The Startups That Could Close the Greenwashing Loopholes

Greta Thunberg threw the “greenwashing” charge at financial officials at COP26 last week in what has become a regular problem for companies grappling to become more environmentally friendly. But here’s one reason the slur is so widespread: measuring a carbon footprint is hard.

If you’ve ever tried doing your own taxes, think back to that convoluted task and multiply it by 10. That is carbon accounting, a practice so mind-bogglingly complex that it is hard to imagine anyone but the Big Four consultancy firms, or cloud giants like Salesforce Inc. and SAP SE, doing it properly.

The process of measuring carbon needs a revolution similar to fintech’s, an industry that came out of nowhere to challenge incumbents by bringing together the brightest minds in technology and finance. The good news is that seems to be happening: an array of startups is racing to solve the puzzle.

It’s a complex one for both corporations and the environmentalists watching what they do. Large companies must increasingly report their carbon emissions to do things like list on the New York Stock Exchange or comply with U.K. law. But with a lack of universal standards, everyone is measuring carbon in different ways, making it difficult to compare and rate performance.

Furthermore, companies only need to report on emissions they directly produce, like the pollution from operating their own factories, or from heating their offices, known as Scope 1 and Scope 2 emissions. That represents only a fraction of global pollutants. The NYSE and the U.K., among others, do not require companies to report so-called Scope 3 emissions — carbon emitted via the actions of others in their supply chain PLUS whatever that company’s customers do in the future. Scope 3 represents a mountain of unreported carbon: More than three quarters of the world’s emissions.

The neglect of Scope 3 makes it easier for oil giants like BP Plc and Royal Dutch Shell Plc to say they’ll become net-zero energy businesses by 2050 since for the time being, they are not obliged to track the enormous pollutants made by their customers.Some ambitious companies like Apple Inc. or American Airlines Group Inc. have, to their credit, tried tracking their Scope 3 emissions, but they are chasing a moving target. Companies might one year include new categories like staff commutes, or air travel by their executives, leading to a jump in their numbers. (See chart).