1. What is carbon accounting?
In fact, carbon accounting is not so different from financial accounting, but instead of assessing an organisation's fiscal health, it quantifies the environmental impact of its activities. When an organisation starts Carbon Accounting it undertakes a process of measuring, quantifying, and monitoring the greenhouse gas emissions (GHGs) associated with its operations over a specific period of time. These operations can range from production to providing services and even the organisation of events. At its core, the objective of carbon accounting is to assess and manage the environmental impact of activities and to identify opportunities for reducing carbon emissions.
Remember our mantra - You can’t manage what you don’t measure. And if you can manage, you can reduce!
Carbon accounting calculates the emissions of all greenhouse gases, including carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), and fluorinated gases. These emissions are expressed in a standardized unit, known as carbon equivalent (CO2e).
The outcome of such a calculation is called the carbon footprint. This represents the sum of all the greenhouse gases emitted as a result of the activity, company, or even a whole nation. The time frame of carbon accounting is flexible and can be self-selective; 1 month, 1 year, etc. The overarching aim of carbon accounting is to understand the carbon emissions of the operations. This enables the opportunity to start making tailor-made carbon-reducing strategies.
2. Why is carbon accounting important for my business?
It might not have escaped your attention, but the world is facing huge climate and environmental challenges. More extreme weather events such as droughts, floods, storms, and heat waves are caused by the significant increase of GHG emitted by humans since the Industrial Revolution. The changing climate does not only affect nature and ecosystems but also puts pressure on our society as a whole. A vast range of social impacts can be attributed to climate change, such as insecure food production, migration, pandemics, and water scarcity even resulting in social and political unrest.
Human activities, including industries, transportation, agriculture, and even respiration, contribute substantially to the emission of these notorious GHGs, which in turn accelerate the greenhouse effect and alter our planet's climate. To mitigate climate change, we need to reduce greenhouse gases emitted into the atmosphere.
Our Mantra “You can only manage what you can measure” emphasises the importance of knowing the emissions of your business operations. Precisely quantifying both the volume of emissions, and the specific operational activities responsible for GHG production, is essential. Armed with this data, you can make a tailored strategy to minimise these emissions.
Carbon accounting defines your company's environmental performance and with this, helps you to fight climate change. Moreover, it allows investors, clients, employees, and authorities to have insights into a company’s environmental performance. Early adoption of carbon accounting ensures compliance with evolving government regulations and enhances your credibility in promoting sustainability, ultimately attracting new clients and benefiting your business.
“Carbon accounting helps you fight the climate crisis and stay compliant with stricter rules and regulations and on top of that you can brag about it in your local bar too!" - Joost Waltebos Co-founder”
So in summary, carbon accounting helps your company with the following seven points:
- Understand your carbon footprint (scopes 1, 2 and 3)
- Identify opportunities to decarbonise your company
- Optimise your ESG performances
- Align with rapidly changing regulations, reporting requirements, and the GHG protocol
- Satisfy investors' and stakeholders' demands with environmental data
- Put yourself on the front in fighting climate change
- Make reliable -and fact-based-climate pledges such as “carbon-neutrality” and “net-zero”
Calculating your company's GHG emissions is the first step in making your company future-proof.
3. Complying with rules, regulations, and the Paris Agreement
Many companies may experience growing regulations concerning environmental impact, pollution, and emissions. But why are rules becoming stricter and what can we expect from the future?
First, a little background information. In 2015, 196 nations have adopted the Paris Climate Agreement at the UN climate conference. The aim of this agreement was to keep global warming “below 2*C and preferably below 1.5*C”. All countries agreed to take action and formulate plans to reduce their greenhouse gas emissions. Unfortunately, we are globally not on track to reach these goals yet. In fact, we are heading towards not even reaching the minimum goal of keeping global warming below 2C. So we are facing a significant challenge, and this requires the collective effort of everyone involved.
Companies and industries are key in our pursuit of the climate goals. Carbon accounting plays a crucial role in quantifying emissions and shaping reduction strategies, making it a fundamental tool in achieving the Paris Agreement's objectives.
