Five Reasons Why Carbon Management Software is the Next Big Thing

A new liability is coming onto the collective balance sheet of companies around the world: Carbon.

In the context of increasing awareness of the business and societal risks of climate change, corporate carbon emissions (and the energy consumption that creates them) are becoming a crucial indicator of business performance. And a new type of software platform, enterprise carbon and energy management (ECEM), is emerging to enable companies to monitor, manage, and report corporate carbon emissions, as well as the energy consumption which is their principal source.

Companies have long used software systems to track and manage the movement of assets around the company -- people, money, parts and finished goods, and other hard assets like IT systems or furniture. Enterprises buy and maintain sophisticated systems to manage employees (human capital management [HCM]), customers (customer relationship management [CRM]), financial accounting and auditing, materials and finished goods (enterprise resource planning [ERP]), and IT systems and network management.

Now, ECEM systems are poised to join this list of backbone enterprise software systems. Adoption is driven by managers' desire to:

  • Improve operational efficiency. Reducing energy consumption and related emissions requires running company operations more efficiently. Very simply, lower energy consumption means lower energy bills either per unit of output (relative terms) or in total (absolute terms).
  • Communicate business metrics to stakeholders. A company's carbon footprint, reduction targets, and progress toward those targets are becoming standard business metrics that the firm must regularly communicate to constituencies including customers, shareholders, employees, and regulators.
  • Differentiate operations, product, and brand. Progressive companies have seized on carbon management and aggressive reductions in emissions as a central element of their brand positioning with consumers.
  • Comply with regulatory mandates. Governments around the world are stepping in to regulate where business and customer pressure is not sufficient to encourage corporations to act on carbon emissions. So large companies -- especially heavy-emitters -- are facing implementation in 2010 and 2011 of regimes like the UK's Carbon Reduction Commitment (CRC) and regulation from the US Environmental Protection Agency (EPA) under the aegis of the Clean Air Act.
  • Mitigate the business risks of climate change. Companies are increasingly cognizant of the material business risks that a changing climate will cause (for example, disruption of raw materials supply) and incorporating such risk assessments into their planning and investment plans. In the U.S., for example, the Securities and Exchange Commission (SEC) now requires companies to include assessment of climate change risks in their financial reporting.

To meet these goals, companies need systematic processes that are instantiated in software systems. Retracing the evolution of other process-management software systems, companies are finding that ad hoc activities documented in spreadsheets no longer meet their requirements.

They need a true system of record that cuts across operational or functional silos, taps into multiple asset classes and data sources, creates structured databases of auditable information, analyzes and displays information in a role-sensitive manner, and provides return paths to the assets to enable action and management (see Figure 1 for a high-level sketch of ECEM system architecture).

Figure 1