There’s plenty of talk right now about climate change and greenhouse gasses, but while headlines warn of environmental damage, many businesses don’t know where to start when it comes to measuring their carbon emissions and their impact on the climate.
One effective way to begin addressing your organization's environmental impact is through carbon accounting. It aims to quantify the GHS emissions generated by your business operation and allows your business to set emission reduction targets and enhance overall sustainability performance.
In fact, many environmental, social, and governance (ESG) disclosure programs now require businesses to implement carbon accounting to help investors make confident financial decisions that prioritize sustainability and support more reliable long-term returns.
Understanding your business’s operational impact on climate change, however, involves more than simply looking up last year’s utility bills. Full carbon accounting includes process emissions as well as indirect emissions up and down the supply chain, or throughout an investment portfolio.
To help your business gain an understanding of carbon accounting,– including what it is, why it matters, and common methods of carbon accounting,- we explore the basics of GHG accounting and how your business can simplify the carbon accounting process using AMCS sustainability software.
what is carbon accounting?
Carbon accounting is the process of calculating greenhouse gas (GHG) emissions. These gaseous compounds such as carbon dioxide (CO₂), methane (CH₄), and nitrous oxide (N₂O) are by-products of natural processes, such as cellular respiration and decomposition, but majority of the emissions are created by industrial processes such as burning fossil fuels.
World Resource Institute reported that carbon dioxide is the most common greenhouse gas, accounting for approximately 70% of global emissions. However, other gases can have a much greater impact on global warming, making it difficult to compare their effects. In order to do so, carbon accounting harmonises emissions into carbon dioxide equivalents, or CO2e. This helps evaluate the global warming potential of different greenhouse gases so businesses can track their overall climate impact.
Estimating the total amount of CO2e involves compiling information from various sources including:
- energy consumption (e.g., electricity, natural gas, heating fuels)
- industrial processes (e.g., chemical production, cement manufacturing)
- transportation (e.g., vehicle fleets, logistics operations)
Your calculations should include emissions from direct activities produced during fuel combustion, whether for industrial processes or comfort heat, as well as indirect sources, including those within the supply chain.
Organizations can then use internationally verified frameworks and emission factors to estimate their impact on the environment. These emission factors standardize and quantify the relationship between an activity and the GHG emissions produced by that activity, once again making it easier to understand and improve performance.
why is carbon accounting important?
With attitudes towards sustainability evolving rapidly, it’s not enough to simply promote a recycling program or community clean-up to demonstrate genuine environmental efforts. Instead, businesses striving to meet sustainability targets need to be able to transparently show their progress. Carbon accounting is part of this shift towards quantifiable sustainability.
Although individual businesses have made great strides to understand and reduce their carbon footprint, the truth is the financial industry has invested over $4.6 trillion in the fossil fuel sector since the Paris Climate Agreement. To make better decisions going forward, investors need clear insights into which companies and projects are supporting major GHG emitters, and which parts of their portfolio are making progress to decrease carbon emissions.
Ultimately, one of the key benefits of carbon accounting is its ability to provide investors with consistent and verifiable data from which they can make confident financial decisions. Using global carbon accounting standards means that emissions can be compared within a portfolio, across industries, and year over year.
carbon accounting methods: what you need to know
With this focus on consistency, businesses need to acquaint themselves with carbon accounting standards and methodologies. This task alone can be daunting since there are a host of standards to choose from.
Some of the most commonly used standards, are issued by the GHG Protocol. These are designed to provide a universal framework to measure and report emissions and they have also been used by the Partnership for Carbon Accounting Financials (PCAF) as the basis for its Global GHG Accounting & Reporting Standard for the Financial Industry.
This standard covers five major elements of GHG reporting for banks and lenders including:
- Understanding what GHG accounting is
- Identifying business goals
- Reviewing accounting and reporting principles and rules
- Reviewing and applying accounting methodologies for each asset class
- Reporting emissions
Inevitably, the rules around carbon reporting will vary depending on your location and sector. Some reporting requirements are voluntary, while others, such as the EU Corporate Sustainability Reporting Directive, are mandatory.
One important thing to bear in mind, however, is that as technologies and industry practices evolve, so do emission factors. This means it is imperative to regularly update the emission factors you use to ensure the accuracy of your calculations.
finding the right carbon accounting partner
Carbon accounting is an ongoing process, with regular updates required for both industry and investors. In order to translate carbon accounting into effective decision making, your organization needs a nuanced understanding and careful selection of emission factors. As new standards and methodologies emerge, staying up to date can be a time-consuming process.
For this reason, many businesses and investors are looking for a partner that can help streamline their GHG emissions calculations and help keep them current. AMCS does just that with a cloud-based platform, purpose-built to help organizations keep track of their ESG reporting, including carbon accounting. Working with AMCS can help businesses:
- Establish a credible GHG inventory
- Predict the best strategy to reduce GHG emissions
- Reduce climate accounting costs
That means we can help resource-intensive industries to take a sustainability-focused approach, cutting energy costs, reducing emissions and simplifying climate accounting, without compromising performance.
If you’re looking to better understand how climate accounting fits into a larger ESG reporting program, check out our article entitled: what is ESG reporting. Or, if you would like to know more about climate accounting tools within the AMCS ESG Solution, contact one of our ESG experts.