In recent years, more and more businesses are recognising the importance of carbon accounting. As regulators, investors and consumers become increasingly concerned about the environmental impact of the products and services driving our economy, companies are under pressure to demonstrate their commitment to sustainability.
Carbon accounting is the measuring and managing of a company's greenhouse gas emissions, allowing businesses to disclose their emissions and make informed decisions when managing their carbon footprint.
What is carbon accounting?
Carbon accounting is the process of measuring, reporting, and managing a company's emissions. It allows businesses to:
- Understand where their emissions come from
- Identify the leading contributors to their carbon footprint
- Set and track targets for reducing them
For enterprise businesses, carbon accounting can be particularly challenging, as they often have a large and complex operational footprint that generates significant emissions.
Carbon accounting is also increasingly important for companies looking to demonstrate their commitment to sustainability to regulators, investors, consumers and other stakeholders. With the right tools and strategies in place, enterprise businesses can implement robust carbon accounting practices, allowing them to meet climate disclosure requirements and take action to reduce their carbon emissions.
Carbon accounting standards explained
There are several different carbon accounting standards that companies can use to measure and manage their greenhouse gas emissions. One of the most common standards is the GHG protocol, which provides guidelines for companies to follow when calculating their emissions.
The GHG protocol was developed by the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD), and it has become the most widely used standard for corporate greenhouse gas accounting. While it is the most widely used, the GHG Protocol is not the only reporting framework that can be used. Other methodologies that are either alternatives or complimentary to the GHG Protocol include:
- International organization for Standardisation (ISO) - this standard outlines principles and requirements for greenhouse gas accounting and verification through ISO 14064-1, ISO 14064-2, ISO 14064-3 and ISO 14067.
- European Union Emission Trading System (EU ETS) - This is a mandatory emissions trading scheme for companies operating in the European Union. The EU ETS requires companies to report their greenhouse gas emissions at individual, large-scale industrial facilities and purchase emissions allowances to cover their emissions above a certain threshold.
- Task Force for Climate-Related Disclosures (TCFD) - is a global initiative that aims to improve transparency and disclosure of climate-related risks and opportunities by companies and financial institutions. It provides recommendations on four key areas: governance, strategy, risk management, and metrics and targets.
- Partnership for Carbon Accounting Financials (PCAF) - is a global partnership of financial institutions that aims to develop a harmonized approach to measuring and disclosing the greenhouse gas emissions associated with their lending and investment portfolios - known as ‘financed emissions’.
Each of these methods has its own strengths and weaknesses, and the best approach will depend on a company's specific needs and circumstances.
What do organizations need to measure?
Organizations need to measure their greenhouse gas (GHG) emissions when conducting carbon accounting. GHGs are gasses that trap heat in the atmosphere, causing global warming and climate change.
The impact of greenhouse gasses collectively are typically quantified in terms of Carbon Dioxide equivalence (CO2e). As GHGs have different residence times in the atmosphere and vary in their efficacy of trapping radiation, their climate impact is normalized against the effect of CO2 based on a metric known as Global Warmng Potential (GWP).
1-Based on IPCC Asessment Report 5 (2013)
For any quantity and type of greenhouse gas, CO2e signifies the amount of CO2 which would have the equivalent global warming impact. For example, for 1kg of Methane that is emitted, this would be expressed as 28 kgCO2e.
Carbon accounting involves measuring and reporting the emissions of these gasses across an organization's entire value chain, including:
- Direct emissions from owned or controlled sources (Scope 1)
- Emissions from purchased electricity, heat or steam (Scope 2)
- Emissions from upstream and downstream activities such as the production of purchased materials and products, transportation of goods, and waste disposal (Scope 3)
To conduct carbon accounting effectively, organizations need to collect and analyze data on all of their carbon emissions. This data can then be used to calculate the organization's carbon footprint and identify opportunities for reducing emissions.
Why is carbon accounting important?
Carbon accounting is becoming increasingly important from a financial perspective because it provides a way for companies to identify and manage their environmental risks and opportunities. Here are some reasons why carbon accounting is important:
- Regulatory compliance: As governments around the world implement policies to reduce greenhouse gas emissions, companies that fail to comply with these regulations could face fines and other penalties. By measuring and reporting their emissions, companies can ensure that they are in compliance with current and future regulations.
- Access to capital: Investors and lenders are increasingly interested in companies that have a strong environmental record and are taking steps to reduce their carbon footprint. By demonstrating their commitment to sustainability through carbon accounting and reporting, companies may be more likely to attract capital and secure favorable financing terms.
- Brand reputation: Consumers and stakeholders are becoming more environmentally conscious, and companies that are perceived as being environmentally responsible may have a competitive advantage in the marketplace. At the same time, there is increased awareness of greenwashing with regulators and legislators moving to crack down on any unsubstantiated claims. Carbon accounting provides a way for companies to demonstrate their commitment to sustainability and underpina positive brand reputation.
- Future-proofing your business: By measuring their greenhouse gas emissions, companies can be prepared for further regulations or mandates that are likely to be introduced in the coming years. With the rules around carbon reporting becoming ever more stringent, understanding and creating a strategy for data collection and carbon reduction can help your business be on the front foot.
FAQs about carbon accounting
How is carbon accounting done?
Carbon accounting involves the collection, calculation, verification, and reporting of greenhouse gas emissions from an organization or activity. It provides a framework for organizations to measure and manage their carbon footprint, set reduction targets, and track progress over time. When you work with carbon accounting specialists such as Minimum, the steps generally taken are:
- Determine scope and boundaries - includes determining which activities, facilities, offices, or other operations are included within your assessment.
- Identify the most relevant reporting frameworks to ensure that the correct information can be delivered through the assessment.
- Collect data on activities within your scope - we’ll help you gather reliable data on all activities that are within the scope of your assessment.
- Calculate emissions using standardized formulas - use standardized formulas provided by the selected methodology to calculate greenhouse gas (GHG) emissions associated with each activity or source included in the assessment based on collected data where available.
- Analyze results and develop reduction strategies - once all sources of GHGs within your chosen boundary have been calculated, actionable goals will be produced to help you understand how to take steps to reduce your carbon footprint.
If your business is new to carbon accounting or has complex operations that need to account for scope 1, 2 and 3 emissions, then you’ll get a more accurate depiction of your carbon output and plans for reduction by working with specialists in this field.
Is there a difference between carbon accounting and GHG protocol?
Yes, there is a difference between carbon accounting and the GHG protocol. Carbon accounting is a process of measuring, quantifying, and managing a company's greenhouse gas emissions, while the GHG protocol is a widely accepted standardfor developing and implementing corporate greenhouse gas accounts adopted by many reporting frameworks, both voluntary and regulatory..
In other words, carbon accounting is the actual practice of measuring a company's emissions, whereas the GHG protocol provides guidelines for how that accounting should be done.
What is a product carbon footprint?
A product carbon footprint considers the emissions associated with a product or service throughout its entire life cycle. It takes into account all of the energy and material inputs, emissions, and waste generated throughout each stage of the product's life, including:
- Raw material extraction/production
- Use of the product
- End-of-life management