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How Digitally Native GHG Tracking Can Drive Faster Climate Action
Companies around the world—not to mention their investors, shareholders, and supply chain partners—are more focused than ever on drastically reducing, or even zeroing, their carbon footprints.
Walmart and Apple have pledged to slash or entirely eradicate emissions from their respective supply chains by 2030. Microsoft has famously committed to go carbon-neutral by 2030 and remove all of its historical carbon emissions by 2050. Unilever unveiled plans to add eco-labels to an astounding 70,000 products. And sustainability—including environmental, social, and governance (ESG) and climate risk considerations—figures prominently in the annual letter from Larry Fink, CEO of BlackRock, the world’s largest asset manager.
With COP26 approaching later this year and climate catastrophes increasing in frequency and severity before our eyes, the 2020s have been dubbed the “decisive decade” for climate action. All eyes (and efforts) are focused on bigger, faster emissions reductions in line with a 1.5°C climate future.
Such emissions reductions are especially important for hard-to-abate sectors in commodity supply chains like steel, aluminum, cement, and aviation fuel. These are all fungible materials that are hard to track—and that are ripe for differentiation based on climate attributes.
Four Pillars of Climate Intelligence
We believe that the climate action we need is predicated on four key themes related to climate intelligence that enables transparency, differentiation, and action:
1. Emissions Visibility
We need to understand the who, when, and where of emissions. Toward that end, RMI is a member of Climate TRACE, a global coalition of tech companies and NGOs using satellites and other data sources, combined with artificial intelligence, to publicly track human-caused greenhouse gas (GHG) emissions independently and transparently.
This type of emissions visibility will have wide-ranging implications, from improved reporting under the GHG Protocol, to expected corporate ESG and climate risk disclosures, to sustainable investing, to eco-labeling so consumers can differentiate products. All of these outcomes will be accelerated by more accurate, timely, and digitally accessible data.
2. Accounting, Attribution, and Analysis
There are more than 250 data standards and methodologies for the accounting of GHG emissions. These range from the largest and most widely used carbon framework, the GHG Protocol developed by the World Resources Institute and the World Business Council for Sustainable Development (WBCSD), all the way to niche sector-specific methods. The number and variety of these methodologies reveal a significant need to standardize and harmonize the siloed data sets.
In 2020 we took an important step in that direction for material and energy supply chains. At the World Economic Forum’s Davos summit, the Columbia Center on Sustainable Investment, the Payne Institute for Public Policy at the Colorado School of Mines, and RMI unveiled the Coalition on Materials Emissions Transparency (COMET). The intent of COMET is to build a standard, harmonized methodology and attribution protocol that brings together the main GHG emissions standards and protocols into an organic set of guidance documents. This would serve as a “Rosetta stone” across existing methodologies to foster the emergence of universal metrics for action and carbon attribution at all tiers of the supply chain. We’ve since built on this momentum by formalizing a partnership with UN Climate Change (UNFCCC) to accelerate the decarbonization of industrial supply chains.
Even more recently, RMI joined the WBCSD as it launched the Carbon Transparency Partnership. The Partnership brings together stakeholders from across value chains and industries to coordinate industry-focused initiatives with the common mission of creating scope 3 emissions transparency. (Scope 3 emissions refer to all of an organization’s “indirect” upstream or downstream emissions, such as emissions from raw materials in a supply chain, or emissions from the disposal of a product.) We’re working to create a common language and digital schema (a standard structure for climate-related data) for measuring emissions across sectors and different materials to make carbon accounting as seamless as financial accounting. The idea, epitomized by WBCSD’s Pathfinder project, is to track emissions as they flow along supply chains at the product level.
3. Digitized Infrastructure
But information standardization and harmonization are not enough. Data also needs to be attributed to the right entities—that is, each “parcel” of carbon accountability needs to know where it belongs: to a particular facility’s scope 1 emissions (the direct emissions emanating from an organization’s own facilities), to a company’s scope 1, 2, or 3 emissions, to a product’s carbon footprint, and so on.
This is where digitization comes into play in the form of leveraging distributed ledger technology (aka blockchain). Distributed ledger technology (DLT) is a form of record keeping that’s secured by cryptography and maintained by a network of computers. By employing DLT, we’re able to construct a shared record of truth about the state of information across the network.
Via blockchain, we can create “digital twins” of real-world entities and processes like companies, factories, and products. Each entity and operation can also have a “digital wallet” that owns the data and attributes of its digital twin. The opportunities of such a digitized approach include trusted tracking of physical goods and the ESG and climate attributes associated with them, including their provenance and carbon footprint traced up through their supply chains.
In the long-term vision, our work alongside partners across the globe will give rise to a digitally native GHG Protocol whereby a company will be able to disclose GHG attributes (and eventually other ESG attributes) by simply disclosing the contents of a digital wallet.
We’re already taking steps in that direction with the Crypto Climate Accord, which RMI co-founded with nonprofits Energy Web and the Alliance for Innovative Regulation (AIR) earlier this year. The plan is to create a viable accounting system and digital schema for the cryptocurrency industry that tracks the GHG emissions embodied in cryptocurrency—mostly taking place at the time of mining. The Crypto Climate Accord aims to point the industry toward becoming entirely carbon-free by 2030.
Aviation is another sector that offers a wonderful use case for digitized emissions. Clean Skies for Tomorrow has worked for years to define a standard for sustainable aviation fuel, or SAF. Now, the recently formed Sustainable Aviation Buyers Alliance (SABA), a project between RMI, the Environmental Defense Fund, and Engie, is ready to prove it’s possible to track and procure SAF via the standard as early as next year.
4. Standards and Markets
Of course, all of this needs to scale in markets to achieve impact. That’s part of the reason why RMI co-founded Mission Possible Partnership, a broad coalition of nonprofits and businesses aimed at leading the way for key industrial sectors to align with a 1.5°C future.
It’s also why we’re excited to announce that the Larsen Lam Climate Change Foundation has provided a $10 million grant to fund Horizon Zero. The premise of Horizon Zero is simple: figure out digitally native GHG disclosures in the fast-moving crypto industry, then apply them to materials supply chains and industrial sectors. The multiyear project will use a permutation of the accounting principles and digital schema developed for crypto to create emissions tracking pilots in hard-to-abate supply chains such as steel (which emits 7 gigatons of CO2 per year), cement (5.5 Gt/year), petrochemicals (4 Gt/year), oil and gas production (3 Gt/year), aviation (2 Gt/year), and nonferrous metals (1 Gt/year).
The Road Ahead
It is likely that the disclosure of ESG metrics, or at the very least a GHG inventory, will become part of the US Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS) within this decade. In fact, this is already occurring in the European Union, under the new Corporate Sustainability Reporting Directive. In the United States, the Securities and Exchange Commission just closed its public comment period on this topic, while the IFRS public comment period is open now.
Insofar as such disclosures drive financial decisions, ESG considerations are increasingly becoming financially material. And when dollars, euros, etc., are on the line, we need streamlined access to better, more actionable ESG and GHG data. Digitization is the pathway to get there. Ten years ago Marc Andreessen, of legendary venture capital firm Andreessen Horowitz, penned his now-famous Wall Street Journal essay about how “software is eating the world.” It’s now time for software—and digitization more broadly—to enable bolder, faster climate action.
If you’re interested in learning more, or in finding out how your business can participate in the digital disclosure revolution, contact us at ClimateIntelligence@rmi.org or firstname.lastname@example.org.