Exploring Internal Carbon Accounting Standards
Commonly known as greenhouse gas accounting, carbon accounting is a process of quantifying the production of greenhouse gases. It includes direct as well as indirect measurement through business activities. This technique is commonly used by management teams and analysts to determine the carbon emissions of an organization.
Many people think that carbon accounting and GHG accounting are similar, but there is a slight difference. To be precise, carbon accounting is focused on carbon dioxide emissions, but GHG accounting focuses on all greenhouse gases.
Understanding the Carbon Accounting Standards
Currently, there are hardly any internationally recognized standards for recording, measuring, and reporting greenhouse gas emissions. For this reason, businesses have a hard time measuring and auditing their emissions. On the other hand, there are multiple organizations with multiple programs that not only promote accounting but also define ways to conduct these assessments.
With multiple standards out there, it can be challenging for businesses to select the most suitable ones. So, to help you out, we are sharing most commonly used standards, such as:
- IPCC
Carbon accounting rules today are based on a set of key ideas put forward by the Intergovernmental Panel on Climate Change (IPCC). To put it another way, the IPCC laid the groundwork for norms in carbon accounting. The parts of this framework that are used most often are completeness, accuracy, openness, and accuracy. - Sustainability Accounting Standards Board
The International Sustainability Standards Board (ISS) of the IFRS Foundation wants businesses to keep using the SASB Standards. With these standards, businesses can give sustainability disclosures based on their industry about the risks and possibilities that affect the value of their business. As part of this, an organization must keep track of and report its greenhouse gas (GHG) pollution. - GRI
The Global Reporting Initiative (GRI) is a set of international, non-government standards that help companies, states, and other groups understand and talk about how they affect things like human rights, corruption, and climate change. This set of rules is used by more than 10,000 groups in 200 different countries. It helps to make sustainable reporting better, which includes reporting GHG emissions from businesses. - TCFD
After the 2015 Paris deal, the Task Force on Climate-Related Financial Disclosures was set up to follow up. The TCFD has set up a system of suggestions for what kinds of information businesses should give to investors, lenders, and insurance underwriters. - The Green Business Bureau and Aclymate
When it comes to carbon tracking, the Green Business Bureau’s online platform is one of a kind. Companies can use GBB’s EcoAssessment and EcoPlanner tools to keep track of and record their business actions. Therefore, companies are helped in the process of picking projects that will help them lower their carbon impact. These programs help a company become more energy efficient, use green energy sources, and save energy by encouraging people to change the way they use energy.
Along with GBB’s free carbon accounting tool Aclymate, these environmental efforts are used. The GHG Protocol tells us how to measure, report, and keep track of emissions across three different areas. Aclymate automates a lot of this work for you. Businesses can now link their sustainable efforts to the drops in greenhouse gas emissions (GHG) to figure out how much the changes have helped. - The Greenhouse Gas Protocol
The World Resource Institute and the World Business Council for Sustainable Development worked together to make the Greenhouse Gas Protocol. The GHG Protocol is meant to help groups keep track of and measure their progress toward reducing carbon emissions. The GHG Protocol is the set of rules that are most often used for GHG tracking. There are 3 types of business emissions that are measured, tracked, and stored. These have been explained above. - Climate Registry
Businesses can use the Climate Registry’s many tools and tips to keep track of their pollution and become more efficient, environmentally friendly, and responsible. The Carbon Footprint Registry, the Net Zero Portal, and Protocols that explain best practices in carbon tracking are some of the resources that are made available. - ISO 14064
ISO, WRI, and WBCSD all worked together to make sure that the ISO and GHG Protocol requirements were all the same. This means that ISO 14064 is based on the GHG Protocol in a big way. Minimum requirements for GHG inventories are part of the standards. They provide the framework for independent audits that can be trusted and are uniform.
The ISO 14064 standard gives lawmakers a ready-made list of the best ways to reduce greenhouse gas emissions. It is the goal of ISO 14064 to make voluntary GHG surveys more consistent, more flexible, and less work-intensive. - USEPA GHG Reporting Protocol
A rule from the US Environmental Protection Agency (USEPA) called the Greenhouse Gas Reporting Protocol (GHGRP) says that large sources of greenhouse gases (GHGs), like fuel and industrial gas suppliers, and CO2 injection sites in the US have to send in data and other useful details. The GHGRP standards say that about 8,000 facilities have to share their emission data. This data is made public every October. By law, the GHGRP wants sites to report two kinds of greenhouse gas emissions:
1.Combustion fumes that come from burning fossil fuels on purpose.
2. Other pollutants that come from things like chemical reactions in industry. Emissions from leaks or emissions that happen rarely are also process emissions. - ESG Reporting and Carbon Reporting
Environmental, social, and governance (ESG) reporting is becoming more and more popular. Accounting for carbon is part of the E in ESG. In this way, the rules and guidelines for ESG reporting also work for carbon tracking. - CDP
The Carbon Disclosure Project asks companies to voluntarily share non-financial information. This includes greenhouse gas (GHG) emissions as well as information about their overall financial health, such as water security, forest health, and protection. One of CDP’s jobs is to run global disclosure systems that investors, companies, cities, states, and areas can use.
