Tracking your emissions isn’t as simple as balancing the books. Carbon accounting, a method for measuring and managing an organisation’s greenhouse gas emissions, may resemble financial accounting in structure, but its complexity runs far deeper.
This complexity comes from the vast range of calculations, evolving reporting standards, and the unique emissions patterns across different industries.
As we learn more about emissions sources and pathways, carbon accounting evolves, challenging organisations to keep pace.
Today, we’ll explain the mechanics of carbon accounting—exploring the calculations, frameworks, and distinctions that make it a vital, yet intricate, tool in tackling climate change.
Financial vs. Carbon Accounting.
The technical demands and scope of data make carbon accounting a completely different beast. Here’s how they differ:
Financial Accounting:
- Primary Use Cases: Financial management and financial reporting.
- Regulatory Agencies: Overseen by government and regulatory agencies, which vary by country.
- Reporting Frameworks: Standards vary the country but are generally based on agreed international, frameworks like the Financial Accounting Standards Board (FASB) and the International Financial Reporting Standards (IFRS).
- Accounting Standards: 12 core calculations with a single data type: currency (dollars, euros, etc.).
Carbon Accounting:
- Primary Use Cases: Climate and ESG reporting, carbon management. Aspect also applies to some types of environmental reporting.
- Regulatory Agencies: Varies by country, with local environmental agencies often involved.
- Reporting Frameworks: Determined by national or international frameworks, such as GHG Protocol, CDP, or TCFD.
- Accounting Standards: More than 260 calculations and thousands of diverse data types, including energy units (kWh), distances (km travelled), material types, and emission factors specific to various activities.
In short, while financial accounting seeks to explain monetary flows, carbon accounting tracks a complex web of activities with multiple types of input data and methodologies.
Why carbon accounting is different.
In financial accounting, the system is built around standardised calculations with a single data type—currency. In contrast, carbon accounting demands many calculations that consider a wide variety of data points.
Think of it as going beyond a simple balance sheet; carbon accounting can extend beyond the organisational boundaries considered in typical financial accounting. With Scope 3 analysis, one pulls information from an organisation’s entire value chain, both upstream supply chains and downstream product use, along with consideration for employee activities such as commuting.
In addition, while financial accounting typically follows one primary framework, carbon accounting operates under multiple reporting standards, including frameworks like the Greenhouse Gas Protocol, ISO 14064, and, for many, national regulatory requirements.
These frameworks have nuanced requirements, leading to complexity for companies working across borders or aiming for comprehensive sustainability reporting.
Why accuracy matters.
To accurately assess their carbon footprint, organisations need to know where emissions are generated, how much is being released, and the potential impact.
Take, for instance, a company in New Zealand looking to measure emissions from business travel. They know how much they’ve spent on flights, but that doesn’t directly reveal emissions.
Using the spend-based method, the company can estimate emissions based on flight cost. Say an employee took a flight from Sydney to Auckland costing NZD $400; the company might estimate around 150 kilograms of CO₂ emissions. However, if the same flight had cost $600 the company would estimate a 50% increase in emissions for the same flight. This method is subject to price fluctuations, which don’t always reflect the actual emissions.
For greater precision, the company might instead use the distance-based method instead. Using the exact travel distance, the estimated emissions might be closer to 80 kilograms of CO₂ equivalent. This method provides a more accurate picture of travel, however is more complicated to administer without the right systems.
Having this level of data allows companies to make informed decisions. With accurate emissions insights, they might set internal guidelines to limit flights under 500 kilometers, instead encouraging staff to use virtual meetings or opt for alternatives like rail.
While more specific data doesn’t reduce emissions directly, it empowers organisations to make decisions that lead to measurable reductions.
The journey toward decarbonisation relies on accurate, actionable information, and by gathering the right data, companies can build sustainable strategies that make a meaningful impact.
The role of quality data.
Using high-quality, activity-based data is essential in carbon accounting. Data on kilometers travelled, energy consumed, or materials used reflects a company’s actual impact more accurately than generalised data.
For example, a company that tracks emissions from its logistics can identify specific routes, vehicles, or fuel sources that contribute to higher emissions. This insight enables them to target these areas, switch to lower-emission transport options, or optimise routes for efficiency.
A key point to consider is how companies need to move beyond spend-based emissions estimates to enable more productive and detailed conversations with their suppliers.
When a company estimates emissions solely based on dollars spent, discussions with suppliers about emissions reductions often boil down to simply asking for cost reductions. However, if the company collects or receives activity-based data from suppliers, they gain a more accurate emissions picture, opening the door to more constructive dialogues around specific reduction strategies.
This data enables companies to explore targeted actions with their suppliers, like adjusting production methods or sourcing materials with a lower carbon footprint, which can lead to more impactful and mutually beneficial outcomes.
Even though gathering higher-quality data may initially require more effort, it’s worthwhile for long-term sustainability goals. Companies that invest in accurate carbon accounting enhance their compliance capabilities and improve their overall sustainability strategy.
Conclusion.
While financial accounting provides insight into a company’s fiscal health, carbon accounting opens a window into its environmental impact. Just as financial metrics help businesses make informed economic decisions, carbon accounting allows them to make choices that align with their climate goals.
Carbon accounting gives companies the language to understand and communicate their environmental footprint.
When companies can measure their emissions accurately, they gain the power to manage and reduce them effectively.
Businesses that embrace this complex, yet invaluable process are better equipped to make meaningful progress toward carbon reduction, align with regulatory expectations, and ultimately contribute to a healthier planet.
Ready to understand your carbon impact and prepare for a sustainable future? Let BraveGen guide you through the complexities of carbon accounting and simplify your journey toward meaningful emissions reductions.
