Why Your First GHG Inventory Probably Does Not Need Software

Companies conducting their first greenhouse gas (GHG) inventory often look to software to make the process easier. In this post, I discuss why that might not be the best move.

When a company decides to develop its first greenhouse gas (GHG) inventory, one of the first questions I hear is “which software platform should I use?”. It’s not surprising that many companies start here - there are plenty of software options that promise to streamline data collection, automate calculations, simplify reporting, and make future inventories easier. And for corporate sustainability folks who have never navigated the GHG Protocol before, these capabilities can be really appealing.

However, for companies developing their first GHG inventory, I do not think software should necessarily be the starting point. In fact, I often recommend starting with a well structure excel spreadsheet and a much more manual process for the initial inventory.

That may sound counterintuitive in a world where companies are increasingly looking for ways to automate sustainability data. But I believe there is value in working through the first inventory manually, particularly when the goal is to build a process that will work well over the long term. Here’s what I’ve learned from my experience conducting GHG inventories:

1)      A spreadsheet can provide transparency than a software solution

A first inventory involves much more than entering data into a platform, and companies that jump straight to software often end up with a lot of questions or a lot of errors (or both). Beyond just entering numbers into a platform, someone needs to address questions like:

• What’s the organizational boundary? What belongs in and out of my inventory?

• What data source is best for each emission source? Where does that live in my company? How reliable is it?

• Which emission sources are most appropriate for my emission sources?

• How do I estimate emissions if I don’t have activity data?

• How do I handle my unique emission sources that might not be standard for other companies (particularly in scope 3)?

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Many software platforms can handle some of these questions, or may provide an expert to support companies in using the software. However, it may not always be clear what assumptions are being made behind the scenes or how a software solution is addressing these questions. In addition, some will require these questions to be addressed outside the software, requiring multiple sources of documentation to understand how the GHG inventory came together.

A well-designed spreadsheet, on the other hand, makes the process visible and is often easier to understand. It helps the people responsible for the inventory understand what is actually going into the calculation rather than simply seeing a final emissions number generated by a software platform. It also creates an opportunity for finance, facilities, procurement, operations, and other data owners to become familiar with what is being requested and why.

This transparency can be really helpful for first time inventories – it can help to build understanding and buy-in internally of GHG accounting and also make it easier for sustainability teams to answer questions from leadership or external stakeholders (such as investors).

2)      A spreadsheet can allow for a more flexible solution

Software solutions are constantly evolving, and many are becoming increasingly robust in calculating GHG emissions. However, at the end of the day, software platforms are built to handle the most common use cases, and generally won’t be customized to your specific company without additional work.

This means that if you have unique asset types, data quality issues, or tricky ownership situations, it’s unlikely that the software solution will handle this without extra pre-work on your part. For example, imagine a company has logistics spend data that is not broken down cleanly into upstream and downstream emissions. The company might have to manually split that data, including making assumptions about how to do so, before entering it into software that simply asks for a spend number for Scope 3 Category 4 and Category 9.

A spreadsheet, on the other hand, can be fully tailored to your specific company situation and the format of your input data. Data processing can even be handled within the spreadsheet, allowing for a clear connection to source data all in one place. And unique GHG accounting situations can be handled, without needing to manipulate the data into a prescribed format for software.

3)      A spreadsheet can allow you to define what you need from software

One of the biggest challenges I heard about from companies is how to pick which software solution is right for them. Software can represent a significant investment, both financially and in terms of implementation time. Choosing the wrong software can create a headache down the line (particularly if you have to switch software solutions).

Unfortunately, companies conducting initial inventories may not yet know what they actually need from a platform. Do I need detailed Scope 3 functionality? Automated data imports? Supplier data collection? Approval workflows? Audit trails? Consolidation across business units? Integration with existing reporting systems? Additional ESG metric calculations?

The first inventory is a prototype for the company's future GHG accounting process and can help answer these questions. Once the team has worked through the data collection and calculation process, it has a much better understanding of what information needs to be collected, which calculations need to be performed, where the biggest sources of manual effort exist, and what outputs are actually useful.

All this experience helps put companies in a stronger position to evaluate software. Instead of asking, “Which platform has the most features?” the team can ask more useful questions, such as:

• What parts of our current process do we want to automate?

• Which data sources should integrate directly with the platform?

• What level of flexibility do we need for our methodologies and assumptions?

• What information will we need to retain for future verification?

• What reports and outputs do our internal and external stakeholders actually need?

Defining what is needed from the software solution makes it more likely that the solution selected will actually improve the GHG accounting process.

One important caveat…

Although I advocate for a spreadsheet approach for an initial inventory, I would not recommend that a sustainability team with no prior GHG accounting experience simply download a spreadsheet and figure out the inventory on its own. GHG accounting has a lot of technical nuance and decisions made during the first inventory can affect future reporting, trend analysis, target setting, and potentially external disclosures.

This is where outside expertise can be particularly valuable. An experienced GHG accounting professional can help establish the inventory boundaries, methodologies, calculation approaches, and data collection process while allowing the internal team to participate in the work and build its own understanding. However, the goal isn’t to make the sustainability team dependent on an outside consultant. Inside, the expert should provide give the team enough knowledge and structure to manage the process effectively in-house going forward.

The right time for software

For companies conducting their first GHG inventory, I think there is a strong case for taking the time to understand the process before trying to automate it. A well-designed spreadsheet can provide that foundation without requiring a significant upfront investment in a platform that may not ultimately fit the company's needs.

Once the company has completed one or two inventory cycles, the case for software will become clearer. At that point, the team has a better understanding of its inventory and can identify if / where automation would provide the most value. Over time, spreadsheets can become messy if poorly managed, and software can reduce the risk of errors that come with complex manual calculations, particularly if multiple people are entering data. Software can also reduce repetitive calculations, centralize data, improve workflow management and support more consistent year over year reporting. This means less time spent calculating emissions and more time spent doing something with the results.

Thinking about conducting your first GHG inventory? Reach out to Wild Grove Advisors for a free consultation to help decide whether a spreadsheet solution is right for you!