Carbon accounting is going through a remarkable shakeout, just as scope 3 emissions become a mandatory reporting requirement for large entities in Australia from next year. The largest software companies that sprang up to service this segment have taken a step back.

The home page of well-known Australian brand Sumday, says it is “your partner in AI transformation across finance, FP&A, procurement and sustainability”. The latter service includes carbon accounting and it still sells carbon accounting software, but it’s no longer the central theme of the business.

New Zealand’s Cogo, which signed huge marketing partnerships with Xero, the Commonwealth Bank, Westpac and other institutions, no longer does any carbon accounting at all. It recommends solar panels and home batteries to bank retail customers.

Another Australian player, NetNada, is one of the few that has stuck to pure-play software by targeting larger companies that need to audit and continually reduce emissions in their supply chain. Tellingly, Sumday and NetNada are two of the only players left in Australasia who provide carbon accounting tools for small and medium businesses. Most other players focus on enterprise customers.

The pullback is not only commercial. New Zealand has quietly wound back the mandatory climate reporting entities from 180 to about 63, dropping fund managers and life insurers from the net.

How are businesses calculating carbon emissions if they’re not buying software? Can you do this by using AI instead?

How much accounting in carbon?

Carbon accounting is only accounting in a loose sense of the term. At the simple end, it is mostly activity data (products and services used in operating your business) multiplied by a list of emissions factors, which gives you your estimated emissions.

That is closer to measurement and classification. There is no equivalent of double entry, bank reconciliation, statutory ledgers, tax treatment or a complete economic model of the business.

This is clear after companies have gone through the arduous process of mapping products and services to emissions. The following years only require feeding the numbers through the same list. Companies selling carbon accounting software have had to find ways to be more useful.

“We’re selling carbon accounting software to large corporates… but the core piece of what businesses can leverage to decarbonise is often the procurement process,” Sumday’s Bradley Pitt says.

Sumday is built around a carbon ledger, where transactions are automatically coded to an emissions source so a company’s footprint can be traced straight back to its financials. It measures scope 1, 2 and 3 emissions, uses AI to speed up data mapping – suggesting emissions sources with confidence scores – and to help generate climate disclosures.

Sumday has since released a second product, Sumday Procurement and Projects, an AI-assisted tool that sets the financial return of a decision alongside its environmental and sustainability impact inside the procurement and project approval workflow.

Pitt describes it as “your decision hub of where every decision gets made” – in effect, a business-case engine for embedding sustainability into everyday capex and opex choices, since almost every purchase carries scope 3 emissions.

Earlier this year, Sumday announced it was expanding even further – into AI consulting.

“When problems can be solved with software… we build the thing,” wrote Jess Richmond, CEO and co-founder of Sumday, in a blog post. “But sometimes organisations don’t need our software right now. They need help going from A to B on broader AI deployment. We provide world-class engineers and analysts that sit side by side with the internal team, moving from ideas to execution.”

The reason for the transition was partly driven by the fact that sustainability advocates in a company were good at decarbonising ideas, but “putting the maths down into a business case was not that good,” Pitt says. Carbon accounting alone, in other words, was never going to be the whole business – although Pitt is adamant it remains core.

Companies are still buying Sumday’s carbon accounting software. Pitt said they had signed three clients in the past two days, mainly through referrals from accounting firms.

Carbon accounting is still “all bread and butter of where we make our income,” Pitt adds.

Selling defence

Once you have mapped your emissions, there are several reasons to keep using carbon accounting software, says Afonso Firmo, founder of NetNada. One is to support auditability, compliance and defensible climate reporting for customers, auditors and other stakeholders. The second is for companies that want the full range of climate reporting capabilities. This adds risk, governance, strategy and decarbonisation plans to the carbon accounting core.

In organisations of different sizes, including larger enterprises that need to maintain a presentable set of data to different audiences, carbon accounting software helps a sustainability manager run workshops, address committees and present to the board.

NetNada measures scope 1, 2 and 3 emissions with a full audit trail, and integrates directly with accounting and ERP systems including Xero, NetSuite and SAP. It uses AI to clean and process data, categorise emission factors and support climate reporting workflows.

An audit-ready reporting engine documents the emission factors, data sources and methodology behind every number. Other features include a climate risk module drawing on physical and transition risk databases; governance and assurance tools that put audit packs, policies and verifiable disclosures in one place; and supplier engagement across a network of tens of thousands of connected suppliers.

NetNada also offers consulting services through its team of experts or network of partners alongside its software, for companies that want support. NetNada can sell the software on its own, work in an assisting role, or run the whole climate reporting process for the customer. Pricing scales with the scope of reporting, the number of entities and the level of assurance required, and is set on engagement. It offers trial accounts and discounts for suppliers in the value chain.

Today, some consultancies are eager to use AI to create lightweight applications to support their services. However, Firmo says that trust is lost when customers cannot see how calculations were produced or when security does not meet enterprise requirements.

