Real questions businesses ask about See Through Carbon’s accurate, free-to-use, open and transparent carbon reporting ecosystem

What follows is a list of questions See Through Carbon has been asked, frequently, by various entities – businesses, carbon experts, academics, small business owners and ordinary people – since the launch of the See Through Carbon website in September 2023.

They are presented here in sequence, but will form the basis of an interrogatable set of FAQs on the See Through Carbon website, due to be updated shortly to reflect all the progress over the past year.

What we’ve learned is there’s a huge range of expertise on the topic of carbon reporting, even among those you might assume to be well-informed. In storytelling terms, this means people start on different chapters of the story, and some are reading a completely different book. 

This makes it challenging to construct a linear narrative that will satisfy all readers. The questions are arranged in three broad categories – Ecosystem, Carbon Reporting and Scope 3.  Feel free to skip, skim, scan and select whatever is new or interesting to you.

Ecosystem

Why an ‘ecosystem’?

See Through Carbon is an ecosystem in various metaphorical and technical senses. 

Broadly speaking, STC does not set out to be an individual agent, like a species/ business. Instead, it seeks to create a carbon reporting environment that will allow any entities involved in carbon reporting to thrive.

What kind of ‘ecosystem’ is See Through Carbon?

See Through Carbon combines characteristics from a range of proven ecosystem models, including:

• Tech: the tech industry has embraced the model described in Leadership and Strategy in the Age of Business Ecosystems (James Moore, HarperBusiness,1996).
• Computing: Linux is an open-source software that has created an ecosystem permitting businesses to thrive (e.g. the $3Bn+ business Red Hat).
• Information: Wikipedia’s transparent protocol for any user to query, contest or improve any entry effectively crowdsources quality control. Contributors offer their expertise for free because they know the platform is not monetising their voluntary contributions, and believe it contributes towards a collective good.
• Policy: The UN’s Sustainability Development Goals (SDG’s) form the foundations of  many government, NGO and business policies. Other examples of codified principles creating an ecosystem include religious scriptures, national constitutions, and other lists of rights/duties.

Why does carbon reporting require a new ecosystem?

Voluntary carbon reporting doesn’t, and probably can’t, meaningfully address increasing greenhouse gas emissions, the problem it was supposed to solve.

Decades of voluntary self-regulation have resulted in a patchwork of competing carbon reporting regimes, mostly based on offsetting schemes that require big businesses in the Global North to pay a small sum of money to nominally reduce emissions in the Global South. 

This has created a trillion-dollar carbon trading industry that has coincided with steeply-rising emissions. 

Proponents of the current voluntary system, funded by offsetting, insist it’s fixable. Thirty years of rising emissions suggest otherwise.

How has voluntary reporting failed?

The voluntary system’s four key failures can be summarised by the acronym ‘ICOP’:

• Inaccurate: principally not counting all of an entity’s carbon liabilities and/or offsetting any reported emissions via flimsy, spurious or fraudulent ‘offsetting’ schemes.
• Costly: carbon accounting and consultancy is only available to businesses large enough to afford such services. The OECD estimates that big enterprises (250+ employees) only account for around 30% of total business emissions, in which case we’re not even measuring the other 70%.
• Opaque: voluntary self-regulation has made key carbon reporting mechanisms invisible, multiplying opportunities to game the system. Businesses view their carbon footprints as discretionary PR opportunities, rather than the compliance obligations. Commercial carbon accounting standards competing in a crowded market, don’t reveal their workings. Carbon consultants are obliged to treat their clients’ carbon footprint data as commercial secrets.
• Proprietary: a market based on competition incentivises all parties to protect their assets. Commercial standards hide their methodological IP in black boxes. Businesses keep carbon reports for internal eyes only. Data and energy conversion factors are concealed behind paywalls. This patchwork of competing, discrete sub-systems is unfit for the purpose of collective carbon-reducing action.  

As details of these failings are exposed, companies that use them become more vulnerable to accusations of ‘greenwash’.

What are See Through Carbon’s defining features?

