be product specific, based on what makes sense from a responsibility or risk perspective for that individual product?
There may be obvious reasons for certain industries to prefer such a philosophy.
But I would also argue that an industry navigating a hostile policy and market environment may be better served with less crude approaches (pun intended!). That doesn’t mean there aren’t use cases for gate-to-gate accounting, just not at the level justifying a broad product footprint standard.
Of course, while Carbon Measures worships gate-to-gate accounting, those asking us to stick to the status quo sacrifice at a different altar, that of “being holistic” and “system-level”.
They want corporates to show us the whole forest, even if that means we can’t make out any trees anymore.
This is what makes the other innovation in carbon accounting currently under way so interesting.
The new standard for Indicators for Portfolio-related Emission Performance (I-PEPs), launched by the Austria Green Finance Alliance, has no false idols.
It is as ruthless as it is pragmatic in asking one question and one question only: How much is the emissions performance of portfolio companies improving? Simple and narrow.
Concretely, their standard ignores entirely the traditional footprint question of how many emissions you finance (a misnomer in any event!).
Undoubtedly, for those whose primary concern is whether investors invest in fossil fuel companies, ignoring emission levels is a non-starter.
But we don’t need emissions accounting anyway to track fossil fuel investments! And meanwhile, radically simplifying accounting to changes in emissions allows us to measure what (I think) we are trying to manage: real-world emissions reductions!
What we are doing right now doesn’t work. It hasn’t worked for a while.
Jean Boissinot of NGFS and G20 fame has suggested that trying to fix these things might be a distraction or a disingenuous attempt to further delay.
I understand his cynicism. But I don’t share it. The fact that it is happening in a time where it feels like innovation has become taboo suggests something good may yet come of it.
If Carbon Measures can prove it is willing to explore product footprinting beyond the narrow gate-to-gate imperative it has defined for itself – and I understand that that is a big if – it deserves a fair shake.
And even if investors are exhausted from debating carbon footprinting metrics, I-PEPs may finally be the kind of accounting (r)evolution they have been waiting for.
After all, we also cannot stay where we are. If we do, we’ll end up – indefinitely, like Beckett’s Vladimir and Estragon – Waiting for a Godot that never comes…
Jakob Thomä is co-founder of Theia Finance Labs (formerly Two Degrees Investing Initiative), research director at Inevitable Policy Response and professor in practice at University of London SOAS.
Declaration of conflicts of interest: Jakob Thomä serves on the Advisory Board of the Austria Green Finance Alliance, but neither he personally nor Theia Finance Labs receive any compensation from the Alliance or its partners. Jakob is an investor in Tilt SMEs Gmbh.
