Carbon Accounting FAQ: Answers for Business Leaders

Carbon accounting is measuring your company's greenhouse gas emissions to understand environmental impact and set climate goals. Here's what you need to know:

• It's becoming legally required (e.g. EU's CSRD, California's SB 253)

• Investors, customers, and employees want transparency

• It helps identify risks and cost-saving opportunities

• It's essential for setting and achieving climate targets

Key components:

• Scope 1: Direct emissions from owned sources

• Scope 2: Indirect emissions from purchased energy

• Scope 3: All other indirect emissions in value chain (often 80-95% of total)

To get started:

1. Choose carbon accounting software

2. Establish data collection processes

3. Set science-based targets

4. Track progress regularly

5. Engage suppliers for Scope 3 data

Common challenges:

• Poor data quality

• Limited resources

• Supply chain emissions

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Carbon Accounting 101

Carbon accounting is a must-have skill for today's business leaders. Here's what you need to know:

What Does Carbon Accounting Mean?

Think of carbon accounting as financial accounting, but for greenhouse gases (GHGs). Instead of tracking dollars and cents, you're measuring your company's climate impact.

The goal? To quantify your GHG emissions in a structured way. The result is typically expressed in 'CO2 equivalents' (CO2-e), which puts all GHGs on the same playing field as CO2.

Why Businesses Need It

Carbon accounting isn't just a fancy term. It's becoming crucial for several reasons:

1. Regulatory Compliance

New laws are making carbon reporting a must. Take the EU's Corporate Sustainability Reporting Directive (CSRD). Starting in 2025, about 50,000 companies will have to report their GHG emissions.

2. Investor Pressure

Investors are eyeing companies' carbon footprints. Some are even willing to pay 10% more for companies with strong environmental track records.

3. Consumer Expectations

Consumers care about sustainability. In fact, 77% say it's at least moderately important that brands are eco-friendly.

4. Talent Attraction

Want to attract top talent? Two-thirds of employees prefer working for companies with strong environmental policies.

5. Operational Efficiency

Carbon accounting often uncovers inefficiencies in operations. This can lead to cost savings.

"Sustainability will essentially become a fourth factor for many finance functions to balance, alongside the traditional 'buckets' of revenue, cost, and capital."

Meeting CSRD Rules

The CSRD is shaking things up for carbon accounting in Europe. Here's the lowdown:

• It applies to large EU companies that meet two of these criteria:

  • €40 million+ in net turnover

  • €20 million+ in assets

  • 250+ employees

• Reporting kicks off in 2025 for companies already subject to non-financial reporting requirements.

• Companies must disclose gross Scope 1, 2, and 3 GHG emissions in metric tons of CO2 equivalents.

To get ready, businesses should:

1. Practice carbon accounting processes

2. Set up solid data collection and reporting systems

3. Focus on improving data quality over time

Start with spend-based methods, then move to activity-based data as you get better at it.

Main Parts of Carbon Accounting

Carbon accounting isn't rocket science, but it's not a walk in the park either. Let's break it down into bite-sized pieces:

Types of Emissions: Scope 1, 2, and 3

Think of carbon emissions like a three-layer cake:

1. Scope 1: The stuff you directly cook up

This is the smoke from your company's tailpipes and chimneys. It's the emissions you can see and touch.

2. Scope 2: The electricity bill

Every time you flip a switch, you're indirectly causing emissions. It's like ordering takeout - you didn't cook it, but you're responsible for it.

3. Scope 3: Everything else

This is the big one. It's all the emissions from your supply chain, your employees' commutes, even what happens to your products after they're sold. It's like trying to count all the grains of sand on a beach.

"Developing a full [greenhouse gas] emissions inventory – incorporating Scope 1, Scope 2 and Scope 3 emissions – enables companies to understand their full value chain emissions and focus their efforts on the greatest reduction opportunities." - Greenhouse Gas Protocol

Here's a shocker: Scope 3 often makes up 80% to 95% of a company's total emissions. It's the elephant in the room that many companies are just starting to tackle.

Rules and Guidelines

Enter the Greenhouse Gas (GHG) Protocol - the rulebook for carbon accounting. It's like the Bible for emissions counters. Here's the scoop:

• It's been around since 2001, with a facelift in 2004.

• It's built on five pillars: relevance, completeness, consistency, transparency, and accuracy.

• It's so popular that in 2016, 92% of Fortune 500 companies responding to the CDP were using it.

But even the GHG Protocol isn't perfect. There's a growing chorus calling for updates to keep up with the times.

Setting Company Boundaries

Now, here's where it gets tricky. How do you decide what counts as your emissions? The GHG Protocol offers two flavors:

1. Equity Share Approach

You own 50% of a factory? You're on the hook for 50% of its emissions. Simple as that.