The core principles are summarised in the acronym ‘AFOT’:

• Accurate: an effective carbon reporting ecosystem must measure an entity’s carbon footprint as precisely as possible within available resources and science, by applying a consistent methodology across as many different locales and sectors as possible. The system must close loopholes, reward compliance, and deter evasion, inaccuracy or fraud.
• Free: for maximum benefit, any ecosystem must be free at the point of use. Regulation alone won’t guarantee universal uptake if the cost barrier is too high.
• Open: minimal barriers to any entity benefiting from this ecosystem. Experts should be able to see, test, verify, and publicly query the ecosystem’s methodology and data.
• Transparent: for rapid emissions reduction, carbon reporting data must be transparent by default, just as corporate annual reports are publicly visible.

Will See Through Carbon provide anything more than a code of conduct?

Yes. See Through Carbon is developing a universal public database that makes any participating entity’s carbon footprint and emissions history public by default. 

Details of See Through Carbon’s seven Pilots, focused on specific sectors, locales and technical challenges, can be found here. Data and experience from the Pilots is informing the development of a scalable, secure, interrogatable, open database.

The larger the database grows, the more entities can benefit from the ecosystem it creates.

Who gains from a See Through Carbon ecosystem?

Like any ecosystem, See Through Carbon incentivises individual entities to develop mutually beneficial (symbiotic) relationships. In the evolving environment of carbon reporting, the main entities are:

• Governments: the rule-makers, will be able to quantify, track, audit and verify progress towards their own emission reduction commitments, and hold other jurisdictions to account for theirs.
• Businesses: the rule-takers (NB most current legislation distinguishes between ‘Big Businesses’ and their SME supply chain), will be confident that their reports will be compliant with the current and future carbon reporting regimes. 
• Consultancies: the rule-interpreters, will have access to a rich, reliable, auditable database to accurately calculate their clients’ carbon emissions.

How will governments, businesses and consultancies benefit from a See Through Carbon ecosystem?

• Governments benefit because it facilitates their carbon reporting regimes. 
• Businesses benefit because it enables them to comply with new regulations. 
• Consultancies benefit because it permits them to help businesses submit  accurate, auditable, verifiable carbon reports.

Does such an ecosystem presume all parties share a goal of measurable carbon reduction, rather than ticking regulatory boxes?

No. It is designed to create an environment that no longer depends on any presumption of benign intent, goodwill or philanthropy.

Simply put, See Through Carbon seeks to treat carbon at least as seriously as we treat money. Tax-collection regimes do not require goodwill, merely compliance.

Carbon Reporting

Are all businesses equal when it comes to carbon reporting?

No. Current carbon reporting regulation tends to distinguish between ‘Big Businesses’ and Small and Medium Enterprises (SMEs). 

Different reporting regimes have different Big Business/SME boundaries for reporting purposes. Most follow the OECD definition of a Big Businesses as having 250+ employees, and an SME as having 1-249.

Why does the distinction between Big Business and SMEs matter?

For global heating, it doesn’t. Whether a greenhouse gas molecule is released by a major multinational, or tiny family business, it still obeys the laws of atmospheric physics.This is also true of CO2 molecules released in rich or poor countries.

For carbon reporting, the distinction is critical. The OECD estimates that Big Business generates only 30% of total business emissions. This means that even if we were accurately measuring 100% of all Big Business emissions alone, we’d be missing the 70% generated by SMEs.

The distinction between Big Businesses and SMEs underpins the ‘Scope 3 Conundrum’ (see below).

Why don’t governments require SMEs to report their emissions too?

Given the inadequacy of the current voluntary reporting regime, governments recognise the impracticality of requiring all businesses to immediately have the capacity to submit accurate carbon reports.

Most start with the big businesses, but signpost staggered timelines for smaller businesses to fall under the same reporting regime, in order to give them time to get ready.

This creates a tension (see ‘Scope 3 Conundrum’ below). In order to report their entire carbon footprint, businesses must include the emissions generated by their supply chain, and those generated when their products are disposed of. 

