In a paper entitled “Corporate Carbon Performance Indicators,” Hoffman and Busch (2008) make the case that carbon measurement is not comparable across firms:
Different synonyms abound for the same underlying indicator, the same synonyms are used for different underlying indicators, system boundaries vary among scopes 1–3, and carbon intensities are only based on carbon outputs, not on carbon inputs. This makes it very difﬁcult for external stakeholders to compare the carbon intensities of different companies.
They propose a new “comprehensive and systematic” framework based on physical units (important to policy makers) and monetary units (important to financial markets):
- Carbon intensity: physically oriented; a company’s carbon use in relation to a business metric.
- Carbon dependency: change in physical carbon performance within a given time period.
- Carbon exposure: ﬁnancial implications of using and emitting carbon.
- Carbon risk: change in ﬁnancial implications of carbon usage within a given time period.
Using the framework and focusing on only Scope 1 and 2 emissions (due to complexity of Scope 3), the authors compare two companies that start at the same place but take different actions. The result? At least in this illustration, taking advantage of government subsidies for renewable energy (company B) can have a significant effect on lowering carbon risk versus internal process improvements (company A) – by a factor of 6.
The idea of focusing on environmental and financial metrics – consistent with the BAO framework that I developed – keeps both sets of stakeholders front and center. This idea could easily be embodied in software that provided scenario analyses with static and dynamic dimensions.