2. Control Approach

If you call the shots, you own ALL the emissions. It doesn't matter if you only own 51% of the company.

"A company has operational control over an operation if it or one of its subsidiaries has the full authority to introduce and implement its operating policies at the operation." - GHG Protocol Corporate Standard

Picking the right approach is like choosing the right tool for the job. Got a bunch of joint ventures? Equity Share might be your best bet. Running the show in most of your operations? The Control Approach could be the way to go.

Just remember: once you pick a lane, stay in it. Consistency is key when it comes to carbon accounting.

Setting Up Carbon Tracking

Let's dive into how to set up a solid carbon tracking system. We'll cover choosing the right software and getting good data for your carbon accounting.

Picking the Right Software

Choosing the best carbon accounting software is key. Here's what to think about:

1. Know What You Need

Figure out what your company needs based on its size, industry, and reporting requirements. A small business might just need basic carbon footprint calculations. A big corporation? They'll probably need to track Scope 1, 2, and 3 emissions.

2. Look for Key Features

Good carbon accounting software should have:

• Automated data collection

• GHG Protocol compliance

• Customizable reporting

• Integration with your existing systems

3. Keep It Simple

Pick a platform that's easy to use. Your team shouldn't need a PhD to figure it out.

4. Think Long-Term

Make sure the software can grow with your business and adapt to new regulations.

5. Get Support

Consider what kind of customer support and training you'll get.

Here's a quick comparison of some popular options:

"The right carbon accounting software can make or break your sustainability efforts." - Industry Expert

Getting Good Data

Your carbon accounting is only as good as your data. Here's how to get reliable info:

1. Find Your Data Sources

Map out all the places your emissions might come from in your operations and supply chain.

2. Set Up Collection Processes

Create systems to gather data from different departments and partners.

3. Use Tech

Smart meters, IoT devices, and automated data feeds can boost accuracy and cut down on manual errors.

4. Train Your People

Teach your employees why accurate data matters and how to report it.

5. Check Your Work

Do regular audits to make sure your data is accurate and find ways to improve.

6. Work with Suppliers

Team up with your supply chain partners to get primary data for Scope 3 emissions.

For example, Microsoft Sustainability Manager helps make data more transparent and gives you insights. This makes it easier to collect and analyze your sustainability data.

Meeting Legal Requirements

Carbon reporting laws can be a headache. But don't sweat it - we've got the lowdown on what you need to know.

Current Rules and Laws

Carbon reporting is changing fast. Here's the scoop:

Corporate Sustainability Reporting Directive (CSRD): This EU rule is a game-changer. From 2025, about 50,000 companies must report their greenhouse gas (GHG) emissions. That's Scope 1, 2, and 3 - everything from your office lights to your supply chain.

California's Climate Corporate Data Accountability Act: California's not messing around. Companies making over $1 billion yearly need to spill the beans on all their emissions. And it's not cheap to ignore - fines can hit $500,000 per year.

U.S. Environmental Protection Agency's Greenhouse Gas Reporting Program (GHGRP): This program covers most of the U.S. carbon footprint. It's like the big brother of carbon reporting.

"Regulatory compliance means following the rules for how businesses should operate." - North Star Carbon Management

Want to stay on top of these rules? Try carbon accounting software. Emerald Power's platform, for example, follows the GHG Protocol and helps with CSRD reporting. Their Pro plan even comes with an expert to guide you.

Getting Reports Checked

Getting your carbon reports verified isn't just nice - it's becoming a must. Here's how to make sure your numbers are solid:

1. Pick a legit verifier: In California, you need a CARB-accredited verification body. Don't skimp on this - it's crucial.

2. Be ready for questions: The EPA checks reports electronically. If something looks off, they'll ask. Be ready to explain or fix any issues.

3. Stay consistent, but be flexible: Stick to one method, but know you can change year to year in the GHGRP. Just follow the rules for whichever method you pick.

4. Use tech: Tools like TÜV SÜD's verification services can help. They're ISO 14065 accredited and have been at it since 2005.

5. Don't miss deadlines: In California, you need to verify by August 10th each year. Mark it down!

Verified reports aren't just paperwork. They show you're trustworthy. As TÜV SÜD says:

"A GHG balance only becomes truly reliable when it's been checked by someone else."

Cutting Carbon Emissions

Want to slash your company's carbon footprint? It's not just good for the planet - it's becoming a must for business success. Here's how to set real goals and keep tabs on your progress.

Setting Clear Targets

You need science-based targets to cut carbon emissions. These aren't random numbers - they're based on hard data and line up with global climate goals.