Carbon accountants define this as ‘Scope 3’, but without a functioning ecosystem that facilitates the sharing of public data, they must use unreliable estimates based on inadequate information, AKA ‘wild guesses’.

What is ‘Scope 3’?

Scopes 1, 2 and 3 are technical categories defined by carbon accountants. For novices,this article and video cover the basics, but broadly speaking:. 

• Scope 1 covers the direct emissions your business generates (‘what happens in your factory/office’).
• Scope 2 covers the indirect emissions that enable your business to operate (‘the utilities, usually power and water’, you use in your factory/office’).
• Scope 3 covers all the other emissions that would not have occurred if your business didn’t exist (‘the embedded energy in the goods that arrive at your factory/office, and the greenhouse gases released when your product is disposed of’).

Isn’t reducing carbon more important than measuring it?

Yes, but accurate, universal, consistent reporting, collated into a public database, is a necessary precondition for any meaningful carbon reduction. We already know what happens without such an ecosystem.

To manage something, you must first measure it, and we’re currently nowhere close to even accurately and consistently measuring baselines from which to track any reduction.

What about businesses that have already been certified as ‘carbon neutral’? 

Almost no current businesses are really ‘carbon neutral’ when subjected to rigorous carbon reporting analysis. Such claims are only possible under voluntary reporting schemes that permit: 

• not counting all real-world carbon liabilities (see Scope 3) 
• ‘Offsetting’ emissions with third-party carbon credits

Why would a certified ‘carbon neutral’ business switch to a system that assigns them a large carbon footprint?

1. Legal compliance: legislation like the EU’s CSRD, the UK’s Carbon Reduction Plan requirements, or Singapore’s Carbon Tax law close many loopholes developed under voluntary schemes. Critically, they require inclusion of Scope 3, set far higher bars for any ‘offsetting’ credits, and enforce specific fines/penalites for non-compliance.
2. Regulatory Risk: the longer companies rely on voluntary-era certifications, the greater the re-adjustment required when they fall under any mandatory regime. 
3. Reputational Risk: ‘buying’ carbon-neutral certifications from increasingly discredited offsetting schemes is turning what was meant to be a reputational asset into a substantial reputational liability. Early adoption of an accurate carbon reporting methodology that reflects physics, rather than PR expediency, is the best possible hedge against future reputational damage.

Why shouldn’t my business just wait and see?

Whatever their personal view about climate change, most businesses prioritise shareholder interest and the bottom line. 

Like any other new regulation, businesses assess tighter carbon reporting rules to calculate the lowest-cost way to meet the minimum requirements for compliance.

Because every business generates carbon, this pragmatic ‘wait and see’ approach is the norm. Doing nothing, monitoring events and hoping for the best is often a rational business strategy. 

In the case of carbon reporting, however, inaction carries certain risks (and denies many opportunities) in the event the climate doesn’t fix itself in our lifetimes.

How should I calculate whether to change my company’s carbon reporting system?

With rapidly-changing regulatory environments, both between and within jurisdiction, there’s no definitive answer. 

Variable factors include the size, location, and applicable carbon reporting regimes for your business. 

Also critical is the weight any company assigns to a convincing ‘green’ reputation. Public-facing B2C businesses may find this more important than B2B businesses. But many B2B businesses are also facing pressure from investors, insurers, courts and the public to ‘clean up their acts’. 

Most companies only change their carbon reporting systems when it becomes mandatory, but in a fast-evolving environment, ‘wait-and-see’ carries risks. As well as keeping an eye on the law, companies must consider the reputational risks of inaction, and the likelihood of carbon reporting becoming more stringent. 

The reality is that almost no current businesses are really ‘carbon neutral’. Such claims are only possible under voluntary reporting schemes that permit: 

• not counting all real-world carbon liabilities (see Scope 3) 
• ‘Offsetting’ emissions with third-party carbon credits

Scope 3

Why am I reading so much about ‘Scope 3 Compliance for Businesses?

Governments have made increasingly clear commitments to carbon reduction. In order to demonstrate their own compliance, they are now passing on the burden of granular measurement, auditing and verification down the food chain, in the form of mandatory carbon reporting.

