Carbon Accounting: A strategic imperative for companies

The fight against climate change requires a significant reduction in our greenhouse gas (GHG) emissions. To be part of a sustainable development approach, carbon accounting should become an essential component of any business strategy. Organizations face a multitude of challenges in implementing carbon accounting practices, encompassing both compliance and financial considerations.

What is carbon accounting?

Carbon accounting, also known as greenhouse gas accounting, is the process of calculating and tracking the amount of carbon dioxide (CO2) and other greenhouse gas (GHG) emissions produced and emitted by an organization. It is an essential part of measuring and managing an organization's carbon footprint, allowing individuals and organizations to assess their environmental impact and understand their contribution to climate change. Carbon accounting involves gathering comprehensive data on all relevant emission sources, analyzing this data to identify emission hotspots, and then using the information to set reduction goals and make informed decisions to minimize the organization's carbon footprint.

How does carbon accounting work?

Carbon accounting involves specific approaches and methods to accurately quantify an organization's environmental impact and greenhouse gas (GHG) emissions footprint. The process typically involves the following steps:

• Defining the scope of emissions: This includes identifying and categorizing emissions into scope 1, scope 2, and scope 3.

• Data collection: Gathering comprehensive data on all relevant emission sources, including internal operational data and data from suppliers or partners in the value chain. This step is critical and requires thoroughness to ensure accurate and complete data collection.

• Applying emission factors: Utilizing appropriate emission factors, which are standardized values representing the average GHG emissions produced per unit of activity or financial unit. These factors are typically obtained from reputable sources like the U.S. Environmental Protection Agency (EPA), the International Energy Agency (IEA), or Ademe (Base Empreinte).

• Calculating emissions: With the collected data and emission factors, organizations can calculate their total GHG emissions across all scopes.

• Verification and validation: The calculated emissions can undergo internal or external audits to verify the integrity of the data collection and calculation methods, assuring the accuracy of the results.

• Reporting and communication: The compiled carbon accounting data should be communicated to stakeholders, including employees, investors, regulators, and the public, to demonstrate the organization's commitment to sustainability goals and transparency.

This systematic approach to carbon accounting enables organizations to accurately measure their carbon footprint, identify emission hotspots, set reduction targets, and track progress towards their sustainability objectives.

What are the different carbon accounting standards?

Carbon accounting standards provide tools for organizations to measure their greenhouse gas emissions. The main references and standards include the GHG Protocol, the Bilan Carbone® method, and the ISO 14064-1 and ISO 14069 standards.

GHG Protocol

The Greenhouse Gas (GHG) Protocol, also known as GHG Protocol, is one of the most widely adopted carbon accounting standards, developed by the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD). Introduced in 2001, the GHG Protocol provides a comprehensive framework for calculating and reporting greenhouse gas emissions. It considers the six greenhouse gases identified by the Kyoto Protocol and offers methodologies aligned with the Intergovernmental Panel on Climate Change (IPCC) recommendations.

The GHG Protocol categorizes emissions into three scopes:

• Scope 1: Direct emissions from sources owned or controlled by the organization (e.g., fuel combustion, company vehicles).

• Scope 2: Indirect emissions from purchased electricity, heat, or steam.

• Scope 3: Other indirect emissions from the organization's value chain activities (e.g., purchased goods and services, business travel, employee commuting).

In addition to emissions quantification, the GHG Protocol provides guidance on:

• Calculating emissions reductions

• Setting science-based emissions reduction targets

• Developing greenhouse gas inventories for organizations and projects

Bilan Carbone®

The Bilan Carbone® method was developed by the French Environment and Energy Management Agency (ADEME) in 2004. It is a French carbon accounting methodology supported by the Association Bilan Carbone (ABC) which promotes the method, provides tools, and offers training in greenhouse gas (GHG) accounting best practices. 