GHG Protocol and ISO 14064: Unveiling the Global Standards for Carbon Emission Reporting
To prevent a ‘wild west’ of methods used for reporting carbon emissions, global guidelines have been introduced. In this context, we introduce you to the two most widely recognised standards of carbon accounting: the Greenhouse Gas Protocol (GHG Protocol) and the ISO 14064. These frameworks form standards for accounting and reporting greenhouse gas (GHG) emissions and are applied in various sectors, such as governments, businesses, and NGOs. The frameworks encompass requirements for the design, development, management, reporting, and verification of an organization's greenhouse gas (GHG) inventory.
The GHG Protocol's corporate standard, initially published in 2001, was developed through collaboration between the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD). It involves extensive stakeholder engagement and consultation processes, ensuring continuous updates and the creation of new standards and guidelines.
Difference scope 1,2 and 3 emissions
The GHG Protocol Corporate Standard categorises the source of greenhouse gas emissions into three scopes. Under the new European Union sustainability reporting rule, companies will be required to conduct a comprehensive assessment of all their scope 3 emissions.
So, what exactly are these scopes, and why should businesses pay special attention to Scope 3? In the following paragraph, we dive into the definition of these emission categories and explain why the identification of scope 3 emissions can shape the sustainability roadmap for forward-thinking companies.
Emission scopes explained
Scope 1 emissions, also known as direct emissions, are GHG emissions from resources directly controlled or owned by the company. These emissions are a direct result of the company's activities. This can include emissions from the burning of fossil fuels for transportation and generators or emissions from waste leakage. Scope 1 has four categories: stationary combustion, mobile combustion, fugitive emissions, and process emissions.
Scope 2 emissions are ‘indirect emissions’ or, emissions associated with the consumption of purchased or acquired energy by the organisation. This can encompass electricity used for heating, and cooling. These emissions form a separate category because these emissions are outside the organisation's direct control but are still integral to its operations.
Scope 3 describes emissions that result from a wide range of activities in the whole value chain, both up and downstream. These emissions are outside the organisations direct control and are, therefore, the most difficult to measure and reduce. These are emissions associated with goods and services purchased by the company, waste generated, and for example, emissions generated as a result of a company's financial investments.
Interestingly, the most environmental impact is made in scope 3 (an average of 90% of a business' GHG emission). This underlines the importance of reporting on scope 3 activities. Scope 3 emissions often have a more significant impact, because they capture a broad spectrum of indirect emissions associated with a company's value chain, product lifecycle, and customer usage. Consequently, they often constitute the largest portion of a company's environmental impact. Making them a critical focus area for sustainability initiatives and carbon reduction strategies.
Measuring scope 3 emissions allows a company to have a holistic overview of its total environmental impact, helps identify the areas of concern, and makes well-thought decisions on emission reduction.
So, how can you reduce your Scope 3 impact? One effective approach is to reduce the waste generated by the end-user or expand the product's lifespan. Significant CO2e reduction can be achieved in the designing process of the product. Additionally, consider investing in sustainable innovations as a strategic decision to reduce your carbon footprint.
4. How to start with Carbon Accounting?
You just acquired enough background information about the purpose of carbon accounting and why it is so important. In the next section, we like to guide you through a couple of methods to actually start with calculating your Carbon Footprint.
As earlier stated, the initial purpose of Carbon Accounting is to measure your business's Carbon Footprint, across all scopes of production. Thereafter, you convert the output into CO2 equivalents (MT CO2e). The CO2 equivalent. CO2e is a standardization of the heating effects of the many gases included in the calculation, compared to the heating effect of CO2. Methane, for example, has a heating effect which is 29,8 times higher than CO2 over the same period, leading to a CO2e of 29.8 for 1kg of emitted methane.
Three approaches to calculating your footprint
There are a few starting positions for calculating the carbon footprint of your activity. In this section we introduce the spend-based approach, the activity-based approach and the hybrid approach:
The spend-based approach
This approach gives just a rough idea of how many greenhouse gases a company produces. It looks at the money spent on goods or services and then figures out how much carbon dioxide (CO2) or its equivalent is connected to each euro spent on these goods.
Here is an example: a Dutch consultancy company purchases 10.000 euros worth of new laptops from a company that produces IT materials in Shenzen, China. Subsequently, an average amount of emissions is associated with each euro spent on IT products produced in Shenzhen. Let's say 621kg CO2e for every 1.000 euros spent on electronics produced in the Shenzhen area. This makes the total emissions on the company's IT supplies 621 x 10 = 6.210 kg CO2e.
