In today's rapidly evolving business landscape, the need for organizations to address their environmental impact has become paramount. Carbon accounting, a technique used to measure and manage carbon emissions, has emerged as a powerful tool for businesses to understand and reduce their carbon footprint. In this article, we will explore what carbon accounting entails, how it can benefit small and medium-sized enterprises (SMEs), and why chartered accountants should embrace carbon accounting.
Understanding Carbon Accounting:
Carbon accounting is a methodical approach to measuring an organization's carbon emissions. These emissions are categorized into three scopes: scope 1, 2, and 3. Scope 1 covers direct emissions from owned or controlled sources, scope 2 includes indirect emissions from purchased electricity, and scope 3 accounts for all other indirect emissions from activities such as supply chains and employee commuting.
Carbon accounting works by converting various measurable business activities into carbon dioxide equivalent (CO2e). CO2e is a metric measure used to compare different GHG emissions based on their global warming potential. It converts the amounts of other gases into the equivalent amount of CO2, considering their respective Global Warming Potential (GWP). There are two main methodologies employed in carbon accounting: Spend Based and Activity Based, which provide businesses with flexibility in choosing the approach that suits their specific needs.
Benefits for SMBs
Sage's Acquisition of Spherics
Where can Chartered Accountants feed into this?
Accountants play a crucial role in addressing the climate crisis through carbon accounting. By engaging in this practice, accountants contribute to the three Ps of sustainability: People, Planet, and Profit. They help businesses attract and retain the right talent, protect the planet by reducing emissions, and ensure long-term profitability by staying relevant in an evolving business landscape.
1. Future Business Opportunities
Companies that fail to demonstrate transparent reporting and a clear reduction pathway will face challenges in winning business in the future. As per Policy Procurement Note 06/21, any business trading with the UK public sector must produce a carbon reduction plan and report on all three scopes of emissions. Therefore, embracing carbon accounting opens doors to new business opportunities and partnerships.
2. Access to Capital
Taking climate action has become a critical factor in accessing capital. Financial institutions, such as NatWest, have included climate action in their risk and credit framework. This means that companies demonstrating their commitment to climate action will be perceived as lower credit risks. Embracing carbon accounting allows businesses to access capital at a more affordable cost.