Carbon accounting is a way for companies to quantify and report their CO2 emissions.
Carbon accounting - also known as carbon accounting - is a crucial factor for successful businesses of the future that want to quantify and reduce their climate impact. But what exactly is carbon accounting and how can it help your business become more sustainable?
What is carbon accounting?
Carbon accounting is a way to measure and report your company's greenhouse gas emissions, including CO2. By collecting data on energy consumption, production, transportation and other activities, your company can calculate your total CO2 emissions and identify areas where you can reduce your carbon footprint.
"45% of consumers are prepared to stop buying from their favorite brands if they refuse to calculate their carbon emissions."
- Survey conducted by Carbon Trust
This trend has more than doubled from last year, with only 22% of respondents agreeing with the statement.
Carbon accounting isn't just good for the environment - it can also have financial benefits for your business. By identifying inefficiencies and reducing emissions, businesses can save money on energy bills and other costs.
If your company wants to implement carbon accounting, there are several tools and services that can help you get started. You can also consider getting professional guidance to create and manage your carbon accounting.
Either way, carbon accounting is an essential part of any sustainable business strategy in 2024 and beyond. If your company hasn't already implemented carbon accounting, it's time to get started. Every year, more comprehensive regulations are introduced that require more companies to implement carbon accounting and reporting.
How do you create a carbon footprint?
When implementing carbon accounting, there are several steps you can take to do it most effectively. Firstly, you need to identify your carbon sources and collect data on your company's activities and energy consumption. This can include everything from transportation and production to electricity use and paper consumption.
Our approach to the CO2 calculation is usually to start by mapping the rough overview of the company's CO2 emissions. This is most easily achieved by mapping the company's consumption-based emissions.
Climaider CO2 accounting software has automated much of this process by integrating with your accounting software.
The consumption-based emissions save a lot of hassle and ensure that there are no gaps in your carbon footprint due to the administrative hassle of collecting data. In just a few minutes, we can cover your entire carbon footprint. The calculation based on consumption-based emissions is less precise, but provides a good starting point and overview for further work with corporate carbon accounting.
The next step adds more precision to the CO2 calculation and provides more actionable data for your business to act on. Here, the goal is to calculate the activity-based emissions of your company's most carbon-intensive emissions items.
Finally, we have the top layer of complexity in CO2 accounting: Supplier-specific emissions. Here the data is upgraded once again, adding the exact emissions from your specific suppliers. This part typically requires the supplier to have prepared a Life Cycle Assessment (LCA).
When we perform CO2 calculations for companies, we always use the Greenhouse Gas Protocol (GHG Protocol ) and Scope 1, 2 and 3. This is the most common method and internationally recognized best practice. We strongly recommend that you do the same. Here you can see an overview of the GHG Protocol and which emission categories are associated with Scope 1, 2 and 3 respectively:
How to make the most of your carbon footprint
The level of precision and complexity of the CO2 accounting is up to the company to assess the necessity. In general, we recommend including both consumption and activity-based emissions as a minimum. Adding the final layer of precision will give you complete insight into the CO2 emissions from your value chain, but the process can also be laborious and costly. For most small businesses, your carbon accounting based on consumption and activity-based data will be sufficient.
Carbon accounting isn't worth much if you don't understand the meaning of the numbers.
Therefore, you may want to compare your business to industry averages to better understand your situation. Carbon accounting also helps you identify areas where you can reduce your emissions and improve the sustainability of your business.
However, it's only a start to the ultimate goal: reducing your company's CO2 emissions. Carbon accounting has given you insights and data that you can act on. But it's ultimately up to the business to set targets to reduce its overall carbon footprint. Using an external advisor like Climaider can help you verify your carbon footprint and help you develop a reduction strategy so you're not left with nothing.
Finally, it's important to report your carbon emissions and progress to stakeholders, including customers, investors and authorities. This will help show your company's commitment to reducing its carbon footprint and running a more sustainable business.
Are there requirements for carbon accounting?
Carbon accounting requirements vary depending on the country and legislation. But one thing's for sure: if your business isn't yet covered by sustainability reporting requirements - you soon will be.
You may have heard of the Corporate Sustainability Reporting Directive (CSRD), which already covers many Danish companies.
