The business of carbon accounting is booming as regulators, investors and consumers demand more information about corporate greenhouse gas emissions, despite concerns about the validity of the data.

Venture capital investment in carbon accounting companies jumped from $60mn in from 2020 to $767mn in 2022, according to data firm PitchBook. The trend has continued into 2023, with VCs investing $333mn in the sector so far this year.

The drive comes as companies prepare for complex disclosure requirements which are expected to come into force in Europe and the US in the coming year, combined with pressure from investors and customers to appear climate friendly.

The first in the wave of standards landed in June with the release of guidance by the International Sustainability Standards Board on how to calculate emissions across supply chains.

The measures were less stringent than originally expected, after the ISSB said in December it would allow corporations an additional year to report emissions across their entire value chain. But the rollout is still a prompt for many companies to begin a greater level of tracking.

“This is a good opportunity for companies to get their houses in order,” said Adam Hearne, chief executive of CarbonChain, which raised $10mn in series A funding earlier this year.

The surge of investment coincides with the US Inflation Reduction Act, which offers tax incentives to spur green technology.

In Europe, the Corporate Sustainability Reporting Directive will require companies to report emissions from 2024 to 2028, depending on the size of the company.

Paris-based carbon accounting start-up Greenly said nine out of 10 of its clients were new to thinking about climate effects. It raised $32mn in a series A funding round last year.

“No one needed this a few years ago but now 250-person companies are being tasked with it and don’t know where to start,” said Greenly chief executive Alexis Normand.

But the lack of concrete rules has led to companies turning to a variety of methods.

Some go directly to suppliers to obtain granular data, and many use so-called “emissions factors” — a unit that, when multiplied by the amount spent or the amount used, allows for the equivalent amount of carbon dioxide to be calculated.

For example, if an office chair costs $100 its price will be multiplied by an emissions factor, which takes into account how much carbon is on average generated for each dollar spent on office chairs. Alternatively, an emissions factor might be used to represent the quantity of materials used in one of the chairs.

Emissions factors are often taken from scientific studies and databases provided by bodies such as the US Environmental Protection Agency and the UN Intergovernmental Panel on Climate Change. But their use has been criticised for a lack of precision.

“Imagine if the [US Securities and Exchange Commission] said everyone needs to report return on assets, but didn’t bother to say how to calculate it . . . if you’re a greenwasher this is like paradise,” said Karthik Ramanna, professor of business and public policy at the University of Oxford.

McKinsey’s Peter Spiller, leader of sustainability in operations practice, compared it to producing annual financial accounts “based on average revenues and averages costs of your industry — it’s becoming clear that it is relatively stupid to do it this way”.

Transparency is another problem; some suppliers are reluctant to provide information due to the commercial sensitivity of the data.

“The oil sector is traditionally quite secretive, because if you know the amount of energy a company uses in refining, you also know the cost basis of the barrels of oil it is processing,” said Hearne.

Comparisons are also often difficult, as differing units of measurement are used. Georges Tijbosch, chief executive of the MiQ group, which attempts to certify methane emissions from oil and gas, said there was a need to standardise measurements.

“If you just look at gas, you can express it in cubic feet, cubic meters, megawatt hours, and in science articles they can use megajoules,” said Tijbosch. “[Procurement managers] don’t think in megajoules.”

There is a widely used standard, known as the Greenhouse Gas Protocol, which was set up by non-profit organisations. But some sustainability experts argue it is not fit for purpose due to the difficulty of sourcing emissions data and the risk of double-counting.

By far the biggest difficulty for companies is how to account for decisions made by suppliers who are remote from them in the supply chain. It can be very difficult to take into account all the products and services a company buys from third parties, such as business travel, as well as how consumers use its final products.

Meanwhile the SEC is mired in wrangling over its own proposed disclosure rules. It is not clear when they will take effect; the agency’s call for comments attracted a record 15,000 responses, including requests for exclusion by high-polluting industries such as agriculture.

SEC chair Gary Gensler has said the regulator was considering “adjustments” based on the feedback, with a decision expected in October.

In spite of its many flaws, carbon experts argue that there remains value in attempting to estimate emissions.

“If you can verify that [a commodity] has a lower carbon intensity, a company might pay more for that because of how it fits with their own carbon goals,” said Matt Babin, head of energy and natural resources at Palantir Technologies.

Palantir clients include Trafigura, one of the world’s largest commodity traders, which feeds information into Palantir’s data analytics platform Foundry about its own emissions as well as data from suppliers and buyers.

Carbmee, a Berlin-based start-up, uses emissions factors and their clients’ transaction data to calculate their emissions. Co-founder Robin Spickers, a mechanical engineer by background, said clients then could be informed about choosing new materials or suppliers.

“Markets are starting to discover that this is useful information and demanding more of it,” said Oxford university’s Ramanna. “But it is still very much a wild west where there is very little architecture and very little consensus on what constitutes good accounting.”