Friday, July 30, 2010

It's Time to Give Up Spreadsheets for Tracking Carbon Emissions

CFOs, CIOs and sustainability teams at large companies have used spreadsheets for years to track corporate carbon emissions. We are now, however, at a tipping point where the benefits of carbon management software, also known as enterprise carbon accounting (ECA) software, outweigh the benefits of spreadsheets.

With many large companies recently completing their Corporate Social Responsibility (CSR) reports and Carbon Disclosure Project (CDP) questionnaires and entering budget planning in the fall, it is time to move away from spreadsheets to reduce risk, save money, increase productivity, and establish an enterprise-class source of record for carbon emission data.

Investors and Top Customers Demand High Quality Carbon Emission Data

The calculation and reporting of carbon emissions today is a standard, mainstream business process and needs to be treated as such. The majority of Fortune 500 companies now publicly report carbon emissions via their website and registries such as CDP, and companies that don't are viewed as laggards.

Regulators, such as the Securities and Exchange Commission, and investor advocacy groups, such as Ceres, are demanding more accurate data. Meanwhile, emission data submitted to the CDP is widely available to investors through Bloomberg terminals and Google Finance. Financial accounting groups, including the Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB), are debating carbon emission disclosure standards and approaches, which will likely become a future requirement.

Investors are ever more insistent that reported environmental data have the same rigor and processes of reported financial data. Leading companies, including BASF Global and Novo Nordisk, already report with fully integrated financial and non-financial information, both of which are supported by rigorous data, control, and auditing processes. Other companies treat voluntarily reported carbon data with same transparency as financial data. El Paso Corporation, for example, issued a press release to correct an error in its voluntary submission to the CDP.

Companies are finding their top customers, such as Bank of America, HP, Procter and Gamble, and Walmart, asking for carbon emission data and, in some cases, scoring their processes against competing suppliers.

Large companies simply cannot afford the brand and image risk of incorrectly reported emission data to these important stakeholders.

7 Major Problems with Spreadsheets

Spreadsheets allow a single user to enter, manipulate, analyze and visually represent numerical data with great flexibility. It can also be easily distributed via e-mail or a network-accessible location. Without a content management system to coordinate and track changes from multiple sources, however, spreadsheets quickly becomes unwieldy and error-prone.

Problems are compounded when a spreadsheet becomes so complex that only the original author can make required fixes and improvements. This leads to the "spreadsheet guru" -- the irreplaceable employee who is the only person in the company who understands the 15MB spreadsheet.

As carbon data collection and reporting needs increase, spreadsheet disadvantages become more acute and lead to additional labor costs and frustration when coordinating changes and updates. The major problems of spreadsheets include:

1. Lack of proper documentation and audit trails
2. Propensity for errors, especially without proper cell protection and lack of validation and testing of spreadsheet formula and macros
3. Difficulties in reconciling year-to-year data sets
4. Poor tools for creating and enforcing data ownership, including global standards for asset types and energy usage
5. Inability to generating real-time reports and read-only views across the organization
6. Difficulties obtaining ad-hoc reports and analysis for numerous internal and external stakeholders
7. Difficulties in managing and sharing large files

These problems are compounded by sporadic backup processes and high training cost if or when the spreadsheet guru leaves.

Moreover, spreadsheets hamper sustainability team effectiveness. Sustainability team members with responsibility for the carbon emissions file spend an inordinate amount of time managing this spreadsheet. These activities include gathering, correcting and inputting data, reconciling current emissions with emissions from previous years and baseline calculations, and creating custom reports by country, division, product line or customer.

Team members should focus on communicating and educating stakeholders about sustainability plans and identifying reduction efforts, not draining time as spreadsheet monkeys.

To reduce risk when using spreadsheets, firms must spend more money on labor, either with its employees or outside consultants. The good news is that this does not need to be the case.

Numerous Cost-Effective Software Solutions Are in the Market

The market for carbon management or ECA software has been emerging during the past few years. Our research shows that more than 75 companies now offer a solution, including a handful of leaders. Many of these solutions more than adequately meet customer needs and are cost effective.

Sustainability teams need to educate the CFO and CIO about the importance of good carbon management processes and tools and to develop budget requests for software investment during the upcoming fall budget season.

This summer too many hours were spent on managing spreadsheets for CSR and CDP reports for this important, and now mainstream, business process. Better solutions now exist.

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