The new CSRD requirements come into effect for the following financial year:
- January 1, 2024 for listed companies in reporting class D with over 500 employees.
- January 1, 2025 for both listed and non-listed companies in reporting class 1. large C with over 250 employees.
- January 1, 2026 for small listed companies with fewer than 250 employees.
- January 1, 2028 for companies from third countries with significant activities in the EU.
Companies with over 1,000 employees and a net worldwide turnover of over EUR 450 million based in the EU will also be required to comply with the Corporate Sustainability Due Diligence Directive (CSDDD).
If you are covered by CSRD, you are required to report non-financial key figures in accordance with ESRS (European Sustainability Reporting Standard).
Challenges in meeting new demands
The Danish Business Association's All Aboard 2023 analysis shows that 69% of the Danish companies surveyed experience challenges when working with sustainability. This is mainly due to limited resources, lack of knowledge and access to the necessary data, which makes it both time-consuming and complicated for companies to prepare accurate and useful reports.
"My impression is that companies want to be involved and want to see the new ESG rules as value-creating and a competitive advantage. If it becomes too difficult, we risk that companies will lose heart and it will be difficult to support the green transition."
says Ellen Marie Friis Johansen, Head of CSR at the Danish Chamber of Commerce.
Climaider is highlighted by Dansk Erhverv as one of the leading carbon accounting solutions for SMEs.
Other standards and reporting frameworks
There are many reasons to create a carbon or ESG report. There are also many different reporting standards that you can choose to follow and different reasons why you choose to follow a given standard or reporting framework. For example, if you are a supplier to a reporting company, they may require you to report environmental data through the Global Reporting Initiative (GRI) or Carbon Disclosure Project (CDP).
As mentioned, there are a wide range of different standards you can follow. Which ones you choose to follow is largely a matter of judgment for the individual company. If you need help choosing the right approach to your carbon accounting, you are welcome to contact us.
The link between carbon accounting and ESG
ESG (Environmental, Social, and Governance) is a term for the three key factors used to measure and report on a company's sustainability and social impact. How does this relate to carbon accounting?
If you've created a carbon footprint, you've basically done most of the E in ESG. You will potentially have to calculate the data in a slightly different way, but as we illustrate below, the E in ESG is a kind of overall summary of your carbon accounting.
Is it a requirement to report ESG metrics?
As mentioned earlier, large companies and listed companies will be subject to the Corporate Sustainability Reporting Directive (CSRD), which sets requirements for sustainability reporting. This means that large companies must report ESG data. As a result, these larger companies will increasingly demand ESG data from their suppliers. Investors and other stakeholders will also use this ESG data to evaluate companies' sustainability performance.
The new legal requirements will only affect SMEs if the company is listed. If you run an unlisted SME, you can still expect inquiries about sustainability and specific ESG metrics - especially if you are involved in the value chain of larger companies. For example, business customers may ask for data on your products' carbon emissions or ethical guidelines in the production process.
Reporting standard for ESG metrics
It is important for us to point out that there is no official standardization yet for reporting ESG metrics as an SME. Until an official standard is published, our recommendation is to follow the Climate Compass ESG metrics. How to use them specifically will be discussed later in the article. If you are covered by CSRD, you must follow ESRS.
It is not yet clear what the guidelines will look like for SMEs. We expect the future guidelines to lean more towards the CSRD's reporting framework, ESRS. So far, only a draft has been published for this reporting framework for SMEs, and it is therefore neither finalized nor adopted as of today.
Read more about the voluntary reporting standard for SMEs: Voluntary ESRS for non-listed small- and medium-sized enterprises.
NOTICE: This article was last updated on 22/5/2024, therefore parts of the article content may potentially be outdated by the time you read this. We endeavor to update the content with relevant guidance and compliance as soon as it is published.
Example of how to report environmental data in the ESG report
Below is an example of how environmental data from a company's carbon footprint can be reported in accordance with the E in ESG.
Example of a climate report divided into scope 1, 2 and 3
Below you can try a demo of Climaider's software. In the demo, you can see what a CO2 accounting of scope 1, 2 and 3 looks like.
Does getting started with carbon accounting sound relevant for your business? At Climaider, we have many years of experience with CO2 calculation, reporting and reduction. You can read more about how our software can help you achieve your CO2 accounting goals here here.
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