Voluntary, or self-regulated carbon reporting, has failed, so governments are passing laws that regulate reporting much more strictly and signpost an increasingly onerous mandatory regime over the coming years.

Many governments, industry bodies and carbon consultancies are alerting businesses to this rapidly-changing environment, which you may have heard in the form of ‘Scope 3 for businesses’, or ‘Preparing for CSRD compliance’.

What’s the ‘CSRD’ and why does it matter?

The EU’s Corporate Sustainability Reporting Directive (2023) marked a significant departure from the era of voluntary carbon reporting. 

The world’s largest single market now requires any business trading within its borders to accurately report its carbon footprint, including Scope 3.

The Directive sets out a timeline for different scales of business, and industries, starting with the largest, and a tariff of penalties for non-compliance.

How urgent is CSRD compliance?

The urgency of any individual business’s compliance depends on factors such as its scale, location and industry. 

The Corporate Sustainability Reporting Directive sets these factors out in some detail. It makes clear there is only one – increasingly stringent – ‘direction of travel’ for corporate carbon reporting, so how business owners respond to the CSRD is largely determined by their own risk assessment, and degree of familiarity with EU regulation. 

• Competent owners are ensuring their businesses are compliant. 
• Prudent owners are ensuring they are aware of the timing and minimum requirements for any future compliance. 
• Publicity-sensitive business leaders are calculating the risk/reward to sticking with claiming to be ‘carbon neutral’ via discredited offsetting vs. publicly acknowledging their true carbon footprint. 
• Thought-leader business owners are assessing the reputational first-mover advantage of being the first to get ahead of the game.

My carbon consultants say they can make my business’s carbon reporting compliant with new regulations – are they wrong?

They’re correct in the sense that almost no businesses are currently compliant with the letter of the law. 

This is because there’s currently no tool available to enable accurate Scope 3 compliance, due to the ‘Scope Three Conundrum’ implicit in new mandatory regulations.

Like many landmark statues, mandatory carbon reporting regulations like the EU’s CSRD specify a requirement without addressing how to fulfil it.

Much as California has for decades been informing carmakers that they will not be permitted to sell vehicles with tailpipe emissions, without detailing the technology by which they are expected to do so, the EU’s Green Deal in general, the CSRD in particular gives little guidance on how its reporting requirements are to be met.

What is the ‘Scope Three Conundrum’?

The CSRD, and other such laws, create a ‘Scope Three Conundrum’, summarised in three statements, irreconcilable using current tools:

• Big businesses are required to accurately report their Scope 3
• Their Scope 3 is largely made up of their share of the emissions of their SME supply chain
• SMEs are not yet required to accurately report their carbon emissions

The only solutions currently available are the legacy tools created by voluntary self-regulation. 

These can only offer ‘wild guesses’ based on inaccurate or non-existent data.

Can’t AI solve the Scope 3 Conundrum?

AI, often a useful tool when interpreting large, complex datasets, is of limited use in the absence of a reliable data training set.  Available data is particularly weak when it comes to Scope 3

A public database like the one being developed by See Through Carbon’s would create such a training set, enabling different commercial parties to benefit by analysing it, and using it in combination with their own tagging systems to train their AI solutions.

How can See Through Carbon solve the ‘Scope Three Conundrum’?

See Through Carbon removes four major obstacles to accurate, verifiable, auditable Scope 3 reporting. 

