Accountability comes for decarbonization: KPMG’s Climate Accounting Infrastructure
Are you really cutting carbon emissions?
Not a day goes by without a new sustainability announcement, whether an offering or an acquisition or a commitment to becoming carbon neutral by 202X. Last month McKinsey & Co. announced a new sustainability practice built on an early 2021 acquisition (of U.K.-based Vivid Economics), and earlier this month PwC made a splashy $12 billion commitment to bolster its environmental, social, governance (ESG) practice. As TBR begins assessing IT services vendors and consultancies on both their internal decarbonization commitments and the success or failure of their efforts to draw revenue from clients seeking their advice and solutions implementations around the same, one key focus will be demonstrable, provable, reliably reported and transparent metrics. In short, can you prove you’re as green as you say?
To that end, we’ve been intrigued by KPMG’s Climate Accounting Infrastructure (CAI) offering (detailed in TBR special reports KPMG: Fundamentally what blockchain does is digitize trust and Innovation delivered at scale shapes the course of KPMG’s next chapter as well as our Digital Transformation Blockchain Market Landscape). During the most recent KPMG analyst event, the firm provided further details about CAI, raising new questions for TBR, specifically around CAI adoption and broader climate and sustainability issues. At its core, the blockchain-enabled CAI offering enables clients in the real estate sector and in oil and gas to accurately measure and report their greenhouse emissions. CAI addresses numerous high-priority issues for companies, their employees, regulators and investors, such as transparency, clear and trackable metrics, and has the brand-backing of a Big Four firm, KPMG. So, why haven’t clients jumped onboard quickly?
According to KPMG, most clients’ relative immaturity with respect to ESG generally, and accounting for ESG commitments more specifically, has hindered faster adoption. “Many clients are still in the nascent stages of either formulating or integrating their strategies across the various climate imperatives: decarbonization, energy transition, climate risk, reporting, accounting for Scope 3 (value chain) emissions, etc. Many of our largest, and generally most sophisticated clients, are still putting their ESG infrastructure and processes in place — installing Chief Sustainability officers and their teams, understanding how to operationalize enterprise commitments like net zero, and publishing their first ESG report.” As every aspect of ESG matures, KPMG believes its clients will “understand the value of putting those operational strategies in the context of demonstrating progress toward the enterprise goals with reliable reporting.” We believe this boils down to simply being able to prove you’re as green as you say you are.
Compounding client immaturity, according to KPMG, is regulatory immaturity, which may improve during 2021 if the SEC announces climate disclosure requirements. TBR notes that for the real estate sector in New York City, which is no small sector, regulatory certainty already exists, likely providing some of the early CAI wins for KPMG.
An ecosystem play, from blockchain to data to OT
On broader climate issues, TBR’s recent focus on industrial IoT raised the question for KPMG about its efforts to partner with OEM and OT vendors on filling out the ecosystem around climate accountability. As KPMG is collaborating with physical instrumentation providers, the firm recognizes that “there is a complex, bidirectional road map from policy to data collection and then back. Right now, we’re focusing our efforts within CAI on the ‘data engine’ — the ability to take the physical data, extend/supplement it with enterprise and 3rd party (paid or public) data, and feed that into a robust calculation engine that translates that data into the metrics required for voluntary or compliance disclosures.”
KPMG’s sentiments echo what we heard in the research for our recently published Digital Transformation: IIoT Market Landscape, including this quote from an industrial solutions provider executive: “The other big one, and I want you to put a big red circle on your radar for this, is compliance … there’s a lot of compliance-related activity happening in automotive. There’s a lot of compliance-related activity happening in even your typical industries, from your fresh produce to all the way to lumber.” And we all understand that compliance equals data (or, maybe more accurately, bad data equals bad compliance).
TBR has been seeing increased activity from technology providers, key partners to KPMG, and others in the IT services and consulting ecosystem. Earlier this year, Microsoft updated its January 2020 Moonshot decarbonization initiative with plans to use 100% renewable energy in all data centers by 2025. As TBR said in its 1Q21 Microsoft report, “As part of a 1Q20 update to Microsoft’s Supplier Code of Conduct, entities must disclose their greenhouse gas emissions, which Microsoft uses to assign a tiered carbon tax.”
Similarly, TBR noted in its 1Q21 Salesforce report, “Salesforce launched Sustainability Cloud Scope 3 Hub, a platform that enables businesses to input data on supply chain emissions to better understand how to decarbonize. The platform allows clients to track historical and real-time ESG data. The inclusion of data like ESG will be critical for businesses, especially if government mandates related to carbon emissions are enacted.” While the decarbonization opportunities remain nascent, in TBR’s view these kinds of initiatives benefit consultancies like KPMG, which have accounting expertise and insight on tax policy implications that should resonate with enterprises, particularly those supplying technology companies demanding carbon reporting.
In TBR’s view, KPMG’s CAI stands out as a concrete, easily understandable and likely readily applicable solution to an accelerating issue in ESG — transparently and repeatedly proving to clients, employees and investors that decarbonization promises are being met. As we continue researching vendors’ internal commitments and solutions for clients, we will track the success of KPMG’s CAI and similar offerings, separating the greenwashing from the real results.
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