The CDP now has the world’s biggest collection of first-hand data on a company’s carbon footprint and strategies for reducing it. As an example, more than 9,600 companies, representing more than half of the world’s market value, shared their carbon impact information through CDP in 2020. We want information on both climate risk and low-carbon possibilities. Peers in the same industry are used as a standard when companies are scored and ranked in public.
Benefits of Carbon Accounting
The businesses go through internal as well as external pressures to reduce the carbon emissions, and it’s for the right cause. That’s because carbon emissions need to be reduced to prevent climate change. For this reason, it’s essential for businesses to measure and report carbon emissions. Still, many businesses don’t understand the importance of carbon accounting, which is why we are sharing the benefits.
1. Lowering the Risk of Regulatory Issues
Carbon accounting has been done freely in the past. But since companies don’t have to worry about fines for not following the rules, not many of them have actually done a thorough self-analysis. A survey done in 2021 showed that only 9% of organizations could correctly and completely measure their total GHG.
Because of this, both the SEC and the EU have made it a legal priority to track and report carbon emissions. The situation has been getting better thanks to rules like the EU’s Sustainable Finance Disclosure Regulation (SFDR), the Corporate Sustainability Reporting Directive (CSRD), and the SEC’s planned climate risk disclosure rule.
Companies in the US and Europe need to stay ahead of the rules that govern ecology. This is why it’s important to keep track of carbon. Businesses can get a clear picture of their direct and indirect carbon emissions, which lowers their chances of getting fined or having their image hurt if and when GHG regulations become the norm.
2. Resilience and Efficiency in the Supply Chain
Scope 3 emissions are greenhouse gas emissions that are not directly created by the company but by people and businesses up and down its value chain. These emissions usually make up 80% to 90% of all of an organization’s emissions. Carbon accounting helps companies find scope 3 risks and opportunities in the supply chain, especially emissions hot spots (i.e., actions or participants in the value chain that use a lot of carbon).
One example is that suppliers that use a lot of carbon will always be more sensitive to changes in the rules. Also, some providers may be too vulnerable to climate risks like not having enough resources or extreme weather. With information from carbon accounting, companies can come up with ways to cut down on carbon emissions, such as expanding their supply chain or bringing jobs back to the United States, which will make the whole value chain more resilient and efficient.
3. Consume Less Energy and Save Money
Carbon accounting lets everyone in a company see everything that it does and the people who make things for it. It can inform you about how much carbon is being emitted. In addition, it helps determine where you can cut down on carbon emissions. By figuring out where its operations aren’t working as well as they could, a business can make the changes it needs to, get rid of GHG hotspots, and eventually improve its resource efficiency.
Over time, this can save a lot of money and also be better for the environment and your image. It also helps companies that are strategic find new business opportunities and get ahead in the low-carbon economy of the future.
4. Brand Positioning
As we’ve already said, sustainability is very important to customers, investors, stakeholders, and workers. PWC says that “consumers and employees want businesses to invest in making long-lasting improvements to the environment and society, not just follow the rules, and they’re ready to reward (or punish) brands based on this.”
A huge majority of both customers and workers said they’re more likely to buy from or work for companies that share their values in all areas of ESG. Simply put, brands can show their support for the cause by monitoring their carbon footprint and taking the necessary steps to lower greenhouse gas (GHG) pollution. Being proactive instead of reactive can help a business stand out from others in the same field, become known as a thought leader, and attract investors and customers who care about the environment.
5. Good for the Environment and People
In addition to having a direct effect on a company’s bottom line and image, carbon accounting gives companies the tools they need to play a key role in the fight against climate change. A business can help fight climate change and support long-term growth for future generations by lowering its carbon impact.
6. Setting up The Business for the Future
Extreme weather, rising global temperatures, assets that get stuck, and higher prices for emissions are just some of the climate-related financial risks that businesses around the world face. According to a 2019 CDP report, the biggest companies in the world face $1 trillion in financial risks because of climate change. Most of these risks are likely to happen in the next five years.
A lot of businesses don’t know about the financial risks that climate change poses. But one of the best things about carbon accounting is that it will help businesses learn more about this threat and make smarter decisions about their operations and investments.
The Best Practices to Follow
When it comes down to carbon accounting, businesses are usually novice. If you are struggling to understand it as well, we are sharing the best practices that you can follow, such as;
- You’ve to keep a digital record of transactions, assets, and events that play a role in carbon inventory and budget.
- Keep track of the carbon emission on a monthly, quarterly, and annual basis.
- Make sure you maintain the dashboard of sustainability and carbon accounting KPIs, such as total emissions and change.
- Make sure you keep a record of emission factors, information sources, processes, and key assumptions.
- Conduct regular reviews and assurance assessments to have in-depth information.
Conclusion
Carbon accounting is all about accurately collecting and recording the GHG emissions and performance over the course of time. Proper accounting can help businesses optimize their sustainability performance, so make sure you invest in calculating and managing carbon emissions.