Why You Can’t Afford to Ignore Carbon Accounting

4 min readApr 27, 2022

The world of investing is about to change. Don’t be left behind.

On March 15, the Council of the EU passed the Carbon Border Adjustment Mechanism (CBAM), targeting imports of carbon-intensive products across energy and materials production. On March 21, the SEC proposed standardizing corporate emissions disclosures.

One day later, I attended the World Agri-Tech Innovation Summit in San Francisco, where David Babson, Program Director of Advanced-Research Projects — Energy (ARPA-E) from the US Department of Energy, addressed the audience with a line I won’t forget.

“We no longer have the luxury of just reducing emissions to meet our targets. We have to reduce it to zero and then go negative. We need the capacity to remove 10 giga-tons of CO2 by 2050 — this means that this will be the largest industry on the planet by mid-century.”

The largest industry on the planet!

The market landscape backs this lofty claim up. Companies like Watershed, LanzaTech, Climeworks, and Crusoe have secured large investments recently around decarbonization technologies. They’re just the first wave. From both a financial and impact perspective, the next ten years look like game-changers for carbon tracking and capture. Factoring emissions risk into your portfolio will be key to minimizing potential climate-related losses and adapting your investment strategies for the future.

Here’s how we’re thinking about this paradigm shift at J-Impact, along with areas to watch for technological innovation.

The Climate Disclosure Proposal

It’s hard to understate the magnitude of the SEC’s proposal. The scope of the climate risk disclosures is among the largest we’ve seen since US GAAP. SEC Chair Gary Gensler intends to make new standards for conveying climate risk.

The current proposal includes:

- Risk disclosures on climate change factors

- Current emission levels and plans to lower future emissions

- And the most complex — emissions analyses on all upstream and downstream partners

This means that even if the SEC’s jurisdiction focuses on public companies, private companies will be forced to react due to supply chain relationships. Net-zero targets will become the norm.

Calculating ESG impacts can be tricky — but pushing them aside any longer may soon become impossible. Investors will require emissions information when considering any new firm and carbon disclosure formats will standardize. Entrepreneurs would be wise to start tracking this data and engaging with their vendors on carbon goals.

Opportunities from Carbon Trading

Not all organizations will be immediately able to meet net-zero goals. So what can they do in the interim?

Carbon credits are a valuable tool to offset these emissions that can’t otherwise be eliminated.

Up to this point, carbon trading marketplaces have often been fragmented or limited in the areas they cover, such as California, Shanghai, or Europe. Rules for a global carbon market were first established in November 2021 at the COP26 conference.

Before COP26, McKinsey noted that we could see the carbon trading market reach $50B worldwide by 2023. Factoring in the increased transparency and standardization of a potential global marketplace and we could see that number go north of $100B.

Managing carbon future investments as part of your climate portfolio may already be on your radar — but we’re watching to see how corporations work carbon trading into their core investment strategies. These trading networks will likely tie into next-gen public sector regulations as well. For example, CBAM will work side-by-side with the EU’s emissions trading system to holistically evaluate the risk of carbon leakage.

However, it’s likely that carbon trading won’t be a permanent solution. Human ingenuity will be the way forward.

Building the Future of Carbon Management

Carbon capture technology is young, but it’s worth your time.

Governments have also been incentivizing carbon reduction through tax credits for projects designed to capture carbon from the environment. We’re closely watching Canada, a major North American oil producer, to see how USA markets might play out.

The Canadian government has been heavily pushing carbon capture, utilization, and storage (CCUS) technologies that take carbon from the air and force it deep underground. These are complex projects on the cutting-edge of climate innovation. They generate jobs and require enormous amounts of capital and specialized knowledge.

We’re already seeing projects underway from some of the largest oil and gas companies in Canada. These technologies may be relatively untested, but this type of corporate investment shows us that experienced professionals see potential.

What really gets us interested is the Canadian tax credit forecasts at 50–75% for CCUS projects. With this kind of financial backing and the potential rewards of high-impact environmental innovation, CCUS technology should be top of mind when evaluating any climate deal.

Potential for financial impact and positive impact on the environment — that’s definitely worth watching.

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We’re J-Impact, dedicated to solving the world’s biggest challenges with the world’s best technologies. We’re always looking for those who dream, those who dare, and those who create the future. Learn more at www.j-impact.fund or email us at info@j-impact.fund.

SOURCES:

Why You Can’t Afford to Ignore Carbon Accounting

The Climate Disclosure Proposal

Opportunities from Carbon Trading

Building the Future of Carbon Management

Written by J-Impact