What is carbon accounting?

Businesses are among the largest contributors to greenhouse gas (GHG) emissions, and their involvement in the race to net zero is essential to achieving significant reductions. Beyond environmental stewardship, proactive climate action can enhance a company’s reputation, ensure compliance with emerging regulations, and deliver long-term financial benefits through operational efficiencies and risk mitigation. 

One of the most effective ways corporations and financial institutions can contribute to the fight against climate change is through carbon accounting.

The definition of carbon accounting

Similar to how financial accounting quantifies the financial impact of business activities, carbon accounting is the process of measuring a company’s environmental impact. It’s important to note that achieving net zero emissions is closely tied to effective carbon accounting practices.

Carbon accounting helps businesses to reduce GHG emissions by guiding the quantification, monitoring, and reporting of their climate impact. The process involves measuring direct carbon emissions, as well as those generated from supply chains and product life cycles. It is the first step in developing strategies to reduce corporate carbon footprints and align with global climate goals, such as the Paris Agreement’s objective of limiting global warming to well below 2°C.

Carbon accounting and net zero

There is a growing emphasis on aligning greenhouse gas (GHG) accounting standards with net zero goals and claims. To address this need, the Science Based Targets initiative (SBTi) launched the first-ever Net-Zero Standard for corporations in 2021. This standard provides a clear and practical framework for companies to set credible and ambitious net zero targets, helping them transition towards a sustainable, low-carbon future.

The Carbon Disclosure Project also plays a significant role in GHG reporting and corporate environmental impact disclosure, driving companies to disclose their Scope 1, 2, and 3 emissions and take action towards net zero goals.

The three scopes of greenhouse gas emissions

The GHG Protocol developed by the World Resources Institute, provides standards and tools for carbon accounting, ensuring accurate measurement and management of all three scopes of carbon emissions sources: 

Scope 1: Direct emissions

These are emissions that are generated by your company’s operations, such as emissions from company vehicles, onsite fuel combustion, and manufacturing processes. 

Scope 2: Indirect emissions from energy

This scope accounts for emissions from the generation of purchased electricity, steam, heating, and cooling consumed by your company. Although these emissions occur at the production source, they are considered indirect because your company uses the energy.

Note that renewable energy certificates are used in documenting the generation and supply of electricity through renewable energy resources and adjusting estimated Scope 2 emissions.

Scope 3: Other indirect emissions

Scope 3 includes all other emissions that occur in your company’s value chain. This encompasses a wide range of activities such as business travel, waste disposal, and emissions from the production and transportation of purchased goods and services. Scope 3 emissions often constitute the largest portion of a company’s carbon footprint and are the most challenging to measure and manage.

Common challenges of carbon accounting for businesses 

While calculating emissions is vital for understanding and managing environmental impact, it presents several challenges:

Data collection

Collecting accurate and comprehensive data is a significant hurdle. Companies must gather information from numerous sources, including internal operations, suppliers, and third-party services. This can be especially difficult for multinational corporations with complex supply chains. 

Standardization

There is often a lack of standardization in data collection methods and reporting, making it difficult to compare data across different organizations or even within different departments of the same organization. Emissions factors play a crucial role in improving the accuracy of emissions calculations, specifying the amount of greenhouse gas emissions associated with a given unit of business data.

Resource intensity

The process can be resource-intensive, requiring dedicated personnel and financial investment. Smaller companies, in particular, may struggle with the costs associated with carbon accounting. However, the long-term benefits of reducing emissions and complying with environmental regulations justify these efforts.

Complexity of Scope 3 emissions

Scope 3 emissions are particularly challenging to track due to their broad scope and indirect nature. They require cooperation and transparency from across the supply chain, which can be difficult to achieve.

Regulatory and market uncertainty

Companies must navigate a landscape of evolving regulations and market expectations related to climate disclosure and carbon management. This uncertainty can complicate long-term planning and investment in carbon reduction strategies.

The role of carbon accounting platforms

To address these challenges, many businesses turn to carbon accounting platforms. By automating much of the data collection and analysis, these software solutions can save time and reduce errors in sustainability data collection. They offer various features, including data integration from multiple sources, emissions calculations based on standardized protocols, and detailed reporting capabilities.

Carbon accounting platforms also provide valuable insights into emission hotspots, helping businesses identify where reductions can be most effectively achieved. They allow leaders to model the impact of different reduction strategies and set science-based targets. They can also help identify residual emissions which can be addressed through carbon contributions.

Furthermore, they can facilitate compliance with regulatory requirements, such as the CSRD, and improve transparency with stakeholders through clear, accessible reporting. 

What to look for when selecting a carbon accounting platform 

Choosing the right carbon accounting platform is crucial for effectively managing your company’s environmental impact. Here are some key factors to consider:

Comprehensive data integration

The platform should support the integration of data from various sources, including direct operations, suppliers, and third-party data providers. This capability is essential for capturing a complete picture of the company’s emissions.

User-friendly interface

A user-friendly interface is important for ensuring that the platform can be used effectively by non-experts. It should provide intuitive navigation, clear data visualization, and easy access to key functions.

Scalability

The platform should be scalable to accommodate the growth of the company and the increasing complexity of its operations. This includes the ability to manage a growing number of data sources and handle complex calculations.

To enable meaningful comparisons of emissions over time, it is essential to establish a GHG inventory boundary between data sets. Carbon accounting software should include built-in tools to assist in setting and managing these boundaries consistently over time.

Customization and flexibility

Different businesses have different needs, so the platform should offer customizable features to adapt to specific industries, regulatory environments, and company policies. Flexibility in reporting formats and the ability to tailor metrics to specific business goals are also crucial.

Compliance and reporting

The platform should facilitate compliance with relevant standards and regulations, such as the Greenhouse Gas Protocol or national reporting requirements. It should also support transparency by enabling detailed and accurate reporting for stakeholders. Additionally, organizations like the Sustainability Accounting Standards Board set standards for tracking and reporting greenhouse gas emissions, alongside the Greenhouse Gas Protocol and the Task Force on Climate-Related Financial Disclosure. 

Support and training

Reliable customer support and training resources are essential for helping companies effectively implement and use the platform. Look for providers that offer comprehensive onboarding, training modules, and ongoing technical support.

Cost and return on investment

Finally, consider the cost of the platform relative to the benefits it provides. While investing in carbon accounting software can be significant, the potential savings from improved efficiency, risk mitigation, and regulatory compliance can outweigh the costs.

Carbon accounting – the first step to taking action

Carbon accounting or greenhouse gas accounting is a critical tool for businesses aiming to reduce their environmental impact and contribute to global climate goals. While challenging, especially in terms of data collection and the complexity of Scope 3 emissions, leveraging carbon accounting platforms can significantly streamline the process. By carefully selecting a platform that meets your specific needs, your company can enhance its sustainability efforts, achieve compliance, and demonstrate its commitment to tackling climate change.