All four concern the paradox that in order for big businesses to comply with their legal obligation, they need the cooperation of their SME supply chain, for whom it is not (yet) an obligation:

• Cost: free to use. The only ‘cost’ to the SME is the time taken to fill in a form, much less complex than a tax form. For most businesses, this may take less than an hour.
• Compliance: even if they are not yet legally required to submit carbon reports, SMEs will be soon.
• Commercial advantage: if your big business customer is not yet making reporting your SME’s carbon footprint a contractual obligation, helping them meet their compliance obligations gives an SME a competitive advantage over rivals that don’t. If/when your big customer does decide to make carbon reporting a contractual condition, your SME will be prepared.
• Commercial protection: calculating the proportion of each supplier SME’s carbon emissions to assign to each customer’s Scope 3 requires the big business to list its SMEs suppliers, and for the suppliers to reveal how much of their business (on a revenue basis) each customer represents. Both are commercially sensitive but unrelated to carbon emissions per se. See Through Carbon acts as a trusted 3rd party for such information, which it will reveal only to auditors if they ask. It will only make public the aggregate carbon emissions for each big business, and has no need to publish the customer list for the SMEs.

My business currently advertises itself as ‘carbon neutral’. Won’t it look bad if we suddenly ‘admit’ we have a large carbon footprint?

This is the biggest challenge facing big businesses currently claiming to be carbon neutral under the laxer rules of voluntary reporting. Deciding when to drop such public claims is a matter of timing, dependent on each company’s own risk/reward analysis.  

The longer a company claims to be ‘carbon neutral’, the greater the reputational damage when regulations require it to report otherwise.

The sooner a business adopts a reporting methodology that reflects physics, rather than PR, the more secure its hedge against future regulatory tightening, and the greater its potential reputational gain of early adoption while competitors are still practising greenwashing. 

Most SMEs have little reputational downside, as few have been able to afford the cost of the offsetting that enables such ‘carbon neutral’ claims. 

For them, adopting See Through Carbon only has reputational upside.

Won’t publicly reporting my business’s true carbon footprint risk financial penalties?

If your business does not yet fall under any mandatory regime, you can continue to report whatever you feel comfortable with. 

In the short term, finer risk/reward calculation depends partly on the nature of your regulatory environment, fundamentally whether they’re ‘carrot’ or ‘stick’

What’s the difference between ‘carrot’ and ‘stick’ regulations for my business?

Many lawmaking bodies, like the EU’s CSRD or the UK’s Carbon Reporting Plan, favour ‘carrot’ approaches that reward relative carbon reduction, irrespective of the absolute volume of ‘baseline’ emissions from which they’re calculated.

Others, like Singapore’s Carbon Tax, favour ‘stick’ approaches. By taxing a fixed amount per tonne of CO2 equivalent emitted, they punish big emitters. The bigger the absolute number reported, the bigger the tax paid.

Both approaches, however, adopt the mandatory approach used for financial reporting, with  penalties for non-compliance, requirements for 3rd-party auditing, and stipulations for what carbon liabilities must be included, and what assets can be offset.

Apart from any external compliance considerations, businesses must also weigh the internal/governance risks of not complying with the law.

Can I buy carbon credits to offset my business’s emissions?

Voluntary schemes permit carbon credits. Most mandatory schemes either don’t, or impose significantly more onerous requirements on permissible offsetting.

The purpose of carbon reporting is not to accurately document the rise in our collective carbon emissions, but to set a reliable baseline from which to systematically reduce them.

Carbon offsetting has proved attractive to businesses seeking to continue business as usual at the lowest regulatory and reputational cost. After 30 years, their basis remain technically, scientifically, practically and morally weak. As offsetting schemes are exposed as being ineffective, or even fraudulent, major multinationals are increasingly dropping them, as they turn into reputational liabilities.

Your business’s particular regulatory environment may permit you to remain compliant in the short term by buying carbon credits and claiming to be carbon neutral. 

What are the risks of using carbon offsetting?

Each business has to make its own risk assessment of the pros and cons of persisting with carbon offsetting, and whether it represents prudent corporate governance.

The main factors to consider are your business’s regulatory and public opinion environments. If you believe your business can continue to be both legally compliant, and publicly credible while using such schemes, it will cost  you a relatively small sum of money to continue business as usual.

This position is reasonable so long as:

1. The regulatory environment governing your business doesn’t change
2. Your shareholders, investors, colleagues, employees and customers remain convinced you’re not greenwashing
3. a currently-unimagined ‘silver bullet’ solution emerges that renders carbon reporting obsolete 
4. The climate crisis fixes itself