“When they don’t let people see behind the scenes, they kind of lose trust. The applications that are surviving are those built with auditability in mind; with a carbon ledger, the emission calculations, the assumptions and all the logic.”

“If you have an emissions database, a dedicated carbon accounting platform is not always necessary. All you need is an official database to work from.”

DIY with genAI

Smaller businesses that want to measure their emissions without buying software and consulting always have the option of working it out for themselves. Data for scope 1 (fuel burned by your vehicles) and scope 2 (electricity from your power bill) is straightforward to collect. Scope 3 – the emissions from all the products and services you buy – is the real slog. It takes effort to pull the information out of your accounting system and, in theory, to look beyond financial spend to the actual items purchased.

Warwick Russell CA, a chartered accountant at GreenMetrics in New Zealand, argues you should not go anywhere near that level of detail. He uses tools such as Claude and ChatGPT for matching scope 3 emissions factors, and says he doubts whether matching emissions at the individual transaction level is worth the effort.

In testing, matching supplier and expense descriptions to emissions categories produced an initial match rate of about 70% before review and adjustment. And it will be a long time before it is standard to include emissions factors on receipts. “Very few suppliers can provide a reliable product or service carbon footprint at invoice level,” Russell says.

A NZ$100 million company Russell now works with had tried to use a carbon accounting platform to match every invoice and eventually gave up. Instead, Russell starts with emissions-related spend data and reconciles it to the financial statements, rather than attempting to classify every individual supplier transaction. He treats scope 1 and scope 2 separately and uses activity data, such as fuel or electricity consumption.

This leaves a manageable set of material scope 3 spend categories. “AI can support the initial classification and emissions-factor matching, but the results still require review and adjustment,” Russell says.

For the company with $100 million turnover mentioned earlier, it was at most 150 lines to match, rather than thousands of individual transactions, Russell says.

“If you put a CFO’s head on this, it’s actually pretty easy to do,” he says. “If you have an emissions database, a dedicated carbon accounting platform is not always necessary. All you need is an official database to work from.”

You can buy one for about NZ$2500 or, like Russell, build your own, based on the same official sources.

Sumday’s Pitt is also sceptical about using AI for matching transactions. For a small business pulling a dozen electricity invoices, ChatGPT “will get quite a way there” on scope 1 and 2. “When you get to a larger scale, it just doesn’t work. The large language model suffers when it gets to a huge amount of electricity invoices,” Pitt says.

Buy or build

So, do you need to buy carbon accounting software?

The matching at the centre of the job is now a commodity and an agent can do it. If you buy the software, you’re getting a bigger piece than just calculating emissions. Businesses that are serious about reducing their footprint can use the software to run programs to identify and replace or eliminate heavy contributors and take a generally more proactive approach.

If you build it yourself, you also maintain it, and you also own the judgement calls a vendor would otherwise make for you.

“If you’re willing to spend a lot of time doing it, you’ll probably get an OK outcome. But somebody’s just not going to spend that time,” Pitt says.

The deciding factor is assurance. If your SME clients are simply being asked for a number by a customer or a bank, a disciplined AI workflow anchored to a reconciled trial balance may be all you need. The moment that number has to stand up to an audit, then you’ll need to show the paper trail behind it. Showing a printout from your chat window is probably not going to cut it.

---

Carbon is only the first measure

The concept of carbon accounting may already be reaching its half-life. A New Zealand initiative is pushing a broader goal of planetary accounting that expands to include freshwater, land use and biodiversity, as well as carbon emissions. The model takes the nine scientific limits to the Earth’s resources – the planetary boundaries defined by the Stockholm Resilience Centre in 2009 – and turns them into a per-person budget.

For example, driving 20 kilometres in a petrol car could use 17% of an individual’s daily environmental budget for a healthy planet, says Kate Meyer, founder of the Planetary Accounting Network.

Why would you want to expand the scope of your environmental assessment? Because it helps you make better business decisions about how to reduce your environmental impact beyond reducing greenhouse gas emissions.

Meyer points to two batches of chickens with an identical carbon footprint. If you feed one group of birds grain grown on land that has recently been deforested, its total environmental footprint could jump from 5% of the daily limit to 30%. A strict carbon lens would have missed that impact.

Similarly, when comparing wool with synthetic garments, wool can look poor on carbon alone but often comes out ahead once you count the water, waste and other impacts associated with petroleum-based fibres.

Regulations are drifting in this direction. The EU’s product environmental footprint already demands a broader nature disclosure and the coming ISSB nature standards look likely to follow the same planetary-boundaries science.

Meyer’s software, Planetary Insights, developed with co-founder Mike Merry, is designed to slot into the month-end close.

Planetary Insights parses invoices and evidence, builds each activity into a fully auditable ledger and matches it across all the planetary accounts. A business can set science-based budgets and track its footprint annually, quarterly, monthly or in real time. For products, it adds full supply-chain modelling, hotspot and scenario analysis, and consumer-ready ‘planetary facts’ labels that show where an item sits against the planetary boundaries.

---