Full Disclosure: The Power of Accounting, Reporting Software, and Carbon Transparency

(The following is a guest post by Hunter Richards, an accounting market analyst at Software Advice, which reviews project-based accounting software and other systems. This is a coffee industry-focused adaption of a previous article on carbon accounting and greenwashing which you can read here.)

Greenwash (verb, \ˈgrēn-wȯsh\) – to market a product or service by promoting a deceptive or misleading perception of environmental responsibility.

To capitalize on consumer interest in sustainability, companies have been launching major ad campaigns to promote eco-friendly products – but these claims are often misleading. General Motors, , dabbled in greenwashing in 2007 to promote its Chevrolet Volt. One commercial showed the Volt in a natural scene surrounded by starry-eyed children who delighted in the claim that it was entirely electric. But this statement bent the truth. In actuality, a gasoline engine would turn on to power the electric motor when the Volt’s batteries ran low. GM claimed that the car could still be called electric because its gas engine only supplied power to the electric motor, and not the wheels. Bending the truth with a questionable technicality is classic greenwashing. Greenwashing threatens the credibility of environmental marketing and turns green consumers into skeptics. So how can we more clearly spot greenwashers and put an end to the telling of green half-truths? Transparency is the key, and carbon accounting makes it possible.

Accounting technology might not seem at first glance like it has anything to do with environmental sustainability. But a new type of accounting software for carbon emissions could provide the standards and clear measurement methodology needed to assign a quantifiable value to a company’s environmental impact. It’s often said that to manage something, you must be able to measure it first. Just like financial accounting, the development of sophisticated carbon accounting infrastructure could improve transparency and make it more feasible for businesses to manage (and hopefully reduce) their carbon footprints. It could enhance the abilities to meet regulations more efficiently, spot eco-friendly savings opportunities, and keep customers informed about emissions. Requiring the disclosure of this information would lift the veil on companies who might otherwise be able to conceal their environmental impact. Enterprise Carbon Accounting (ECA) software is becoming the foundation of the necessary infrastructure. ECA software enables companies to utilize technology to more easily track their carbon emissions, avoiding the problems faced in the past when using cumbersome spreadsheets. When the software reaches its full potential, greenwashers will soon run out of excuses for not releasing their emissions figures.

For natural resource intensive industries like the coffee industry, ECA software can be a useful tool. Coffee businesses can use such software to measure their carbon impact continuously – as opposed to corporate social responsibility reports which do so only annually. Such software will allow companies to catch growing problems while they’re still small, and capture opportunities before competitors can.

Coffee houses stand to increase customer loyalty through ECA reporting as well. Carbon measuring software can help keep customers informed of eco-efforts being made by a business. Perhaps most importantly, ECA software can be the final nail in the coffin concerning greenwashing accusations. A coffee company which measures its environmental impact will always be able to back up environmental messaging and marketing with solid facts. Besides, a business that tracks its carbon impact on a continuous basis is less likely to commit greenwashing by accident.

For ECA software and environmental accounting adoption to drive truly green business practices by big coffee companies like Starbucks, action is needed in five main categories:

Clear government action on regulations, like increased coverage of the EPA’s Mandatory Greenhouse Gas Reporting Rule which requires companies that emit 25,000 metric tons or more of greenhouse gases annually to disclose emissions information to the EPA. Of course, even bold expansion of this regulation will be ineffective until adequate standards are agreed upon and enforced. GAAP and the International Financial Reporting Standards (IFRS) are standards for financial reporting; we need similar principles for environmental accounting to reach its full potential. The current most widely used set of international carbon accounting standards, the Greenhouse Gas (GHG) Protocol, is still maturing. When a business is required to disclose its carbon footprint according to broadly accepted standards, loopholes will close and we’ll be able to see who’s truly green and who’s just greenwashing.
Adoption of carbon accounting principles and stricter requirements for disclosure of standardized corporate emissions information would provide a far-reaching and objective method with which to examine a coffee company’s environmental record. At the current time, Starbucks only has an incentive to create an impression of sustainability – without necessarily being green overall. As a result, its lackluster recycling record matters less than it should because Starbucks can cite its other environmental efforts to distract the public, such as its goal to develop a recyclable cup by 2012. Is this goal sufficient? Is 2012 too late? Carbon accounting can answer questions like these by providing a measure of the goal’s benefit. With a holistic glimpse into the company’s carbon footprint, the priority of recycling depends directly on an objective measure of environmental damage which is easily comparable with other components of the business. If the emissions produced by disposal of these paper cups is significantly more damaging than other aspects of the company’s operations – which is highly likely – then it will show up in the numbers. Starbucks will feel more immediate pressure to address the most serious environmental concerns.
Expansion of “Scope 3” emissions accounting in environmental reports would prevent under-reporting of emissions. Scope 3 emissions refer to indirect sources not owned or controlled by a company, but which are necessary to make and distribute its products. To incorporate Scope 3, businesses will need to ask their suppliers to account for their own emissions; this will spread adoption of carbon accounting throughout the supply chain, accelerating the expansion of general corporate emissions transparency. Starbucks has been able to make positive environmentalist claims in recent years; for example, the company claimed that it lessened electricity use at its owned stores by 1.7 percent in 2009, compared to the previous year. But claims like these do not tell the whole story. Starbucks should be held responsible for its less visible emissions sources. We know nothing about the overall carbon footprint of Starbucks when it neglects to mention its suppliers, who could have increased their electricity use by a larger amount to offset any other reductions. Requiring carbon disclosure with Scope 3 emissions would force Starbucks to take responsibility for every action associated with its products. If the Starbucks supply chain has destructive amounts of emissions that offset this energy reduction, then the company is guilty of greenwashing.
Understanding of green business incentives through ECA software to identify eco-friendly savings opportunities can make it cheaper to truly go green, making it unnecessary for businesses to greenwash in the first place. One example is government-provided tax incentives for using efficient transportation with lower emissions. ECA software can develop to recognize these opportunities; this will more effectively encourage businesses to take advantage of direct opportunities to simultaneously trim emissions and lower costs. By placing green transparency and legitimate environmental initiative in the best economic interests of businesses, sophisticated carbon accounting technology and standards could make a lot of progress in rendering greenwashers obsolete.
Informed consumers who demand hard numbers from standardized carbon accounting reports, while boycotting the liars, forces businesses with green marketing campaigns to prove their sincerity – after all, fully informed consumers make deception by greenwashing impossible. We should demand that Starbucks track its emissions – the company hasn’t done so for several years, and last time its emissions were not disclosed. Starbucks needs to begin tracking their emissions regularly and disclosing them. Without opening up its carbon footprint to the public, Starbucks has no incentive to sincerely and aggressively pursue a green strategy that addresses the real environmental impact of its products.