The GHG accounting process according to the Bilan Carbone® method follows these key steps:

• Defining the objectives and scope of the carbon accounting project

• Determining the organizational, operational, and temporal boundaries

• Data collection and emissions calculations

• Establishing an action plan to reduce emissions
  

ISO 14064-1 and ISO 14069 standards

The ISO 14064 series provides a framework for organizations to quantify and report greenhouse gas emissions. ISO 14064-1 standard establishes principles and requirements for conducting a comprehensive emissions inventory across all sources and activities. Adhering to this standard helps organizations contribute to the UN's Sustainable Development Goals of promoting sustainable industrialization and combating climate change.

To support the implementation of ISO 14064-1, the ISO 14069 standard offers practical guidance, methodologies, and examples for applying carbon accounting principles within organizations. Together, these standards ensure consistency, transparency, and accuracy in an organization's emissions reporting by covering relevant sources and providing implementation guidance.

What are the different carbon accounting methodologies?

There are several methodologies that organizations can employ to measure and report their emissions accurately. The choice of methodology depends on factors such as data availability, the level of accuracy required, and the organization's specific needs.

Carbon accounting typically utilizes two main methods to estimate emissions: spend-based and activity-based methods.

Activity-based method

This method provides a more specific assessment of emissions by considering the organization's direct and indirect activities across its entire value chain. It involves gathering granular data on the quantities of specific materials or products purchased, such as liters of fuel or kilograms of textiles, and using emissions factors to calculate the emissions output of each activity. The activity-based approach is generally more accurate but can be data-intensive and time-consuming.

Spend-based method

This method involves estimating emissions by multiplying the financial value of purchased goods or services by corresponding emission factors (e.g., kg CO2e per €). It provides a simple and time-efficient way to calculate emissions, as it utilizes readily available financial data. However, the spend-based approach relies on industry averages and may not capture the specific nuances of an organization's activities, potentially leading to less accurate results.

Hybrid method

This approach combines elements of both spend-based and activity-based methods. It leverages granular activity data where available and fills gaps with spend-based estimations. The hybrid method aims to strike a balance between accuracy and practicality, utilizing the strengths of both methodologies. It is often recommended by carbon accounting standards like the GHG Protocol.

Why is carbon accounting a strategic imperative for companies?

Carbon accounting is an important step in making your company part of a sustainable development. The calculation of carbon emissions and their monitoring are part of a CSR (Corporate Social Responsibility) approach, and allow:

• Setting targets for reducing GHG emissions: Establishes structured goals to decrease greenhouse gas emissions, ensuring a company's activities are viable in a low-carbon world and align with the objective of limiting global warming to below a 2°C increase compared to pre-industrial levels.

• Complying with regulations and anticipating new laws: In France, several measures have been taken in terms of climate regulation, such as the Grenelle II law which makes carbon accounting mandatory for certain large companies. Additionally, the European Union’s Green Deal aims to make Europe climate-neutral by 2050 and introduces stricter emissions reporting requirements.

• Improving company brand image: Transparent reporting of emissions data and reduction targets appeals to eco-conscious stakeholders. Robust sustainability practices strengthen a brand's reputation for ethical leadership. Carbon accounting bolsters a company's brand image by showcasing environmental responsibility.

• Obtaining environmental certifications and labels: Non-financial reporting can be supported by labels and certifications that meet the expectations of various stakeholders. Taking into account indirect emissions generated upstream of the value chain implies greater demands from companies concerning the commitments of their suppliers.

Carbon accounting: what's next?

While essential, carbon accounting is just the starting point in the climate change battle. The calculated emissions should guide concrete actions, prompting organizations to set and achieve short- and long-term reduction goals. Initiating a corporate carbon footprint  will make it possible to identify the company's main emission sources, and therefore to define action priorities. To align with IPCC recommendations, continuous monitoring and strategic steps towards ambitious targets are crucial. Carbon accounting methods and standards empower companies to craft action plans rooted in science, driving impactful contributions to greenhouse gas reduction objectives.

As regulations evolve, more organizations face expanded carbon reporting requirements. In today's low-carbon world, every company must engage with carbon accounting.