Discover why carbon accounting plays a vital role in tackling climate change and promoting sustainability.
What is carbon accounting?
Carbon accounting is the process of measuring and quantifying greenhouse gas emissions, particularly carbon dioxide (CO2), produced by human activities. It involves tracking emissions from various sources such as energy use, transportation, and industrial processes. Typically, this is done to a particular standard, such as the GHG Protocol, and a sustainability audit is performed to ensure accuracy.
The goal of carbon accounting is to provide a comprehensive understanding of a company or organisation's carbon footprint: the total amount of greenhouse gas emissions it is responsible for. By identifying and quantifying these emissions, carbon accounting helps to assess their impact on climate change and supports efforts to reduce them.
Carbon accounting methods also include the monitoring and reporting of carbon removals or offsets, which are activities that remove or reduce greenhouse gas emissions from the atmosphere. These can include projects such as:
- reforestation
- renewable energy generation
- carbon capture and storage
Carbon accounting provides a standardised framework for measuring and managing greenhouse gas emissions, enabling businesses and governments to take action towards a more sustainable future.
What are the business benefits of carbon accounting?
In order for companies to effectively reduce their greenhouse gas emissions, they must first have a way to measure them. As the well-known management adage goes, "you can't manage what you can't measure."
However, what many companies discover when they implement carbon accounting is a range of unexpected and often under-utilized business advantages. These advantages allow companies to not only stay compliant with regulations, but also minimize risk, build brand equity, and reduce inefficiencies within their operations.
1. Stay compliant
As climate change becomes an increasingly urgent global concern, regulators worldwide are taking action. Since 1997, the number of climate-related laws have doubled every four to five years, and climate-related policies have been implemented in over 164 countries, comprising 95% of global greenhouse gas emissions. Inevitably, this has flow-on effects for the business community, ultimately resulting in many countries adopting some form of mandated reporting framework.
- New Zealand: Mandatory climate-related financial disclosures require some of the country's largest businesses to provide full audit-ready carbon reports, including their Scope 1, 2 and 3 emissions.
- Australia: There are current proposals, planned for phasing in from July 2024, that will mandate climate reporting for large Australian corporations and financial institutions.
- United States: Based on current SEC proposals, new laws would require SEC-registered domestic or foreign companies to include climate-related information in registration statements and periodic reports such as 10-K annual reports.
- United Kingdom: Under the SECR (Streamlined Energy and Carbon Reporting) regulations, large companies are already obligated to disclose their emissions. However, the upcoming expanded CSRD (Corporate Sustainability Reporting Directive) in the EU will extend this requirement to many previously unaffected companies, starting from the 2023 financial year.
- China: Chinese companies that engage in production with a high environmental impact and those who finance such projects must already provide a yearly ESG report, including environmental impact.
- India: As of 2022, the largest 1,000 Indian public companies have been required to disclose sustainability performance metrics relating to strategy, human capital, ESG risks, business conduct, and more, as part of their annual filings.
While these laws impact large businesses most directly, the reality is that this legislation is rapidly expanding - the latest PRI report shows an acceleration in climate policy adoption worldwide.
Even if your business is currently not obligated to report its emissions by government, it may be required in the future, and may be required now if your business is a supplier of those businesses that are required to report.
By implementing carbon accounting practices today, you can ensure that your business remains compliant with future regulations and continues to contribute to a sustainable future.
2. Minimize risk
Modern consumers and public organisations are more aware of greenwashing than ever, and with that awareness comes risk. A 2022 Grantham Research Institute report has revealed that corporate actors are increasingly being taken to court over climate related matters, and there has been a reported uptick in the number of "climate-washing" cases, where the litigant challenges the accuracy of green claims and commitments.
Businesses who conduct high-emission activities are also more likely to be challenged, and at different points in the lifecycle: including initial financing to final project approval. Financed emissions and their true impact are a growing concern.
In fact, there have been over 2,300 cases recorded in the Sabin Center's climate change litigation databases, 190 of which were filed in the 12 months between May 2022 and May 2023 alone.
This is why carbon accounting is important in minimising risk. However, just 'doing' climate reporting isn't enough - it must also be accurate.
Greenwashing is often associated with intentional deception, where companies mislead consumers into thinking they are environmentally responsible when they are actually causing harm. However, many businesses unknowingly engage in greenwashing practices, sometimes even as early as their initial carbon footprint.
When an organisation unintentionally greenwashes, they genuinely believe that they are acting in an environmentally responsible manner and convey this message to others. However, they are often unaware that their environmental efforts may be less impactful or comprehensive than they perceive.
A recent survey conducted by the Boston Consulting Group in 2021 revealed that businesses have estimated an astonishing accuracy gap of 30% to 40% in their measurements of greenhouse gas emissions. This accuracy gap represents the difference between what organizations believe they are emitting and what they are actually emitting. It highlights the significant room for improvement in accurately measuring and tracking carbon emissions, emphasizing the importance of implementing robust carbon accounting practices.
The accuracy gap is a well-known pitfall of greenwashing, as any action taken without complete information will yield incomplete results. Recognising this accuracy gap is crucial for businesses, as it poses a liability, making comprehensive and accurate carbon accounting an essential tool for mitigating risks.
3. Build brand equity
In addition to meeting compliance requirements and reducing risks, forward-thinking companies are harnessing the power of carbon accounting to unlock new business value and capitalise on opportunities with consumers, employees, and investors. By going beyond mere compliance and actively measuring and managing their carbon emissions, these businesses are building brand equity and safeguarding against accusations of greenwashing.
- A staggering 77% of consumers prioritize sustainable and environmentally responsible brands, highlighting the growing demand for businesses to take action against climate change.
- Two-thirds of employees are inclined to join a company that demonstrates robust environmental policies.
- Investors are willing to offer a 10% higher valuation to companies that have a strong positive track record in environmental, social, and governance (ESG) practices.
Your business can meet these demands by sharing your climate journey.
4. Reduce inefficiency
By accurately measuring your business's complete operational impact, you can uncover areas of inefficiency, particularly within your value chain.
For example, New Zealand printing company Webstar used ESP's energy monitoring software to better track and optimise runtime and maintenance schedules, resulting in $54k of reduced operational costs in the first 12 months and an estimated $500k annual production costs reduction.
Summary
Using carbon accounting to take demonstrable climate action – and validate your results – will help you build brand equity and protect it from allegations of greenwashing.
- Environmental impact: Carbon accounting helps to identify the major sources of greenhouse gas emissions, allowing organizations to prioritize their efforts in reducing them. By understanding their carbon footprint, businesses can implement strategies to minimize their environmental impact and contribute to mitigating climate change.
- Cost savings: Carbon accounting can lead to cost savings by identifying energy inefficiencies and areas for improvement. By measuring and tracking emissions, organizations can identify opportunities for energy conservation, waste reduction, and operational efficiencies, which can result in significant cost savings over time.
- Reputation and stakeholder engagement: Carbon accounting demonstrates an organization's commitment to sustainability and environmental responsibility. By publicly reporting their emissions and reduction efforts, businesses can enhance their reputation, attract environmentally conscious customers, and engage with stakeholders who prioritize sustainability.
- Compliance and regulation: Governments around the world are implementing regulations and policies to address climate change. Carbon accounting helps businesses stay compliant with these regulations and demonstrates their commitment to environmental responsibility.
By implementing carbon accounting practices, businesses and governments can actively contribute to the global efforts to combat climate change.
Ready to begin your carbon accounting journey?
