What is carbon accounting?
Definition of carbon accounting
Carbon accounting is a calculation method that measures, tracks, and manages an organization’s greenhouse gas (GHG) emissions. it involves assessing direct and indirect emissions linked to a company’s activities, such as energy consumption, travel, or the supply chain.
Who should conduct a carbon assessment?
A carbon assessment applies to a wide range of organizations:
large companies with more than 500 employees in france have been required to do so by law since 2012 and must renew this assessment every four years.
Mid-sized companies and SMEs, although not required, can conduct a carbon assessment to anticipate regulatory changes, reduce costs, and improve their image among consumers and investors.
Local authorities and public administrations must also assess their emissions to meet their environmental commitments and promote the ecological transition.
Finally, many startups and committed companies voluntarily choose to conduct a carbon Assessment to stand out in the market and attract partners committed to sustainable development.
Difference between financial accounting and carbon accounting
Financial accounting focuses on managing a company’s cash flows, recording its revenues, expenses, and assets. it provides a clear picture of an organization’s financial health and helps in making economic decisions.
Carbon accounting, on the other hand, measures the greenhouse gas (GHG) emissions generated by the company’s activities. while financial accounting assesses economic performance, carbon accounting evaluates environmental impact. together, they enable comprehensive management of an organization, with both economic and ecological perspectives.
What are the names of the three main carbon accounting standards?
Carbon accounting is based on three recognized international standards that serve as a framework for measuring and managing greenhouse gas emissions.
The GHG protocol (greenhouse gas protocol) is the most widely used standard worldwide. created by the world resources institute (WRI) and the world business council for sustainable development (WBCSD), it defines a standardized methodology for quantifying emissions and classifying them into three categories: scope 1 (direct emissions), scope 2 (energy-related indirect emissions), and scope 3 (other indirect emissions). it is widely used by businesses, governments, and NGOs.
The ISO 14064 standard provides an international framework for measuring, monitoring, and verifying GHG emissions. it is used for reliable environmental reporting and aligns with the requirements of financial and regulatory markets. the carbon footprint, developed by ADEME in france, is a specific method that helps businesses and local authorities assess their carbon impact and identify opportunities for reduction. it is particularly suited to french regulations and needs.
Legislation and regulatory obligations regarding carbon accounting
Carbon accounting is increasingly governed by international and national regulations aimed at reducing greenhouse gas emissions. several countries now require the production of a mandatory carbon footprint, particularly for large companies and public institutions.
In france, companies with more than 500 employees (250 for overseas territories) must conduct an emissions assessment every four years, in accordance with article L229-25 of the french environmental code. the tertiary decree also requires tertiary sector stakeholders to gradually reduce their energy consumption. at the european level, the CSRD (corporate sustainability reporting directive), which will come into force in 2024, gradually requires large companies and certain SMEs to publish non-financial reports detailing their co₂ emissions.
Internationally, many countries, such as the united kingdom, canada, and certain regions of the united states and australia, require carbon reporting from listed companies. regulations are becoming more stringent to align climate commitments with the paris agreement and carbon neutrality by 2050.
What are the objectives of carbon accounting?
Carbon accounting has several objectives:
Measuring greenhouse gas (GHG) emissions
- The main objective of carbon accounting is to accurately quantify the direct and indirect emissions associated with an organization's activities. this measurement is based on standardized methodologies, such as the GHG protocol or ISO 14064, and covers all scope 1, 2, and 3 emissions. a precise assessment makes it possible to identify the highest-emitting sources and adopt targeted actions.
Reducing emissions and improving energy efficiency
- Once the emission sources have been identified, the company can implement appropriate reduction strategies: improving energy efficiency, switching to renewable energy, optimizing industrial processes and supply chains, or raising employee awareness of more sustainable practices. reducing emissions also helps lower operational costs and anticipate changes in carbon prices.
Contribute to climate commitments and regulations
- With international agreements such as the paris agreement, companies are increasingly being asked to contribute to national and global emission reduction targets. by complying with local and european regulations, they avoid penalties and demonstrate their commitment to the ecological transition.
Increase transparency and strengthen communication
- Carbon accounting encourages clear and transparent communication with stakeholders, including investors, customers, and employees. detailed and certified reporting helps highlight efforts made and improve the company's perception. furthermore, with increasing non-financial reporting requirements, companies must demonstrate their commitment through credible carbon assessments.
Optimize sustainable performance and corporate attractiveness
- Integrating carbon accounting into a company's overall strategy allows it to position itself as a committed player in the energy transition. this improves its brand image, attracts responsible investors, and can even create a competitive advantage in the market. additionally, some large companies favor suppliers with a clear carbon strategy, thereby encouraging the entire value chain to adopt more sustainable practices.
The steps of carbon accounting
Carbon accounting follows several key steps to measure, analyze, and reduce an organization’s greenhouse gas (GHG) emissions. this structured process allows companies to better understand their carbon footprint and implement effective and appropriate strategies to reduce it.
Defining the scope and objectives
Before any measurement, it is essential to define the scope of the GHG emissions assessment. this scope may include:
- Direct emissions (scope 1): those generated by activities under the company’s direct control, such as fuel combustion in company vehicles or industrial facilities.
- Indirect energy-related emissions (scope 2): those resulting from the consumption of electricity, heating, or cooling, but produced by an external supplier.
