Emissions accounting, greenhouse gas (GHG) accounting, carbon accounting, carbon footprint, carbon inventory, GHG inventory and carbon management – all synonymous for measuring your CO2 equivalent (CO2e) or, in other words, quantifying your organization’s contribution to climate change.
If you are hearing about climate-related regulations, commitments and stakeholder requirements, keep reading to understand the basics of carbon accounting and how it might apply to your organization.
What is carbon accounting?
Carbon accounting is the measurement and reporting of greenhouse gas emissions, primarily carbon dioxide, associated with an organization’s activities. It provides a quantitative assessment of the environmental impact, helping businesses identify areas for improvement and set emission reduction targets.
The accurate measurement of carbon emissions provides a foundation for the organization to:
- Identify hotspots and prioritize reduction efforts.
- Set realistic and achievable reduction targets.
- Comply with regulatory requirements and industry standards.
- Enhance business continuity with more holistic risk management.
Corporate sustainability has historically been voluntary and practiced by mission-driven organizations. However, the global spotlight on mitigating the impacts of climate change is urgently transitioning environmental stewardship to a business requirement.
Measuring carbon emissions
The World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD) created the Greenhouse Gas Protocol, the world’s most widely used GHG accounting standard. The GHG Protocol separates emissions into three scopes:
- Scope 1: Direct emissions from owned or controlled sources (e.g., fuel combustion in company vehicles).
- Scope 2: Indirect emissions from purchased electricity, heat, cooling or steam.
- Scope 3: Indirect emissions associated with a company’s value chain, upstream and downstream.
Most organizations start with measuring Scope 1 and Scope 2 emissions, as these are emissions from the energy they consume. These are also the core of most existing emissions-related reporting requirements and regulations. This requires data collection and accounting regarding fuel and other utility usage for the company’s equipment, vehicles or buildings.
Scope 3 emissions often make up more than 80 percent of emissions, but are the most challenging to calculate. This accounts for all activities required to produce and consume your products or services, including but not limited to purchased goods and services, transportation of materials, business travel, employee commuting, use of sold products, disposal of sold products, and investments.
Accurate carbon data collection and analysis
Accurate data collection and analysis in the measurement process are key for setting appropriate commitments and allocating resources toward high-impact reductions. Take Califia Farms, for example, who took a spend-based approach to some of their 2021 Scope 3 data and remeasured it the following year using activity data. Moving forward, they are updating their methodology to activity data. This data measures a level of activity that results in GHG emissions, rather than measuring data based on the economic value of goods and services purchased.
In case this is a lot to digest, the tools and processes for GHG emissions accounting have come a long way. Until recently, organizations relied heavily on manual and time-consuming calculations, spreadsheets and estimates to measure carbon emissions. Now, the development of carbon accounting software allows for automatic data ingestion, audit trails, anomaly detection, data-driven decarbonization strategies, target tracking and streamlined reporting.
Strategies for carbon management
Once you know where most of your emissions are coming from, you will be better equipped to develop a GHG reduction roadmap and understand the resources required to meet your goals. We frequently encounter organizations expressing a desire to address readily achievable objectives (the “low-hanging fruit”) initially. This approach may manifest as:
- Operational efficiency: Work with your facilities team(s) to implement energy-efficient technologies, practices and policies.
- Renewable energy: Transition to renewable energy sources to power operations. If you own physical assets, talk to your tax team about funds available through the Inflation Reduction Act for green energy projects.
- Sustainable supply chain: Begin engaging with your existing and potential suppliers to promote sustainability throughout the procurement process.
- Employee policies: Be intentional about return-to-work policies, employee commuting and business travel – consider what is necessary.
When it comes to a decarbonization roadmap, climate resilience plan or climate action plan, it is important to align benefits according to each decision-making group. Effective carbon management should support cost savings, market access, regulatory compliance and brand loyalty.
A former consumer industry client flagged packaging as one of their most material topics. Due to packaging requirements related to wasted space, the amount of negative space in their product packaging prevented them from expanding to certain countries.
Carbon reporting and transparency
Depending on where your organization operates, you may be subject to climate-related disclosure laws. These laws can include California’s SB 253 and SB 261 or the European Union’s Corporate Sustainability Reporting Directive (CSRD). If not mandated, you may receive requests from customers or investors about your carbon emissions and decarbonization efforts.
We are moving towards global standards for consistent sustainability reporting with frameworks such as the European Sustainability Reporting Standards (ESRS) and the International Sustainability Standards Board’s (ISSB’s) inaugural sustainability reporting standards, IFRS S1 and IFRS S2. All reporting standards revolve heavily around both climate-related disclosures and climate-related financial risk disclosures.
Despite the movement towards consolidation of reporting standards, companies are still manually responding to stakeholder requests for sustainability information. Carbon accounting services and software are increasingly playing a significant role in streamlining the process of aligning to multiple sustainability reporting frameworks.
Carbon accounting and ESG
Although broad, the topics that fall within ESG are inherently intersectional. Carbon accounting is just one (albeit crucial) factor in this broader framework, but it serves as a foundational element. To maximize the effectiveness of sustainability efforts, decarbonization goals should align seamlessly with an organization’s overarching ESG objectives. A cohesive and unified strategy must address environmental priorities within the context of broader societal, financial and corporate contexts.
Decarbonization within a wider ESG approach crosses all functions and activities in an organization. It considers:
- Procurement: Selecting vendors that are aligned with your organization’s values and support your goals.
- Facilities: Aligning priorities with expectations as you vet office, manufacturing and distribution facilities.
- Legal: Regulatory compliance in reporting emissions and climate-related financial disclosures, while preventing greenwashing.
- Finance and accounting: Audit trails, internal controls, assurance over emissions-related data and technical accounting for financial reporting.
- Operations: Cost savings through operational efficiency and consideration of your operational impact on the local community.
Aside from strategic benefits, a cohesive approach to ESG offers tangible financial benefits. These include increased investor interest, operational cost savings from resource efficiency, and resilience against regulatory uncertainties.
By recognizing the symbiotic relationship between carbon accounting and broader ESG initiatives, businesses pave the way for responsible growth. This corporate responsibility extends far beyond the physical environment to the communities producing an organization’s products and services, the people living in the communities in which an organization operates, and those impacted by the day-to-day operations and offerings of an organization.
How BPM can help you with carbon accounting
Carbon accounting is essential for a sustainable business approach and is key to a comprehensive ESG strategy. Companies can develop effective carbon management plans by understanding emissions, employing standards like the GHG Protocol and automating processes. These measures not only support environmental stewardship but also enhance stakeholder value and help ensure corporate resilience. Clear reporting adheres to global norms and solidifies stakeholder trust. This makes carbon management a vital facet of business strategy for future-focused companies.
As one of the top 35 largest public accounting and advisory firms, BPM’s team includes specialists in regulatory compliance, financial reporting, data management and analysis, audit readiness, and risk management. The skillsets and credibility inherent in the accounting industry make firms like ours a natural fit for supporting clients in carbon accounting. BPM’s team can support you in identifying material risks and opportunities, crafting strategies aligned with your needs and resources, calculating GHG emissions, establishing internal controls, and preparing audit-ready data and reports. Contact us today for more information.