Although this calculation can be executed quickly and with few available data, the downside of this approach is that the outcomes lack specificity. A spend-based analysis uses worldwide average GHG emissions per industry sector and translates this into your carbon footprint based on your expenditures. Hence, it views your organisation's impact based on global averages.
Therefore, the spend-based approach is often no more than a starting point for a final, more accurate analysis. Before we can think of the right strategy to effectively reduce the carbon footprint we need more specific data. This data will be provided through the activity-based method.
The activity-based approach
This approach is a more accurate way of measuring a company's environmental impact, compared to the spend-based approach. Instead of just looking at how much money is spent, this method collects data on the actual quantities of specific products or materials a company acquires. For instance, it could be in terms of liters of diesel, fuel or kilograms of steel.
To calculate the associated emissions of the materials purchased, we use something called 'emission factors.' These factors are derived from scientific studies and help us understand the environmental impact of different materials. So, in essence, the activity-based approach takes into account both what a company buys and the emissions associated with those purchases, making it a robust method for assessing environmental impact.
Although more accurate, the Activity-based method is more time-consuming and requires more expertise. On the other hand, the activity-based approach allows you to understand the sources of your carbon emissions within your complete production chain. It identifies opportunities on where and how to reduce the carbon production of the activities. With this information, you are capable of making a well-thought-out carbon reduction strategy for your business.
A limitation of the activity-based method is it requires data from various sources that are not always available. You can think of data from materials, purchased from third parties, that your supplier does not have or does not want to share. This can cause problems in your specified carbon footprint calculations.
The hybrid Approach
Let’s again take the example of the Dutch consultancy that bought laptops from the Chinese supplier based in Shenzhen. This Chinese firm buys chips, wires, and screens from factories in the region. He may not have the data available on all of these materials. Hence, we must come up with alternatives. The missing data can be complemented by data derived from the spend-based approach. Combining the activity- with spend-based data is called the hybrid approach. This way of carbon accounting is often used and is both accurate and less time-consuming.
Calculating the emissions of your business activities can be a challenging and time-consuming task without the guidance of costly experts and an easy online tool. Fortunately, this problem has also been solved in today's world. Now, it is much easier for companies to calculate their carbon footprint using straightforward online software. This saves time and money and is fun at the same time!
5. Calculating your carbon footprint by using Carbon Accounting Software
Do you want to start with carbon accounting? There are different tools out on the market to help you do so. Hedgehog Company has also created a Carbon Dashboard, an easy and accessible tool that assesses the carbon footprint of businesses and simultaneously monitors the progress of your carbon footprint over time.
In this carbon dashboard, you can decide whether you want to track your carbon emissions per month or per year. Additionally, you can use a personal emission factor database. This enables you to include any emission source in your value chain with an exceptionally high level of detail compared to other carbon calculators.
Check out the Business Carbon Calculator here.
6. How can I reduce my carbon footprint?
When you know your carbon footprint, you can set your route to minimising your environmental impact. But where to start?
Reducing emissions does not have to be difficult. There are loads of easy-to-implement actions you and your colleagues can take today.
We would like to sum up a few of the easy-to-implement actions you can carry out today!
But if you want to see all 30, check them out here!
Real energy savers are the following:
- Use programmable thermostats and maintain HVAC systems to ensure efficient heating and cooling.
- Promote energy-efficient practices, such as turning off lights and equipment when not in use.
- Encourage employees to power down their computers and other devices at the end of the workday.
And what do you think of managing your waste and starting recycling:
- Encourage the use of reusable cups, plates, and utensils in the workplace kitchen or cafeteria.
- Support local and sustainable suppliers and prioritize eco-friendly products.
- Encourage employees to bring reusable bags and containers for lunches and snacks.
- Encourage employees to use reusable water bottles
- Reduce your electronic waste by implementing a recycling system for your computers, printers, and other electronic devices.
And what about changing your transportation and commuting behaviour?
- Encourage employees to use public transportation, carpooling, or cycling for their commute.
- Offer telecommuting or flexible work arrangements to reduce commuting emissions.
- Choose video conferencing or online meetings over traveling for business meetings when possible.
…and above all:
Engage your employees in sustainability and reduction measures by educating them through education and awareness programmes. And start a culture of sustainability within your team and make goals you can achieve together!