- Other indirect emissions (scope 3): those resulting from the supply chain, freight transportation, employee travel, or the life cycle of products sold. defining a precise scope provides a clear vision and allows the calculation methodology to be adapted to the realities of each company.
Emissions data collection
Data collection is a crucial step based on identifying the various sources of emissions. It can include:
- Energy consumption of buildings and infrastructure (gas, electricity, fuel oil, etc.).
- Transportation use (vehicle fleet, business travel by plane or train, logistics).
- Industrial processes and raw materials used.
- Waste produced and its treatment.
- Emissions generated by suppliers and subcontractors.
This data collection can be complex, particularly for indirect emissions (scope 3), which often require information from external partners. to facilitate this process, numerous specialized tools and software, such as d-carbonize, can automate data entry and analysis.
Calculating GHG emissions
Once the data has been collected, it is converted into co₂ equivalents using emission factors from international standards such as the GHG Protocol or ISO 14064. these methodologies ensure the reliability and comparability of the results obtained.
Companies can choose between two main approaches:
- The emission factor approach, which consists of multiplying the quantity consumed (kwh, liters of fuel, tons of raw materials) by a corresponding emission factor.
- The material balance approach, which calculates emissions by analyzing the inputs and outputs of production flows.
Analyzing the results and identifying levers for action
After calculating emissions, an in-depth analysis must be conducted to identify the main sources of emissions and define reduction levers. this analysis can reveal particularly high-emission items, such as the energy consumption of buildings or the carbon impact of transportation and logistics.
The company can then develop an action plan including various measures:
- Optimizing energy efficiency: improving insulation, installing more efficient equipment, switching to renewable energy.
- Reducing the logistics footprint: pooling deliveries, using low-carbon transportation.
- Raising employee awareness and engagement: adopting best practices to limit unnecessary travel, promoting remote working.
- Eco-design of products and services: using sustainable materials, limiting waste and planned obsolescence.
Monitoring and continuous improvement
Carbon accounting is an ongoing process. once the initial actions have been implemented, organizations must regularly monitor progress. to do this, companies can implement performance indicators and update their data periodically (annually or semi-annually).
Preparing a carbon report allows for transparent communication on emissions and the efforts made. these reports can be used to:
- Meet regulatory obligations. inform stakeholders (customers, investors, employees).
- Adjust reduction strategies based on market developments and new technologies.
Some companies also choose to offset their residual emissions through reforestation, renewable energy, or energy efficiency projects, thus contributing to the transition to a low-carbon economy.
What are the benefits of carbon accounting for companies?
Carbon accounting offers several strategic advantages for businesses:
- Cost reduction: by identifying emission sources, companies can improve energy efficiency and reduce expenses related to energy and raw materials.
- Regulatory compliance: it helps comply with environmental regulations and national and international climate goals.
- Improved brand image: companies committed to reducing their carbon footprint enjoy a better reputation among consumers and investors.
- Attractiveness to investors: increasingly, investors are looking for responsible companies, which can ease access to capital.
- Anticipating future risks: by measuring and reducing emissions, companies prepare for future regulations and market pressures regarding sustainability.
Disadvantages of carbon accounting
While carbon accounting offers many benefits to organizations, it also presents certain limitations and challenges for businesses:
- Complexity of implementation: calculating emissions requires rigorous data collection and the use of specific methodologies, which can be time-consuming and require specialized skills.
- High initial cost: adopting measurement tools and expert support can represent a significant financial investment, especially for small businesses.
- Data may be incomplete: access to the necessary information can be limited, particularly for indirect emissions (scope 3), which can lead to inaccurate assessments.
- Risk of greenwashing: some companies use carbon accounting for marketing purposes without any real commitment to reduction, which can harm the credibility of the approach.
Despite these drawbacks, a structured approach and the use of appropriate tools can optimize carbon management and maximize environmental and economic benefits.
How to implement carbon accounting in your company?
Implementing carbon accounting in a company starts with an assessment of the direct and indirect emissions related to its activities. it is essential to define a clear scope, covering internal and external emission sources. onchttps://d-carbonize.eu/carbon-accounting/scopes/e this scope is established and the different Scopes defined, the company can gather the necessary data.
Emission calculations are based on recognized methodologies, such as the GHG protocol, which provides specific guidelines for measuring and analyzing the carbon footprint. additionally, using specific tools like the d-carbonize software is recommended, as it simplifies data management and emission calculations. this type of software also helps identify concrete actions to reduce the carbon footprint.
After the assessment, it is crucial to define clear reduction targets, then implement targeted actions such as improving energy efficiency or integrating renewable energy sources. finally, regular monitoring and transparent reporting allow for tracking progress and adjusting strategies accordingly.
Carbon accounting: what developments can we expect?
Faced with the ambitious climate targets set by the paris agreement, governments are gradually tightening their carbon reporting requirements. the european union is increasing transparency with the CSRD, which requires a greater number of companies to publish their GHG emissions. internationally, initiatives such as the SEC climate disclosure rule in the united states require listed companies to disclose their emissions and reduction strategies.
Furthermore, innovations in renewable energy, green hydrogen, and carbon capture are enabling companies to reduce their emissions more effectively. integrating these solutions into carbon accounting is becoming a strategic lever for achieving carbon neutrality.
Finally, technological innovations such as big data are revolutionizing carbon accounting by automating data collection and analysis. these tools enable real-time monitoring of emissions, facilitate the identification of action levers, and improve the accuracy of carbon assessments.
