What is Carbon Accounting? Aligning Your Business with CSRD Standards

What is Carbon Accounting?

Carbon accounting is a systematic and structured approach used by organisations to measure, manage, and report their greenhouse gas (GHG) emissions. It involves tracking and quantifying emissions from various sources within a company's operations.

These emissions typically include carbon dioxide (CO2), methane (CH4), Nitrous oxide (N2O), and other GHGs that contribute to climate change. The common greenhouse gases included in carbon accounting are often referred to as "CO2-equivalents" (CO2e), which standardises their warming impact relative to CO2 over a specified timeframe.

The goal of carbon accounting is two-fold:

• Measurement: It is essential to accurately measure and calculate emissions from all relevant activities and sources within an organisation. This involves considering emissions from energy use, transportation, manufacturing processes, supply chains, and more.
• Management and Reporting: Once emissions are measured, the data is used to make informed decisions about reducing an organisation's carbon footprint. Carbon accounting enables companies to set reduction targets, implement strategies to achieve them, and report their progress to stakeholders.
  

3 Scopes of Emissions to Consider in Carbon Accounting

Emissions are categorised into different scopes based on their originating source. Here are the details of each scope:

• Scope 1 emissions refer to direct emissions from sources that are owned or managed by the organisation. This includes emissions from fuel combustion in machines, from company-owned vehicles, or even emissions arising from equipment leaks.
• Scope 2 emissions encompass indirect emissions from the generation of purchased electricity, steam, heat, and cooling. These emissions come from external sources, namely the facilities in charge of generating the energy that the company purchases.
• Scope 3 emissions include all additional indirect emissions that occur throughout the value chain of the organisation, including both upstream and downstream activities.
  

Once aggregated, these emissions form what is called the organisation’s GHG emissions footprint.

Why is Carbon Accounting Important for CSRD Compliance?

The CSRD’s European Sustainability Reporting Standards (ESRS) specify the reporting requirements for environmental matters, with a particular emphasis on climate-related disclosures in Standard E1-Climate Change. E1 mandates companies to provide detailed information on their greenhouse gas emissions, covering Scope 1, 2, and 3 emissions, and to outline their strategies, actions, and future plans in addressing climate change.

The objective is to ensure that companies report transparently and comprehensively on their environmental impact, enabling stakeholders to assess the organisation's commitment to sustainability and its alignment with global climate goals. Through ESRS E1, the CSRD aims to standardise environmental reporting across the European Union, enhancing the consistency, comparability, and reliability of sustainability information disclosed by companies.

Learn more about the CSRD in our comprehensive ebook “The Essentials of the CSRD”.

The Predicament of Carbon Accounting

The process of climate transition has only just begun. Our recent survey “The State of Play of the CSRD” revealed that 86% of large and mid-sized companies have already performed some GHG emissions assessment, while 34% have performed in-depth lifecycle assessment on a product.

An interesting finding is that 88.5% of companies perform their carbon accounting in Excel spreadsheets, often with the help of an external consultant. Organisations argue that Excel provides the flexibility to follow a fully customised methodology for carbon calculations, led by a specialised consultant.

This method, while familiar, has also major inherent drawbacks: The process of data collection over emails and such sources can be laborious, error-prone, and lacks real-time tracking. Additionally, the lack of auditability and the inability to provide a comprehensive audit trail makes it difficult for companies to maintain the credibility of their reported carbon emissions.

As sustainability reporting continues to progress, the methodologies for carbon accounting need to evolve accordingly. Let’s explore different pathways together.

How can Companies Achieve Compliance with EU Legislation

To achieve compliance with the EU legislation regarding carbon accounting, companies have two distinct options, each with its own set of benefits and challenges.

Option 1: Enhancing Traditional Methods

Companies can choose to stick with their familiar Excel-based calculations while adopting a specialised data collection tool like Greenomy. Greenomy streamlines the process of gathering emission-related data, automating data input, and reducing the reliance on error-prone emails and Excel spreadsheets. However, while this option provides some efficiency improvements, it may not fully address the auditability and real-time tracking requirements imposed by CSRD.

Option 2: Advanced Carbon Accounting Integration

For a more robust approach, Greenomy developed an API to facilitate integration with carbon accounting tools such as Microsoft Sustainability Manager, Envizi, Persefoni, and others. This option entails a deeper transformation of carbon accounting processes.

By integrating a sophisticated carbon accounting software, companies can automate data collection, calculations, and reporting. This type of platforms offers real-time tracking, centralised data storage, and enhanced auditability, ensuring a more accurate and transparent carbon accounting process.

Unlocking Sustainability Through Enhanced Carbon Accounting Strategies

As the CSRD enters a new era of sustainability reporting, companies must reevaluate their carbon accounting methods. Moving beyond the limitations of Excel spreadsheets and embracing more advanced solutions is not only a regulatory necessity but also an opportunity to bolster corporate sustainability efforts. By understanding the CSRD ESRS E1 requirements and carefully considering their adaptation strategies, companies can not only achieve compliance but also pave the way for a greener, more transparent, and environmentally responsible future.

Greenomy is a founding member of the Carbon Accounting Alliance, a coalition of over 35 organisations collaborating on solving challenges faced by the industry, sharing best practices and promoting the development of robust standards and regulations.

If you would like to learn more about how Greenomy can help with your carbon accounting within your CSRD reporting, get in touch with our experts today.