As carbon disclosure regulations become increasingly stringent in 2023 and 2024, large organisations will have to figure out their best approach to compliance. Many companies hire pricey consultants but this is more of a quick fix than a viable long-term solution. Most firms wouldn’t outsource their financial accounting to external parties so why do so with carbon management? This gives rise to the question of whether or not companies should purchase off-the-shelf software or develop in-house carbon accounting solutions. Each option presents its own set of advantages and disadvantages. Organisations must weigh the pros and cons when deciding which approach aligns best with their specific needs and objectives.
Deciding on the best approach for carbon accounting can be a daunting task, particularly for complex organisations with limited internal expertise.
How can organisations make the right decision? Factors such as the complexity of the organisation, desired level of control over data and roadmaps, and overall strategic goals, should play a significant role in determining the best course of action. For larger organisations, it's important to note that while pre-packaged carbon accounting solutions may seem appealing, the complexity of their operations could make them a less viable option. In such cases, building a custom solution may, indeed, prove to be a more cost-effective and efficient approach.
Let’s zoom out for a moment and look at the main factors influencing your carbon accounting options. With this, you can make a confident, informed decision that’s right for your organisation.
For this, we created a quick cheat sheet. Below you’ll find more explanations for each major factor.
Complexity is a key decision factor in whether or not to purchase or build a carbon accounting solution. Service-heavy businesses or SMEs are often well positioned to buy an off-the-shelf solution, given that their data tends to be less complex and can be entered manually. When supply chains are simpler, you can easily estimate data or seek it out directly from suppliers.
If you’re part of a complex organisation, building an in-house solution that can be easily tailored to specific requirements makes more sense. There’s no need to feel frustrated trying to make your data fit into pre-defined parameters. Instead, your carbon accounting, target-setting, and scenario planning processes can be customised to fit the needs and goals of your specific organisation. The capacity of your data is expanded far beyond simple reporting requirements, enabling you to build carbon accounting into decision-making processes that shape the future of your business—a concept we called Embedded Carbon Intelligence.
Making the right decision for your carbon accounting solution means taking into account your organisation’s needs, strengths, and weaknesses. Software is a major component in many industries. You want to ask yourself:
If the answer is yes to most of these questions, you want to consider building carbon accounting software yourself.
On the other hand, you might have limited software development experience as part of your core business. For example, you could be running a mostly analogue business. If so, it’s probably a good indication that buying a standardised and ready-to-use solution is your best (first) option. Put simply, pouring resources into a custom setup with functionalities you don’t need or can’t handle doesn’t make much sense.
“No large company would outsource their whole financial accounting expertise, so why do it for a similarly sensitive issue like carbon accounting?” — Senior Manager for Data & Analytics at a major e-commerce multinational
For some organisations, your decision regarding the two carbon accounting options might be a question of your existing in-house sustainability awareness and expertise. Many companies are currently wrestling with carbon accounting and net-zero strategies for the first time, which means internal know-how may be thin on the ground. In this case, getting started with off-the-shelf carbon accounting software is the right first step.
However, if your organisation has developed some internal expertise and you have sustainability managers already on staff, then you likely have a good understanding of what you need to do. In this case, you have a perfect opportunity to build a more scalable, flexible, in-house solution that meets your organisation’s needs and lowers your costs in the long run.
Cost, more than ever, is a key factor in many business decisions as we face a looming recession. For smaller organisations seeking a simple and cheap option, you could buy a carbon accounting solution that helps to aggregate and calculate carbon emissions quickly. Many providers also offer consultancy services, along with the software, that can assist in the creation of your carbon reports. However, bear in mind that data entry can be manual, which is error-prone and eats up internal resources. Often, off-the-shelf software is not able to accommodate many of the nuances of organisations, even mid-sized ones, let alone those that are larger. As a result, costs are prone to increase over the course of a project. This is the case given that more and more consultancy and bespoke work from the software provider is required.
However, larger, more established organisations may be able to afford to hire the consultants necessary to provide flexible resources when they’re needed while still ensuring full compliance with audit requirements.
If you build a customised in-house solution, the initial investment is likely to be substantially higher. But it means that you have a flexible, ahead-of-the-game solution that can change and evolve with your business. As well, this can pave the way for significant savings in the long run. Your up-front investment will likely save you a lot of headaches in the future. External services from solution providers and modular software solutions, such as those from Climatiq, can be used to speed up development and keep your costs down.
Data security is crucial for all organisations, but some have higher requirements for data protection. In such cases, building a carbon accounting solution in-house may not only be preferable but necessary. Building an internal solution gives you full control over data security and privacy, facilitates compliance with specific standards, and limits access to sensitive data to a select few.
For example, working with an API-solution like Climatiq allows you to guard this sensitive information. You can simply trigger contextless emission calculations, meaning that there is no need to share information about the background of the activity externally. This reassures stakeholders, customers, and the organisation itself that sensitive data is being handled with the utmost care.
For organisations with less demanding information security needs, off-the-peg software solutions can provide adequate security. However, it is important to consider future security and compliance needs before making a decision.
Every organisation has different needs and priorities. For some companies, control over the feature roadmap, reporting specs, and product planning is key to internal operations and external reputation. For others, it’s just important that the work gets done.
Think about how much control you want and need over your data, reporting, and product roadmap.
As companies become increasingly aware of their environmental impact and the stark limitations of previously-used strategies like offsetting, there’s a greater emphasis on sustainability and understanding the role that emissions play in climate change.
Carbon accounting is essential for any organisation looking to reduce their emissions, embrace sustainability initiatives, and comply with increasingly stringent carbon regulations. By thoroughly evaluating sources of carbon emissions and developing strategies to minimise them, businesses can effectively work towards greening their operations.
Choosing the appropriate carbon accounting solution for your organisation is a pressing matter.
With reporting regulations set to take effect in the near future, it's essential to make a decision while you still have time. By getting started now, you’ll better understand how to reduce your organisation’s greenhouse gas emissions, and be ready when your auditor comes calling.
We hope this article allows you to evaluate which carbon accounting option to go for. If you’re still uncertain, just drop us a line and we’ll help you suss your options.