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Carbon Accounting: A strategic imperative for companies

Updated: Jan 10

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 ensure an accurate representation of an organization's environmental impact and footprint.


Carbon accounting journey


The first step involves defining the scope of emissions to be included, covering direct emissions from company operations (scope 1) and indirect emissions from purchased energy (scope 2), as well as indirect emissions from the organization's value chain (scope 3).


Next comes the crucial task of collecting comprehensive data on all relevant emission sources. This entails accessing internal data and collaborating with suppliers or partners. Data collection is a critical and complex task that requires thoroughness and attention to detail to ensure the accurate collection of all pertinent data.


To calculate emissions, organizations must employ appropriate emission factors, which are standardized values that represent the average amount of greenhouse gas (GHG) emissions produced per unit of activity or financial unit. These factors are typically obtained from reputable sources, such as the U.S. Environmental Protection Agency (EPA), the International Energy Agency (IEA), or Ademe (Base Empreinte).


Once all the required data (company's data + emission factors) is collected, the company has all the necessary elements to conduct its carbon accounting.


The calculated emissions can then undergo verification and validation processes to ensure the integrity of the results, either through internal audits to assess data collection and calculation methods, or through external audits to provide independent assurance.


Finally, the compiled carbon accounting data should be communicated to stakeholders, including employees, investors, and regulators, fostering transparency and enabling organizations to demonstrate their commitment to sustainability goals.


Spend-based vs activity-based methods


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


  • Activity-based: provides a more specific assessment of emissions by considering the organization's direct and indirect activities across its entire value chain. This approach 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.

  • Spend-based: involves estimating emissions by multiplying the financial value of purchased goods or services by corresponding emission factors (e.g., kg CO2e per €). This method provides a simple and time-efficient way to calculate emissions, as it utilizes readily available financial data.



The different carbon accounting methodologies and standards


Several carbon accounting standards provide tools for organizations to measure the amount of tonnes of CO2 they emit. The main references and standards are the Bilan Carbone® method, the GHG Protocol, as well as the ISO 14064-1 and 14069 standards.


Bilan Carbone®


The Bilan Carbone® method was developed by ADEME (Agency for the Environment and Energy Management) in 2004. It is supported by the Association Bilan Carbone (ABC) which offers a method, tools and training in good GHG practices. The GHG accounting process according to the Bilan Carbone® method follows 5 steps:

  • Defining the objectives of the carbon accounting project

  • The definition of organizational, operational and temporal perimeters

  • Data collection and use

  • Establishing an action plan to reduce emissions

  • Summary and reporting


GHG Protocol


ghg-protocol-logo

The GHG Protocol was created by the World Business Council for Sustainable Development (WBCSD) and the World Resources Institute (WRI). The GHG Protocol calculation and reporting standards have been used worldwide since the publication of the first reference in 2001. The method takes into account the 6 greenhouse gases identified by the Tokyo Protocol. It covers an organizational, and operational scope (scope 1 and 2 ) as well as indirect emissions from scope 3. Its calculation methods are those recommended by the IPCC. The GHG Protocol includes an emissions reduction calculation and guidance for setting reduction targets.


ISO 14064-1 and ISO 14069 standards


The first part of ISO 14064 sets out the standards on which organizations can base the inventory of greenhouse gases emitted by their activities. It thus contributes to 2 of the 17 Sustainable Development Goals (SDG) established by the United Nations: promoting sustainable industrialization and combating climate change. The ISO 14069 standard provides the methods for applying the ISO 14064 standard for carbon accounting within organizations.



Why is carbon accounting important 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 approach, and allow:


To put in place specific and structured targets for reducing CO2 emissions.


It is about ensuring that the activities of your company or organization are viable in a low-carbon world, and consistent with the objectives of keeping global warming below 2°C increase compared to the pre-industrial era.


To comply with the regulations in force and anticipate new legislative measures on the subject.


In France, several measures have been taken in terms of climate regulation, from the Grenelle II law which makes carbon accounting mandatory for certain large companies, to the TEPCV (law on energy transition for green growth) which strengthens environmental reporting obligations in CSR reports.


To significantly improve the brand image of the company by communicating around its data and its commitments.


Providing clear and standardized information to stakeholders is essential in a context where investors must also decarbonize their portfolios and participate in the development of sectors in phase with the transition.


Obtain ISO certifications and environmental labels that are important to the public and stakeholders.


Extra-financial reporting can be supported by labels and certifications that meet the expectations of the 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.

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