Carbon Accounting Explained: Sustainable Practices for Small Enterprises
What is carbon accounting?
Carbon accounting is the process of measuring and managing the amount of carbon dioxide (CO2) and other greenhouse gas (GHGs) emitted by an organisation, product or activity.
On the 22th of August, Australia’s senate passed the monumental mandatory climate reporting act for big entities which is poised to be the biggest change to corporate reporting in a generation. This is just the start – businesses of all sizes will be included in this legislation at some point in the future. How quickly that’ll happen is anyone’s guess, but being ahead of the curve is always the place to be.
Most of us are all too aware that we need to live and work in the most sustainable, planet friendly way possible. If that value isn’t a personal one – it’s safe to assume that a big chunk of your target audience does feel that way. Infact, Gen Z prioritises working with and buying from places that align with their values before considering the price itself. This trend is only growing and spreading throughout all generations.
What we’re saying is this: for a business to remain competitive, it needs to show that it’s practicing sustainably where possible. If you’re not there yet, it’s important to acknowledge that there are improvements to be made and that you have a plan to get you there as the business grows. An easy example of this would be moving from plastic to biodegradable packaging. It’s more expensive and therefore not realistic for every business today but as the demand increases and it becomes the norm to rid your entire business of plastic altogether, the market will continue spitting out more options that the environment will thank you for.
None of the above is ground breaking. If money was no object, we’d hedge a bet that you’d all be working in the most sustainable way possible. The tangible things (like packaging) aside, it can be hard to know where your carbon emissions as a business are coming from let alone how you’d then track, measure and improve them.
Enter: carbon accounting.
What is the best carbon footprint calculator?
Carbon accounting software helps organisations track, manage, and reduce their carbon footprint. It provides tools and features for measuring greenhouse gas emissions from various sources such as energy use, transportation, and their supply chain. These softwares also offer strategies on how to lower these emissions. We partner with Trace – an end to end solution for carbon accounting for both companies and individuals.
How does Future Advisory work with Trace?
We connect your Xero file with Trace’s platform which means your accounting data is used to accurately access your carbon footprint with Trace’s incredible software. From there, we can help you take steps to both offset your emissions but to also reduce them in general. You’ll know what emissions are coming from which specific source and using the numbers, we can help to advise on where you may be able to make different choices, leaving the planet a better place.
How is carbon calculated?
According to the GHG protocol, emissions are divided into three scopes. Scope one includes direct GHG emissions from sources owned or controlled by the company including leased assets. Common examples include fuel combustion in company vehicles, onsite energy production, and direct manufacturing activities.
Scope two includes indirect emissions resulting from the generation of purchased electricity, heating, and cooling consumed by the company.
Scope three emissions occur in the value chain of the organisation, including both upstream and downstream activities.
What are the steps when calculating carbon emissions?
The initial step in measuring carbon emissions is to set up the operational and organisational boundaries that the emission comes from. It’s important to decide which entities are included or not in the reporting group. For instance if Future invests in Company ABC and has a 10% stake, is Company ABC included in their reporting? The answer will depend on how thorough you want to be and often, clients will take a staggered approach. This is something we can help you decide on.
Next, identify all sources of emissions within the defined scope and measure them. Raw data will then have to be converted into CO₂-equivalent emissions – which Trace does for you. The results can be used to identify areas where emissions can be reduced.
Why are carbon credits bad ?
Carbon credits are often based on project estimation rather than actual estimation which can be misleading and often exaggerate the emission reduction. It is a common tool used in greenwashing for organisations to present a more favourable environmental image without making substantive changes to reduce their carbon footprint.
What is greenwashing?
Because businesses are now so aware that appearing to practice in an environmentally friendly way is so important to their audience, greenwashing has become an unfortunate bi-product of this demand. Essentially it refers to businesses who appear to value the planet but behind the curtain aren’t actually living up to it. A common one is some clever marketing that may lead you to believe their products are completely natural, or even organic. The laws and regulatory bodies around these claims are grey areas at best in Australia so when you do some further digging, you may find they come up short.
It’s particularly easy for service based businesses to greenwash because often it’s something you have to take at face value. We could say we’re paperless, but are we really? (Yes, we are). We can tell you we offset all our carbon emissions via Trace, but is that true? (Yes, it is). You get the point!
As the demand for transparency also rises, even the small fish will have to start showing the receipts to their claims. Heed this warning – if a business can’t prove their environmental based claims, time is ticking. It’s not something that anyone will get away with for much longer (if it hasn’t already caught up to them).
What is GHG accounting?
Greenhouse Gas (GHG) accounting refers to the process of measuring and reporting the amount of greenhouse gases an organisation, activity, or entity emits into the atmosphere from various sources.
GHG accounting typically follows international standards and guidelines, such as:
- The Greenhouse Gas Protocol: provides comprehensive guidelines for measuring and managing emissions, including scopes of emissions (Scope 1, 2, and 3)
- ISO 14064: an international standard that specifies principles and requirements for quantifying, monitoring, reporting, and verifying GHG emissions
- The Climate Disclosure Standards Board (CDSB): offers frameworks for integrating climate-related information into financial reports
Implication of carbon accounting for small businesses
According to a recent research by the clean energy regulator, SMEs in Australia are estimated to contribute around 40% of the country’s total greenhouse gas output – meaning that their emission reduction will play a crucial role in Australia’s 2030 emission reduction target.
Most SMEs will not see an immediate impact on the new regulation we mentioned being imposed, as the majority of them will be out of scope for mandatory reporting. However, certain SMEs who work in industries that have high emission output such as manufacturing or construction may still have to report their carbon emissions under the NGER scheme. SMEs that supply to entities that are in scope for reporting will be caught in the pipeline and are required to report their carbon emissions as part of Scope Three from the reporting entity. This creates an opportunity for smaller businesses to stand out from their competition by having their emissions properly measured and reported. We all know the leg up that being easy to work with gives a business – and when considering suppliers, if one option is already armed with carbon emissions reporting, the choice becomes much easier.
There are also a range of benefits that SMEs can realise by implementing carbon accounting reporting like energy and operational cost saving through identifying wastage points in operating according to CSIRO. The government is providing incentives for SMEs to report and implement sustainability practices through grants and resources. Researchers from McKinsey also have shown that consumers prefer buying from brands that are transparent when reporting their emission figures. Many SMEs can utilise data from carbon reporting to inform strategic decisions, such as resource allocation and long-term planning.
If saving the planet wasn’t motivation enough, hopefully we’ve given you more impactful reasons why carbon accounting should be implemented in your business. To discuss what the next steps look like, get in touch. We’d love to chat through how carbon accounting can help your business make positive change.
