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The Business Guide to Carbon Accounting

A guide to understanding carbon accounting, your organization’s environmental footprint, and how you can get started.
 
JULY 26, 2024. 7 MIN READ

Why should a business account for its carbon?

The need to deliver high-quality data to validate environmental claims and initiate climate action has never been greater. As environmental, social, and governance (ESG) reporting and disclosure requirements gain traction globally, companies are facing mounting pressure from various stakeholders — including investors, employees, customers, and communities — to disclose their carbon emissions. A company's sustainability approach is increasingly tied to financial, reputational, and operational risks, and organizations that prioritize sustainable solutions do more than just comply with ESG regulations. By proactively identifying and addressing areas of concern, these organizations set themselves up for long-term success by minimizing risks, seizing new market opportunities, and securing a competitive edge.
Carbon accounting is a critical step in measuring your climate impact and implementing effective mitigation strategies. This guide provides a foundation in carbon accounting principles and outlines the methods for tracking carbon emissions across your entire value chain. Additionally, you will learn how to analyze the results and use these insights to prioritize and shape your organization’s climate action initiatives.
A woman in a hardhat is reading a tablet and smiling

What is carbon accounting?

Carbon accounting is the systematic approach organizations use to calculate their greenhouse gas (GHG) emissions. This evaluation helps businesses understand their climate impact, set emissions reduction targets, and identify risks and opportunities for the business. In some organizations, a company’s carbon footprint is also known as a “carbon inventory” or a “greenhouse gas inventory.”

Carbon accounting is the foundation for implementing meaningful climate action in your organization. By conducting a thorough GHG emissions inventory, you lay the groundwork for developing targeted carbon reduction strategies that align with and enhance your overall sustainability strategy. The leading framework that businesses use to conduct an emissions inventory is the GHG Protocol.

What are greenhouse gas emissions?

Greenhouse gas emissions trap heat when released into the atmosphere. Carbon dioxide (CO2), methane (CH4), and nitrous oxide (N2O) are the most prevalent GHGs for businesses.

Some amount of GHGs are vital for life on Earth, as they capture heat from the sun, warming the planet while preventing that warmth from dissipating into space. However, over the past 200 years, increasing GHG emissions from the use of fossil fuels has disrupted the delicate atmospheric balance that regulates our climate. This imbalance is leading to extreme global consequences that affect ecosystems, economies, and communities through severe heat waves, large-scale wildfires, intense storms, accelerated sea-level rise, and more.

Because different GHGs have differing levels of impact on the atmosphere, the global community has aligned on the use of a single metric to quantify the impact of all GHGs: carbon dioxide equivalents, or CO2e. The U.S. Environmental Protection Agency defines CO2e as the number of metric tons of CO2 emissions with the same global warming potential as one metric ton of another GHG. In other words, CO2e refers to the impact from all GHGs, normalized and described in terms of CO2 impact. By referring to the impact of all GHGs in terms of CO2e, we can make direct comparisons among various GHGs.

An illustration showing the differences between Scope 1, 2, and 3 emissions

How should you categorize emissions?

Organizations’ environmental footprints consist of direct emissions and indirect emissions. Direct emissions originate from sources that a company directly controls or owns. Indirect emissions are those that come from a company’s value chain. Although organizations don’t have complete control over their indirect emissions, both direct and indirect emissions are critical components of a company’s total GHG footprint and its accompanying climate strategy. For clarity in carbon accounting, emissions are categorized into one of three scopes:
Scope 1: Direct emissions from sources that are owned or controlled by the company, such as fuel combustion from onsite gas-fired boilers or diesel generators, and emissions produced by company-owned vehicles.
Scope 2: Emissions from the generation of purchased or acquired electricity, steam, heat, or cooling consumed by the reporting company but generated elsewhere, such as a power plant.
Scope 3: Indirect emissions from all other sources in the company’s supply chain. Some examples include employee commuting, business travel, purchased goods and services, raw materials, and distribution. Scope 3 is generally the largest and most complex emissions category.
In the rest of this article, you’ll find a step-by-step guide that describes how to account for your organization’s GHG footprint and how to streamline the calculation process
 
 
 
 

The Guide to Carbon Accounting

Go net zero now by learning...
  • Which departments should be involved in carbon emissions reporting
  • How to define boundaries, collect data, and turn that data into carbon emissions equivalents
  • How to streamline and automate the process with the right tools and technology
 
 

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