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Mastering carbon accounting & ESG reporting for business success

In an era where sustainability defines market leaders, mastering Carbon Accounting (CA) and Environmental, Social, and Governance (ESG) reporting has become more than a trend—it's now a business essential and, for many, a mandatory requirement.
Thursday, January 11, 2024
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Sustainability: Reshaping corporate success

With the advent of the Corporate Sustainability Reporting Directive (CSRD) in January 2023, sustainable practices started reshaping corporate success, blending environmental responsibility with financial savvy. Placing importance on ESG factors is now proven to have a direct and positive impact on business profits and revenues.

In this emerging reality, going green is not just an ethical choice but a strategic one for future-focused businesses and their success, with the advantage of enhanced brand reputation and transparency, increased customer and investor trust, and lower operational costs due to more efficient use of resources.  

 

Sustainability reporting frameworks

Reporting frameworks, among which, the European Sustainability Reporting Standards  (ESRS), Global Reporting Initiative (GRI), and Sustainability Accounting Standards Board (SASB), are used to assess an organization's activities impact on the different aspects – environmental, social, governance – of the business and inform the industry on what and how to report.

Carbon accounting, in particular, is crucial to the environmental part of ESG reporting, as it enables companies to calculate their GHG emissions and report on their total environmental impact, the first and fundamental step towards the successful implementation of climate change mitigation strategies. CA allows businesses to break down their carbon emissions according to their sources, identify the most polluting activities in their operations and value chain, and act accordingly.  

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Greater focus on CA to deliver benefits in multiple areas

In more practical terms, carbon accounting is the process of calculating the amount of carbon dioxide equivalent (CO2eq) emissions produced directly and indirectly from an individual, business, or organization's activities. 

By quantifying emissions, businesses can measure not only the environmental impact of their services and products but also make better use of resources, reducing inefficiencies and improving processes, staying compliant with national and international standards and laws, enhancing their competitiveness in the market, and transparency towards stakeholders. In this view, carbon accounting and reporting are the ultimate tools supporting companies in aligning their operations to their sustainability goals towards business success.

Ultimately, CA will be required when a company decides to set emission reduction targets and thus reduce its environmental impact through emission reduction strategies (e.g., Science-Based Targets) and offsetting. 

The Greenhouse Gas Protocol

The Greenhouse Gas Protocol (GHGP) is a globally recognized standard that supports businesses in navigating the CA world, understanding boundaries, data input identification, and data output interpretation. This protocol is the most widely used GHG accounting standard, with 92% of Fortune 500 companies affirming having used it to report to the Carbon Disclosure Project (CDP) in 2016. The standard categorizes emissions into three different scopes: 

  • Scope 1: Covers GHG direct emissions from sources that companies own or control, e.g., emissions from company vehicles, boilers, or refrigerant gas recharges. 
  • Scope 2: Refers to indirect GHG emissions from the generation of purchased energy, e.g., emissions linked with the generation of the electricity and heating purchased and consumed by companies.
  • Scope 3: Covers other indirect GHG emissions related to a company's upstream and downstream activities in their value chain occurring from sources not owned or controlled by the company, e.g., purchased products and materials, daily commuting, business travel, and customers' use of sold products. 

The two approaches: Spend-based vs. activity-based

The math behind the calculations might be relatively simple, but accessing the correct data type appears more challenging. There are two approaches used in carbon accounting: spend-based and activity-based. With the first approach, data is expressed and considered in economic values. While this method is quick and a good starting point for companies, it's not the most precise due to inflation and currency exchange rates. 

On the other hand, activity-based carbon accounting is more detailed, examining a company's specific activities as data is expressed in quantities, e.g., kilograms of product, km traveled, and kWh of energy consumed. An activity-based approach is definitely more time-consuming, but it helps companies understand where and how they're having negative environmental impacts more accurately. 

Once the data has been sorted out and organized, it has to be matched with the appropriate emission factor – a quest requiring dedicated study and knowledge of the available databases.

By complying with the GHG Protocol, companies ensure that their reporting is transparent, consistent, and comparable across industries on a global scale. This adherence is vital for companies seeking to align their sustainability reports with international standards and practices, offering a transparent and credible account of their environmental footprint to customers, governments, and stakeholders in general. 

Carbon accounting in the tech era

Technological advancements, such as digitalization and automation, make it easier for companies to contribute to global emission reduction efforts by assessing their own environmental impact. These advancements allow companies to reduce the time and resources spent on complying with ESG reporting requirements, and by leveraging such technologies, they can streamline their sustainability initiatives, making them more manageable and impactful.

For Business Central, which already integrates and centralizes most of a business's data needed for the carbon accounting part of ESG, a digital solution, such as Continia Sustainability, helps automate complex processes, enhance data accuracy, and provide insightful analytics. This solution allows companies to effectively collect, manage, and track all data related to their environmental impact. 

Continia Sustainability aims to ease the task for businesses in collecting meaningful activity data, organizing it, and combining it with a proper emission factor to deliver the required information on their carbon footprint.

The future of carbon accounting: What lies ahead? 

As global efforts unite in a synergistic action, encompassing both drastic reduction in GHG emissions and enhanced climate adaptation strategies, incorporating sustainability into financial planning and business management is crucial to help the industry identify and mitigate long-term risk and develop opportunities. In this context, ESG reporting, specifically carbon accounting, can lead to better management of resources, compliance with evolving environmental regulations, and increasingly demanding market expectations.

As we look ahead, we can expect carbon accounting to evolve, driven by technological innovations like AI and increasing regulatory demands. Proactively adapting and integrating these practices into daily processes is environmentally beneficial and strategically important for long-term business success. Continia Sustainability aims to support businesses worldwide in this delicate, time-consuming, but necessary task.

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