Accountants have built their profession on rigour - ensuring financial decision-making and disclosures are aligned to regulatory frameworks. The future of accounting is carbon - measuring the emissions of businesses. Here at Trace, we believe accountants will play a critical role in empowering business with the tools to measure and manage their emissions in an increasingly regulated environment. From non-financial disclosures on climate commitments through to consumer demand for transparent reporting - carbon accounting is fast coming to businesses large and small.
What is carbon accounting?
Carbon accounting refers to quantifying an organisation’s greenhouse gas (GHG) emissions to determine their carbon footprint within a set of emissions boundaries. Three emission scopes can be measured and these are known as scope 1, 2 and 3 emissions.
Scope 1 emissions are a direct by-product of the business or organisation’s activity. This could include the emissions from fuel used to produce the company’s goods (some service-based businesses may not have any scope 1 emissions).
Scope 2 emissions are indirect emissions, such as those produced by purchased electricity and heating used on company premises
Scope 3 emissions refer to all supply chain emissions, including waste, packaging, suppliers’ services, commuting, staff working from home and deliveries. Including all three emissions scopes is necessary for accurate carbon accounting.
Why is carbon accounting important?
Carbon accounting is the essential first step on any business’s journey to achieving net zero emissions. If you do not have a system to quantify your emissions, you will not be able to set targets or know if you are achieving them. Furthermore, with the shifting tide toward mandatory disclosure - SMEs must have the right frameworks in place to ensure they are best placed to navigate the changing environment.
Once carbon accounting is in place, you will have a transparent, accessible and real-time view of your emissions. With Trace, this view is easily shareable and downloadable - making your disclosures to investors, customers and clients easy. Further, once your understand your carbon footprint you are empowered by data to a targeted strategy to reduce your emissions and track the results of your initiatives.
Carbon accounting frameworks and methods
The Greenhouse Gas Protocol Protocol, developed by the World Resources Institute and World Business Council for Sustainable Development, is the industry’s most widely accepted GHG reporting standard. It specifies the timeframes, activities and emissions boundaries that should be used when tracking a business’s carbon footprint and working towards decarbonisation.
Our Trace carbon methodology combines the Australian Government’s Climate Active program, NABER and GHG Protocol methods. As specified under the GHG ‘Corporate Standard’ – one of the most respected carbon accounting standards – we measure all scope 1, 2 and 3 emissions under an organisation’s direct control or strong influence and compare it to benchmark data.
There are two main carbon accounting methods: the spend-based method and the activity-based method. The spend-based method calculates emissions by multiplying a product or service’s financial value by an ‘emissions factor’ – the amount of emissions created per economic unit.
The activity-based method uses a similar calculation but looks at the amount of a particular material or product a company has purchased and takes the ‘emissions factor’ from auditable scientific studies into the amount of carbon released into the atmosphere from that activity. This is considered a more accurate method and is our preferred approach at Trace, where possible, particularly for scopes 1 and 2.
To calculate your business or your client’s business’ carbon emissions, Trace needs accurate and historical data. This will include, but is not exclusive to, energy use, the amount of waste you produce and how much you spend on suppliers over the previous 12-month period.
Scope 3 emissions are typically the most difficult to measure but are perhaps the most important - CDP’s 2019 Supply Chain Report states that supply chain emissions can account for 5.5x the amount of an average business’s direct emissions.
Once collected, this data will allow your carbon accountant to calculate your business’s activity rate for producing emissions. They will then multiply your activity rate by an emissions factor to determine the volume of emissions produced by that activity in tonnes of CO2. By repeating this for all areas of your business, we can assess your overall carbon footprint. We can then work with you to make an emission reduction plan.
GHG reporting is a complex process that presents a challenge for many organisations. Unless you have extensive carbon accounting training, we recommend using an experienced and reputable provider, such as Trace, to calculate your carbon footprint – especially if you want to use the information to claim carbon-neutral status.