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Compliance, consumer demand driving carbon management software adoption

Faced with new EPA regulations and a growing public interest in sustainability, companies are turning to carbon management software to monitor and reduce their greenhouse gas emissions.

Anticipated legislation around climate regulation, ongoing calls for cap-and-trade energy systems and consumers' escalating demand for companies to adopt more sustainable business practices are forcing U.S. enterprises to take a more serious look at putting formal carbon management software systems and business processes in place to track, manage and help reduce their greenhouse gas (GHG) emissions.

The Environmental Protection Agency (EPA)'s Mandatory Reporting Rule, which specifies that companies of a certain size in specific industries report on their carbon emissions, is among the many anticipated government directives that will require companies to perform carbon footprint tracking and hit certain targets in order to be compliant.

Beyond the uncertain and active regulatory climate, consumers and investors are increasingly seeking out companies and brands that have made a commitment to sustainability initiatives. Factor in volatile energy costs and an ongoing recessionary climate, and carbon management has become a hot topic as companies of all stripes look to mitigate risk and seek out opportunities to reduce costs.

"The initial response to doing carbon management has been a defensive reaction --something that will impact a company's reputation as an organization and its value as a company," said Phil Tesler, CEO of Enablon, which sells governance, risk and compliance software, including carbon management tools. "The phase we're entering now is where it's really about energy efficiency, overall business efficiency and cost reduction."

But while many companies acknowledge the strategic importance of a carbon management program as a springboard for identifying opportunities for cost savings, few are well positioned to pull it off in any kind of substantive manner. AMR Research, in collaboration with SAP AG, canvassed 189 U.S.-based businesses across a variety of industries in a recent sustainability survey and found that a stunning 93% either do not currently track their GHG emissions or find it difficult to do so. Of those respondents, 64% rely on manual processes, including spreadsheets, to collect emissions data. Business value was the key driver for green-lighting carbon tracking initiatives, with cost reduction opportunities the primary reason for more than half of respondents, followed by compliance (49%), competitive advantage (36%) and strategic risk mitigation (35%).

Vendors offering SaaS options for carbon footprint tracking

While it's possible to track carbon emissions with manual processes and spreadsheets, the practice is error-prone and can become unwieldy when you're trying to share data and do real-time reporting across a diverse, global organization, let alone  across a supply chain. Lack of proper documentation and validation and testing of spreadsheet formulas are other disadvantages of using spreadsheets for this process, experts said.

"The danger with spreadsheets really comes down to risk," said Paul Baier, vice president of sustainability consulting at Groom Energy Solutions, which consults on the engineering and installation of renewable energy solutions. Just as companies moved away from spreadsheets as a tool to manage financial data, spreadsheets aren't robust enough to support an enterprise carbon management program, Baier said, not to mention that they don't serve as a credible and auditable source to prove compliance to both the regulatory and consumer constituencies. "Spreadsheets will work well if you just have a few facilities and you don't want to track energy on a monthly basis," he said. "But if you're looking to do comparisons on a month-to-month basis and have a lot of energy sources, spreadsheets fall down. There are too many data errors."

For instance, getting a complete picture of an organization's carbon footprint using manual processes is tricky. Carbon emissions are classified into three categories, according to the World Resources Institute and the World Business Council for Sustainable Development. Scope 1 (direct) emissions from the consumption of fossil fuels, comprising mainly power utilities, oil and gas firms, and chemical manufacturers. Scope 2 (indirect) emissions, which are emissions from electricity and steam. Scope 3 (other indirect), which constitutes things like employee computing, employee air travel and transport. Companies looking for a complete picture of their carbon footprint need to consider Scope 3 emissions, which includes collecting data from their supply chain.

In fact, the most labor-intensive part of any carbon emissions project is collecting the energy usage information, Baier said. Most organizations have never extensively tracked energy usage, and if the information is tracked, it's typically measured on a cost basis, not at a usage level. As result, without proper systems in place, calculating carbon emissions can involve physically tracking down invoices and energy bills for myriad buildings and plants. In many cases, he said, up to 60% to 80% of a project's total budget can be consumed by the data-collection process.

Seeing opportunity, software vendors and consultants have jumped into the fray, introducing full-blown enterprise carbon management software platforms as well as lower-cost tools available as Software as a Service (SaaS) to help automate the data-collection effort and streamline collaboration and data reporting. Best-of-breed and specialty players like Enablon, Hara, Enviance, Johnson Controls and Enterprise Carbon Management offer enterprise software platforms that handle carbon accounting, among other areas. Consultancies like Clear Green Advisors and Clear Carbon Inc. are available for one-off engagements, and a variety of sites like Open Eco and The Climate Registry offer free tools and resources to tackle carbon accounting on a small scale.

Enterprise software vendors like Computer Associates and SAP are also staking claims in this nascent market, which -- according to a report released in 2010 from Pike Research LLC -- grew 84% globally, representing a total market of $384 million. As a result of its acquisition last June of Clear Standards, SAP now offers SAP Carbon Impact, an on-demand carbon management solution, which is part of its broader sustainability software suite encompassing offerings around performance management, sustainability analytics, risk management, environmental, health and safety (EHS) management, and green IT. With Carbon Impact version 5.0 slated for delivery in July, carbon management as part of a broader sustainability initiative is a business practice that is here to stay, according to Peter Graf, SAP's chief sustainability officer.

"You can't ignore this -- it's becoming a mandatory thing," Graf said. "This movement is fundamental and will have the same longevity as globalization or the use of the Internet in business. It's happening and it's inevitable."

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