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According to polls, it was mid-March when most of us in the United States understood the severity of COVID-19. At the same time, we collectively were searching for data to drive lifesaving decision-making. Close all business and keep people inside homes? Or allow some degree of freedom? What would be the exact growth curve of virus cases, and most important, how could we flatten it? By early April, a consensus had emerged around the role of accurate data, even if it could not help contain a first wave of infections.

This lesson on the importance of actionable data did not go unnoticed for those of us working on industrial decarbonization. With growing consensus on the gravity of the climate crisis, countries and companies are adopting carbon reduction targets. If we are to learn from the pandemic, there’s one critical element for any effort to have a chance of success. Less catchy than a target reopening date, and perhaps more like an immunologist telling you to get tested: Do we have the right data to act upon?

Pressure is growing to take action

The question is relevant because there is mounting pressure to take action against the climate crisis. Pressure to make emissions visible has been around for a while: Consumers want to know how much carbon is embodied in the products they buy. Investors are concerned about the viability of long-term assets in high emissions sectors at risk of being hit by negative policy or market developments.

For example, one chocolate bar could emit as much as 7 kilograms of CO2, equivalent to driving 30 miles in a non-electric car. Alternately, if the cacao is grown alongside agroforestry or reforestation, the same bar could have zero or even negative emissions via the trees removing carbon dioxide from the atmosphere. If consumers knew the difference, would they pay a premium for the climate-smart chocolate?

A company’s financial accounts are used to make reasonable decisions about how that company will do in the future. Alas, to date the same isn’t true of carbon performance.

This year, Larry Fink, CEO of BlackRock, the world’s largest asset management company, made thundering news in his annual letter to investors, touting, “The evidence on climate risk is compelling investors to reassess core assumptions about modern finance.” Since then, the asset manager backed two proposals at the annual general meetings of both Chevron and Exxon, related to the manner these companies conduct themselves in relation to Paris Agreement targets.

Earlier in the year in Australia, investors at both Woodside Petroleum and Santos passed annual general meetings motions to adopt a “Scope 3” (indirect emissions) reduction target. This trend of shareholder and consumer scrutiny has strengthened in recent months, and most S&P 500 companies — in fact, 70 percent of them — already make climate-related disclosures to the reporting platform CDP (formerly the Carbon Disclosure Project).

Translating demands into dollars

Yet, to date, there is no way to exactly translate these demands for action into dollar figures. You walk around trade conferences (or, more likely these days, Zoom workshops) and everyone is asking: What’s the premium that a consumer is willing to pay for low-carbon products? Is a bank really willing to decline loans for an investment that fails to fulfill certain sustainability standards, for example as pledged by the 11 global banks that signed the Poseidon Principles for shipping finance in 2019? If the European Union agrees on a border price for carbon, what should it be? All of this pricing talk begs the question: How can we have such discussions without clear metrics that everyone can stand by?

A company’s financial accounts are used to make reasonable decisions about how that company will do in the future. Alas, to date the same isn’t true of carbon performance.

For a start, while financial accounts are reported via one of two standards — U.S. Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS) — a variety of methods can be used for carbon accounting (CDP accepts 64 of them). While financials make the performance of a chemicals company comparable to an iron ore miner, the carbon accounting metrics differ in a way that is difficult to reconcile.

This becomes a problem for an automotive company, which needs to combine the performance of both to make an accurate declaration about the carbon content of a product that has over 30,000 parts. It is also a challenge for a fund manager who needs to combine stocks of different sectors, and has a fiduciary duty to use financially material metrics to do so; or for a commercial banker who lends money to different asset classes, and needs to determine the amount of “climate risk” involved in each investment decision.

From the perspective of the climate crisis, we still haven’t figured out how to attribute the right price to something nobody can see, such as the amount of noxious gases emitted by a factory in a land far, far away.

Remember the core of the coronavirus debate: The number of confirmed cases are better known than the total number of cases. This uncertainty generates debatable data, upon which it is difficult to make decisions that will have an enormous impact on the destiny of societies.

From the perspective of the climate crisis, we still haven’t figured out how to attribute the right price to something nobody can see, such as the amount of noxious gases emitted by a factory in a land far, far away. And if the cost of those gases to a community and ecosystem isn’t clearly visible, conversely, how can we measure good interventions so that investors feel confident to put their money toward them?

This is particularly ironic because market demand for product sustainability creates a win-win situation for everyone involved: make a plan to increase product sustainability, shape the world to be a better place. In most cases, low-carbon technologies are either readily available, such as in the case of low-carbon electricity and carbon-neutral concrete, or less than a decade away, such as hydrogen-based trucking. But if it’s so easy, why isn’t it happening? And most importantly, what needs to happen?

Harmonizing the efforts

The current ecosystem of reporting is built on bottom-up efforts that are not harmonized. The previously mentioned CDP has a large database of disclosures. The Taskforce on Climate-Related Financial Disclosures (TCFD) has a widely adopted set of metrics that companies use to report (including to CDP). The Sustainability Accounting Standards Board has — you guessed it — standards solid enough to guarantee “financial materiality,” that is, to allow the analyst in the above example to “buy with confidence” when making investment decisions based on sustainability. The Science-Based Targets Initiative promises to take all this to the next level and link carbon disclosures to the trajectories that companies need to undertake in order to comply with the Paris Agreement.

Companies that need to report emissions lament that this is too complex or that it doesn’t allow apples-to-apples comparisons due to discrepancies in the way different methods prescribe calculations. Investors lament that they can’t base financial decisions on current metrics, because they aren’t reliable or standardized. Consumers still have to see eco-labels that are truly credible.

It is imperative that emissions accounting shifts from a notion of disclosures (a still image of current emissions) to climate alignment, a forward look into a company’s future emissions.

As confusing as it sounds, the good news is that between existing methods, standards and platforms, the elements of a functional system do exist. Despite the gloomy portrait that we often read in the news, of a humankind sleepwalking toward climate disaster due to a selfish inability to act together, this ecosystem actually represents a wonderful testament to the ability of society to recognize a challenge and address it.

The importance of climate alignment

A few years ago, the Smart Freight Center introduced the Global Logistics Emissions Council (GLEC) Framework, creating a common guidance for logistics companies to report in a unified manner. The GLEC Framework is a guidance that specifies how disclosures need to be made in each of the existing methodologies and platforms. Once a company discloses according to the GLEC Framework, analysts will be able to compare a disclosure made for different purposes using different methods, and trace back what it actually means. It is urgent that this expand to supply chains at large.

It is also imperative that the emissions accounting focus shifts from a notion of disclosures (a still image of current emissions) to climate alignment, a forward look into a company’s future emissions. With unified and simplified standards, companies will be able to be easily ranked based on their actual and projected contribution to meeting the Paris Agreement, thus keeping climate change at bay.

Why do this? To reap the benefits of being in sync with what stakeholders request more and ever louder. This is only wise, considering that not even a global pandemic and looming economic recession has silenced these requests. According to a recent Deloitte report, 600 global C-suite executives remain firmly committed to a low-carbon transition. They are perhaps finding opportunity in shifting from risk and need clear data to make their decisions.