The Science Based Targets initiative (SBTi) is your best friend here. They give you tools and advice to set doable emission reduction goals. By the end of 2022, over 4,000 companies were using SBTi to set their targets. That's more than a third of the global economy's market cap!

Here's your game plan:

1. Tell the world you're committed

2. Aim to cut emissions in half by 2030

3. Shoot for Net Zero by 2050 (that means slashing emissions by at least 90%)

4. Pick a starting point year

5. Figure out all your emission sources

6. Get the experts to check your targets

These targets aren't just for show. They're key to your business strategy. As Workiva Carbon puts it, "Cutting emissions isn't just nice - it's necessary for business."

Checking Your Progress

Setting targets is just step one. You've got to keep an eye on your progress to make sure you're on track. Here's how:

Use smart software: Tools like Emerald Power can do the heavy lifting for you. They gather data and create reports automatically, covering all types of emissions.

Set up KPIs: Key Performance Indicators help you measure how you're doing. Your Carbon Footprint is a big one - it includes all the greenhouse gases your company's responsible for.

Check in often: Don't wait till the end of the year. Look at your progress every few months, or even every month.

Work with your suppliers: For many companies, most emissions come from their supply chain. Team up with your suppliers to get the right numbers.

Try digital twins: These are virtual copies of your business. You can use them to test out different ways to save energy. For example, you could see what happens if you move your operations closer to your customers.

Common Problems and Solutions

Carbon accounting isn't always a walk in the park. Let's dive into some typical challenges and how to tackle them head-on.

Data and Budget Issues

The biggest headache in carbon accounting? Often, it's getting good data. Here's how to deal:

Poor Data Quality

When your data is incomplete or inaccurate, try this:

1. Use what you've got. Rough estimates beat no data at all.

2. Set up systems to gather better data moving forward.

3. Stuck? Use industry averages as a starting point.

Limited Resources

Carbon accounting can eat up time and money. Here's how to make it work on a shoestring:

1. Target your biggest emission sources first.

2. Tap into free resources like the GHG Protocol's calculation tools.

3. Upskill your current team instead of hiring pricey experts.

"Don't let perfect be the enemy of good. Start with the data you have and improve over time." - Sarah Leugers, Director of Communications at Gold Standard

Automation is Key

Manual data entry? It's a time-sink and error-prone. Platforms like Emerald Power offer automated data collection through software integrations. This can slash work hours and boost accuracy.

Supply Chain Emissions

Scope 3 emissions, especially from your supply chain, can be a real puzzle. Here's how to crack it:

Engage Your Suppliers

1. Start talking. Many suppliers already track emissions and might share data.

2. Offer perks for good emissions data.

3. When supplier data isn't available, fall back on sector benchmarks.

Focus on Hotspots

You can't track it all, so zero in on your biggest emission sources:

1. Do a spend-based analysis to spot your top suppliers.

2. Use tools like the GHG Protocol Scope 3 Evaluator to pinpoint likely big emitters.

3. Dig deep into these areas for more accurate data.

Collaborate and Learn

Team up with others. Join industry groups or programs like CDP Supply Chain to share best practices and work with suppliers on cutting emissions.

"Collaboration is key in tackling supply chain emissions. No company can do it alone." - Dexter Galvin, Global Director of Corporations & Supply Chains at CDP

Next Steps

You've got the basics of carbon accounting down. Now it's time to put that knowledge into action. Here's how to kick off your company's emission tracking and reporting:

1. Pick your carbon accounting tool

First things first: choose the right software. Emerald Power offers a solid option for mid-market businesses. Their platform does the heavy lifting by automating data collection, making reporting a breeze, and helping you set net zero targets. Plus, it keeps you in line with GHG Protocol standards and CSRD regulations.

2. Get your baseline

Dig into your historical data. Look at energy use, raw materials, transportation, and waste. This baseline is your starting point - you'll use it to measure your progress going forward.

3. Get everyone on board

Carbon accounting isn't a solo gig. Get your team involved with sustainability training and ask for their ideas. Don't forget your suppliers - you'll need their data for those Scope 3 emissions.

4. Set realistic goals

The Science Based Targets initiative (SBTi) is your friend here. It'll help you set emission reduction goals you can actually achieve. By the end of 2022, over 4,000 companies were using SBTi - that's more than a third of the global economy's market cap.

5. Keep tabs on your progress

Use dashboards to visualize your data. Set up some KPIs and check in on them regularly - monthly or quarterly works well.

6. Always be improving

Carbon accounting isn't a "set it and forget it" deal. Keep assessing and updating your strategies based on your performance and new tech that comes along.

Here's a pro tip from Sarah Leugers, Director of Communications at Gold Standard:

"Don't let perfect be the enemy of good. Start with the data you have and improve over time."

In other words, just get started. You can always refine your process as you go.