Carbon Accounting becoming legal obligation

Carbon accounting is the process of measuring and tracking the amount of greenhouse gas emissions produced by a company. Through carbon accounting, businesses can better understand the scale of their emissions and where they come from. This makes it easier to implement strategies for carbon reduction and removal and to communicate the results with stakeholders and governments clearly and accurately. Carbon accounting is essential in the fight against climate change and for managing and mitigating carbon footprints. The practice began in the early 2000s and has been helping companies identify hotspots, allowing them to target their carbon reduction efforts with high-impact actions.

Accurately tracking emissions makes it easier and more efficient to reduce a company’s greenhouse gas emissions.

Importance of carbon accounting

Aside from helping to efficiently reduce a company’s greenhouse gas emissions, carbon accounting can help with a variety of other crucial factors when it comes to reducing a carbon footprint. Carbon accounting can help with compliance, legal requirements, and environmental regulations regarding emissions, including: Kyoto Protocol and Paris Agreement; European Union Emissions Trading System (EU ETS); U.S. Environmental Protection Agency (EPA) GHG Reporting Program; Nationally Determined Contributions (NDCs). Carbon accounting can also aid in maintaining the standards and guidance set out by Greenhouse Gas Protocol. This organization has established an internationally recognized framework to help measure and manage greenhouse gas emissions used by more than 92% of Fortune 500 companies.

A question of commitment and reputation as well 

Keeping up with these carbon accounting standards and regulations can help businesses achieve corporate sustainability initiatives and goals, as carbon accounting can provide data to inform strategies for reducing emissions. This can also enhance a company’s reputation and transparency by demonstrating a commitment to environmental responsibility. Having accurate carbon accounting can also assist in identifying and managing risks associated with climate change, such as regulatory changes, market shifts, and physical impacts, helping to future-proof businesses. Climate Impact Partners' 2023 research into the climate commitments of the world's largest companies showed that over three quarters of Fortune Global 500 companies were tracking and reporting annual emissions year over year. Learn more here

What is required for carbon accounting?

There are two important components required for carbon accounting: data collection and data processing. Businesses need to collect data in a comprehensive and detailed manner and then process that data using sound methodologies. A systematic approach to measure, track, and report greenhouse gas emissions is required for good carbon accounting. These are the 7 basic steps to achieve that: deciding what to include, gathering data, accurate calculating, record keeping, verification, reporting and using the information.

1. Deciding what to include

It is important to establish the boundaries of a company by determining which parts should be included in the value chain carbon accounting process. This could mean a company’s subsidiaries and joint ventures as well. It is also important to decide which emission sources should be included, categorizing emissions into Scope 1, 2 or 3. It is recommended that all three scopes be included to gain a more comprehensive picture of both direct and indirect emissions.

2. Gathering data

A company should then collect data on all activities that cause greenhouse gas emissions. For an accurate measurement of emissions, all three scopes should be included. This means emissions from both direct sources controlled by the company and indirect sources. For example, this should include purchased electricity or gas and emissions from a company’s entire value chain.

3. Accurate calculating 

Using the data collected, businesses should apply spend-based emission factors, working out the average greenhouse gas emission per unit of financial expenditure.

4. Record keeping

It is essential to keep detailed records of all data sources, calculations, and methodologies used to maintain consistency in tracking and reporting. Data management systems should be used to store and organize data efficiently.

5. Verification

Businesses need to ensure that the data collected is of a high quality. It is important to conduct regular internal audits, use third-party verifiers to review and validate the data, and keep a record of the audit trail.

6. Reporting

Compile the verified data into detailed reports that can be shared with stakeholders and regulating bodies. These can be shared internally to provide insights for decision-making as well as externally for annual reports.

7. Using the information

It is important to then act on the data, to continuously monitor it to identify and address any gaps or inaccuracies, and to make changes to systems to mitigate emissions.

Employee engagement

Employees are increasingly interested in working for companies that prioritize sustainability. A strong commitment to carbon accounting and emissions reduction can enhance employee morale and retention.

Reducing emissions pays back

Climate Impact Partners' 2023 research showed that Fortune Global 500 companies that reduced reported emissions year over year earned on average nearly $1 billion more in profit per company than their Fortune Global 500 peers. 

Sourse and Graphs: CarbonNeutral 

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