Businesses keep a careful eye on money coming in and going out of their accounts. Expenses are recorded and categorised, receipts are kept on file, and charter rules and reporting standards guide businesses to ensure accurate information is submitted for regulatory reasons as well as for stakeholder appeasement. Carbon Accounting applies a similar set of ideas to Greenhouse Gas (GHG) Emissions and enables businesses to track emissions related to their operations, plan for improvements in efficiency, and disclose their performance to governments and stakeholders. Standardised methodologies for GHG accounting are outlined in the GHG Protocol and ISO 14064-1 document, both of which feature heavily in Climate Active’s own standards.
Historically, Carbon Accounting has been a voluntary activity undertaken by organisations that value sustainability and want accurate data to understand their environmental impact. While big polluters are required to report their emissions through systems like NGER, most businesses are not currently required by law to do so. With beefed up environmental reporting legislation in the pipeline and increasing downwards pressure from large retailers seeking accurate scope 3 emission data from suppliers, the need for carbon accounting continues to grow in Australia.
So, what do businesses need to do to get ready for more strict and pervasive emission reporting requirements? Whether it’s regulatory compliance, meeting requirements for tenders, or competing on the basis of brand sustainability excellence, here are a few quick pointers to get you started on your carbon accounting journey.
Collecting Data & Understanding your Emission Sources
Similarly to conventional financial accounting, every purchase and activity a business undertakes has a resulting value in terms of emissions generated by the product/service/activity. Having suitable data to support emission calculations is a crucial aspect of any carbon accounting exercise. Your organisation will need 12 months of activity data including utility bills, staff travel, staff commutes to work, corporate events, telecommunications, office cleaning, and a swathe of other emission sources. Activity data, that is data that directly defines the undertaking (think KM traveled, or L of petrol used) is always preferable however in some cases a dollar cost value can be used instead. Using dollar cost data usually results in a more conservative estimation of emissions, so to ensure that results are not only accurate but also not over-estimated, make every effort collect and use as much activity data as possible.
Setting the Emission Boundary
Setting boundaries is an essential aspect of GHG accounting and determines where lines are drawn in terms of capturing emissions from sources and activities. Companies can choose between equity or control approaches to determine their share of operations and emissions. Emissions are then categorised into scopes and activities.
Scope 1 emissions refer to direct GHG emissions that occur from sources owned or controlled by the organisation. This typically includes emissions from on-site combustion of fossil fuels, emissions from company-owned vehicles, and emissions from industrial processes. These emissions are considered within the organisation’s operational boundaries and are under its direct control.
Scope 2 emissions represent indirect GHG emissions resulting from the production of purchased electricity, heat, or steam consumed by the organisation. These emissions occur from the generation of energy by third-party facilities and are not directly controlled by the organisation. Scope 2 emissions are important to measure because they can be influenced through the purchase of renewable energy or the improvement of energy efficiency.
Scope 3 emissions include all other indirect GHG emissions that occur as a result of the organisation’s activities but are beyond its operational boundaries. These emissions are typically associated with the entire value chain of the organisation, including upstream and downstream activities such as purchased goods and services, transportation, employee commuting, business
Emission boundaries generally work on the basis of Operational Control, that is activities that the organisation either owns entirely or is in a position to directly influence. An organisation’s emission boundary should always include scope 1 and scope 2 emissions, as well as scope 3 emissions that the organisation is in a position to influence.
Complete the Emission Inventory and Establish a Baseline
With the emission boundary determined and a complete data set readily available, a Carbon Accountant can now calculate the emission inventory, otherwise known as the Carbon Footprint. This report captures and describes the total GHG emissions generated by 12 months of business activity, and gives a detailed breakdown of emissions by source and scope. All activity data is recorded in workbooks with formulas applied to find the resulting emissions related to each activity. Emission factors and National Greenhouse Accounts factors (NGAs) are regularly updated, so carbon accountants must ensure they are using the most recent set of factors.
Set a Reduction Target
After completing an emission inventory, businesses should focus on reducing GHG emissions year-on-year and set an emission reduction target. Aligning emission reduction goals with a larger effort is recommended for organisations due to the global responsibility and investor expectations associated with climate change. By demonstrating an ongoing commitment to sustainability and setting a target, organisations can enhance their reputation, attract investors, and stay ahead of evolving regulations. Additionally, having a target informed by an overarching goal helps answer the question of ‘how much do we need to reduce our emissions by to make a difference?’. Rather than setting an arbitrary reduction target that may or may not be realistically achievable, having a well-informed target will ensure that organisations are making a difference without overburdening themselves with unrealistic goals.
One approach to setting emissions reduction targets is adopting science-based targets (SBTs). SBTs are ambitious goals that align with the objectives of the Paris Agreement. These targets calculate how much emissions need to be lowered to prevent global temperatures from rising more than 1.5°C. Using the Absolute Contraction approach, SBT’s quantify what your organisation’s target should be in proportion to the larger goal.
Organisations can also set goals on the basis of their host country’s Nationally Determined Commitment (NDC), a climate action plan that Paris Agreement participant nations must update every five years.
There are a variety of tools that carbon accountants can use to set and track emission reduction targets available through programs like SBTi and Climate Active.
Report & Disclose
Transparency and disclosure are the best defenses against greenwashing for organisations taking legitimate action to reduce their emissions. Organisations should report and disclose their emission inventories and reduction targets in annual sustainability or ESG reports to demonstrate transparency and build trust with stakeholders. This allows stakeholders to understand the organisation’s environmental impact and progress towards sustainability goals, fostering credibility and accountability. Reporting also enables measurement of performance, identification of areas for improvement, and assessment of the effectiveness of emission reduction strategies. It facilitates benchmarking against industry peers and ensures compliance with reporting frameworks and disclosure requirements expected by investors.
Businesses looking to get started with emission reporting in Australia should begin by assembling a GHG inventory to establish a baseline for their greenhouse gas emissions. They need to set boundaries, categorise emissions into scopes and activities, and collect actual physical or activity data for accurate accounting. Verification of GHG reports and engagement with stakeholders are crucial steps. Setting GHG emissions reduction targets, developing a climate action plan, and aligning with science-based approaches are essential for long-term sustainability. It is important to involve the entire organization, measure Scope 3 emissions, and consider both emission reduction and contribution strategies. By being proactive about emission reporting, organisations can demonstrate a real movement towards a sustainable business model and position themselves as climate leaders in an economy that increasingly prefers sustainable brands and businesses.
Check out NettZero’s Carbon Accounting services and get started on your own sustainability journey.