The Need for Green Accounting
As the urgency to address environmental impact grows, companies face increasing pressure from a growing array of stakeholders to limit their carbon footprint. Green accounting is becoming a strategic imperative, offering CxO’s a mechanism to successfully navigate increasing regulation, seize opportunities and fortify resilience in the face of environmental risks.
- Navigating Regulatory Drivers : The regulatory landscape is fast evolving, with jurisdictional bodies like the European Commission and US Securities and Exchange Commission mandating greenhouse gas (“GHG”) emission disclosures aligned to regionally adopted standards (e.g. the European Sustainability Reporting Standards “ESRS” and the International Sustainability Standards Board’s “ISSB” IFRS Sustainability Disclosure Standards). Environmental taxes, emissions trading schemes, and carbon border adjustment mechanisms further underscore the importance of accurate GHG accounting for navigating tax implications and international market dynamics.
- Seizing Opportunities : Businesses have the opportunity to capitalize on unprecedented levels of government investment in decarbonisation initiatives, under schemes such as the €500B European Green Deal and the US$422B Inflation Reduction Act. Additionally, with the green bonds market hitting US$870B in 2023, accessing green capital investment can reduce borrowing costs helping to drive sustainable growth. Research demonstrates consumers are willing to pay a sustainable premium for low carbon products, and that an organisation’s net-zero policies have an impact on employee retention and talent attraction.
- Building Business Resilience : Resilience is crucial in the face of climate-related risks and an evolving global economy, with growing consumer consciousness, physical risks, supply chain disruption, and workforce challenges. Failure to adapt will leave companies vulnerable to regulatory intervention, fines/penalties, damaged brand image impacting revenue, and the potential loss of license to operate. Green accounting plays a vital role in identifying, quantifying, and mitigating these risks, to adapt and thrive.
While the drivers for green accounting are clear, most organizations struggle to move beyond compliance and embed sustainability into core business processes and decision-making. In many cases, emissions data lacks the control necessary to ensure reliability and is not granular enough to be decision-useful.
SAP’s Green Ledger addresses these challenges, offering a transformational approach to managing emissions with the same precision as financial data.
The SAP Green Ledger Vision
SAP Green Ledger presents a genuine paradigm shift in how organizations approach emissions management and reporting by applying the rigor, precision, and traceability of financial accounting to emissions data.
SAP Green Ledger aims to support organizations in several critical areas:
- Compliance and Steering : By generating auditable, finance-quality GHG inventory data, SAP Green Ledger equips organizations to navigate regulatory disclosures and external audit requirements (in preparation for the transition to a “reasonable assurance” standard). The introduction of double-entry bookkeeping and other controls helps to build trust in emissions data, providing actionable insights to drive decarbonization with confidence.
- Emissions flow and Integration : SAP Green Ledger lays the foundation for integrating emissions data at a transactional level with financial data and information flows. This generates a connected view of financial objects (e.g. inventory) and their embodied emissions to enable dual-axis decision making. It also allows carbon budgets to be managed in real-time, at all levels of the organization (e.g. by a cost center owner).
- Automation, Efficiency and AI : Integration with financial processes presents the opportunity to automate and increase control over GHG accounting, piggybacking off existing financial accounting flows for efficiency and accuracy. Application of AI to quantify emission components at scale presents further potential to streamline, shifting focus from measurement to identification of high impact decarbonization opportunities.
Deloitte is working with SAP and a number of forward-thinking organisations to pioneer integrated financial and carbon accounting and pilot the SAP Green Ledger solution ahead of its general release.
Conclusion
The field of green accounting is transitioning from a box-ticking exercise to a strategic necessity. While regulatory bodies are starting to demand the same level of diligence as financial reporting, emphasis is shifting beyond mere compliance towards unlocking new pathways for growth and resilience. The vision behind SAP Green Ledger presents a transformative leap towards a sustainable, low-carbon future. Through accurate measurement, traceability, and accountability, organizations will be empowered to mitigate climate risks and drive profitability, while fostering a better world for all.
- What are your organization’s biggest drivers for more precise carbon accounting? What value opportunities will it unlock?
- What are the biggest barriers to improving precision and accuracy?How can financial accounting principles and technologies like SAP Green Ledger help?
For any emissions ledger to provide data that is reliable, traceable, and actionable, it must be anchored by robust GHG accounting principles. In our next blog we explore the foundational principles of GHG accounting, tracing the evolution of thought in this domain by standard-setting boards and prominent academics.
References
1. McKinsey & Company, “Do consumers care about sustainable and ESG claims? | McKinsey”.
2. Attracta Mooney, “How to manage the climate-conscious worker”, Financial Times, August 13, 2023.
