News & Analysis

Carbon Accounting All Set to Boom 

As the Securities and Exchange Commission makes greenhouse gas reporting mandatory

After a lull post the pandemic, sustainability appears all set to return to corporate boardrooms as the US Securities and Exchange Commission (SEC) voted to make public companies report a portion of their greenhouse gas emissions and exposure to risks from climate change. Readers would know that the European Union and China already have these rules in place. 

Late last year, data from the Climate Trace project had shown that power generation in China and India, along with oil and gas production in the United States, had driven the most significant increases in global greenhouse gas emissions since 2015, which is when the world got together to sign the Paris climate agreement. 

With the SEC signing off on the new rules, certain companies would be required to report their Scope 1 and 2 emissions, resulting from direct operations and energy use. However, it does not mandate disclosure of their Scope 3 emissions coming from pollution that they generate indirectly via their supply chains or through customer use of their products and services. 

While these new rules do not apply to privately held companies such as startups, sustainability experts feel they would create fresh opportunities for those working on carbon tracking, as well as accounting and management. As for the existing startups in this area, the SEC ruling would provide them with just the impetus as more businesses begin tracking carbon footprints. 

India’s journey on GHG emissions could get a boost

The Indian startup ecosystem too began late on this journey though according to published reports, there are a handful and more companies already operating in this space. If the powers that be in the country take the US SEC ruling seriously and follow up with one of our own, these companies could suddenly become the apple of the investors’ eye.

At the moment, India’s greenhouse gas program is an industry-led voluntary framework that aims to assist Indian companies monitor progress towards measurement and management of these emissions using tools and methodologies from the World Research Institute’s GHG Protocol. Other participants include the Confederation of Indian Industry and The Energy Resources Institute (TERI). 

Late last year, the Global Carbon Project revealed that India could register the largest growth in carbon dioxide emissions for the second successive year. A report published in the Indian Express noted that the 8.2% rise in India’s annual emissions for 2023 was more than double the expected spike in China, which recorded a one per cent decline. However, China’s CO2 emissions account for 31% of global volumes that is about four times that of India. 

So, in absolute terms, India would stand much lower than China when it comes to carbon dioxide emissions. The growth of emissions in India was largely driven by the high growth of power demand as new renewable energy capacity did not reach sufficient levels. The study noted that consolidated data showed India’s emissions were now beyond EU levels. 

From India’s point of view, the SEC rules could act as a harbinger, given that the agency started discussing climate-led disclosures back in 2022. Early proposals were met with diverse reactions from publicly traded companies. Some supported the Scope 3 disclosures, while others opposed it with the argument that data collection was inaccurate. 

Which could be one area where startups can make a difference, especially through developing AI-led use cases to improve Scope 3 estimates. In the past these reports used to suffer from data gaps making them hardest to estimate. As companies refine their AI approaches, Scope 3 estimates could improve, leading to more companies accepting its reporting.