How to get started with Carbon Accounting
With Carbon Accounting the direct and indirect CO2 emissions of a company are calculated. To be in accordance with the CSRD reporting rules the accounting should be done following the Greenhouse Gas protocol. The Greenhouse Gas protocol is a carbon accounting and reporting standard that enables uniform and transparent greenhouse gas emission reporting across countries and companies.
How to get started on the process
We suggest you to tackle Carbon Accounting in four steps:
Organization
Data collection
Combination of data and conversion factors
Reporting the resulting CO2 emissions
1. Organization
The first step is to decide on the organizational boundary. The two possible approaches are the equity approach and the control approach. You must consistently apply the selected approach. That means that once you have decided on one approach you have to apply it to the entire company and value chain.
Equity share approach: Using the equity share approach, your company keeps track of its GHG emissions based on its ownership percentage in a specific operation. This ownership, or equity share, shows how much the company is involved in both the possible benefits and risks that come from the operation. The company is considered responsible for the emissions created under their ownership, therefore they have to report them.
Control approach: In the control approach, a company only reports the GHG emissions from operations it directly controls, ignoring emissions from operations it owns but does not control. The control approach covers either operational or financial control. Usually the choice between them doesn't change which operations are considered controlled.
Financial control: A company is considered to have financial control of an operation if it can influence the operation’s financial and operational decisions to gain economic benefits. This is typically the case when the company is entitled to the majority of the operation’s benefits, regardless of the method used to secure these rights. The actual working relationship between the company and the operation is more important than the formal ownership percentage. Therefore, a company can have financial control even if it owns less than half of the operation.
Operational control: A company has operational control over an operation if it can make and enforce all the operating decisions there. This is a common practice for facilities they manage directly (i.e., facilities where they have the operating license). Using the operational control approach, a company reports all emissions from operations it or its subsidiary manages.
The reason you have to chose an organizational boundary is that it will affect your reporting. For example with assets: under the operational control approach, emissions from operating leases for facilities are typically included in scope 1 and scope 2. Under the equity share approach, these emissions would be included in scope 3, category 8 as upstream leased assets.
When choosing the organizational boundary your company should pick the approach that aligns best with your emission reporting as well as financial and environmental reporting, and best represents your power of control. This means that if you have already chosen a boundary for financial data it might be beneficial for you to use the same boundary for Carbon Accounting to facilitate the data collection.
2. Data collection
After the organizational boundary has been decided it is time to move on to the operational boundary. The separation of the Carbon Accounting data into scope 1, 2 and 3 helps structuring the data collection process.
Scope 1, measures all your direct emissions. This covers anything your company’s facilities and vehicles emit.
Scope 2 includes the indirect emissions that are associated with your share of heat, electricity, and cooling. Here it can be differentiated between location-based and market-based accounting. When it comes to the energy consumption, the electricity you use produces different emissions, depending on the energy source (coal, nuclear, solar). For location-based accounting the emissions are based on the carbon intensity of the local grid. So the geographic location determines the carbon emissions. For market-based accounting the carbon emissions are based on the energy sources your company choses to purchase. In this case your company benefits from buying green electricity.
Scope 3 is where the most uncertainty occurs, it includes the indirect emissions of your company. These cover a variety of activities that you wouldn’t consider to be your emissions at first sight, since a lot of it concerns the partners, suppliers, and third parties you work with. Scope 3 is composed of 15 categories, for some companies only a few of the categories are considered material, the others are excluded from the reporting.
Under the CSRD framework, companies are not obligated to report every direct and indirect emission. Instead, the need to set up an operational boundary including the categories that are material to the business. Identifying these categories requires conducting a Double Materiality Assessment, which involves dual consideration: firstly, how sustainability issues, including emissions, impact the company's financial performance; and secondly, how the company's operations affect the environment and society. This assessment ensures that reporting is both relevant to the business and reflective of its broader environmental and societal impact.
To conduct the materiality analysis you need to consider all activities related to the companies business and assess weather they have either financial or environmental/social material impacts. This comprehensive assessment should guide which activities are included in your sustainability reporting. In cases where certain activities are deemed non-material and thus excluded from your carbon accounting, it's important to transparently disclose and justify these exclusions in your report. This ensures accountability and clarity in your sustainability disclosures.
After this analysis has been conducted you need to collect all material data from all offices and locations. All facilities need to collect the material data from their value chain. The collected data can be activity-, supplier, or spend-based. For cases where no data is available approximations can be considered.
Activity-based data includes detailed data on specific activities such as energy consumption (kWh), distance traveled (km), or the amount of waste generated (kg). This type of data provides a detailed and precise account of resource usage or emissions, ensuring a high level of accuracy.
Supplier-based data is sourced directly by the supplier and reflects specific emissions associated with the service they provide. For example a logistics company might supply the data on emissions allocated to the transport of your products. This data type tends to be reliable and accurate, as it is provided by entities with direct knowledge of the processes involved.
Spend-based data is collected as financial data, so the amount of money spent on every purchased product and service. While this data type offers valuable insights, it is generally considered less precise than activity-based or supplier-based data due to potential variations in cost and consumption patterns.
Approximations serve as a substitute if no other data is available. They are based on estimations and indirect measurements such as calculating water usage based on the number of people in an office. Although approximations can provide a general sense of resource usage or emissions, they are considered the least accurate data type and should only be employed when no other options are available.
It is crucial to recognize the varying degrees of accuracy among these data types. Activity-based and supplier-based data are typically more precise and trustworthy, while spend-based data and approximations may be less reliable. Selecting the most accurate data source available is essential for ensuring the integrity of any analysis or assessment. When deciding how to collect your data you need to know what is feasible and what data you will get access to with a reasonable amount of effort. You can combine different types as well, often your scope 2 emissions can be provided by your supplier while scope 3 data might only be available spend-based.
3. Combination of data and conversion factors
The next crucial step involves integrating the gathered data with specific conversion factors to accurately calculate your company's CO2 emissions. These conversion factors determine the CO2 emissions produced by a product or service, either per unit or cost.
Navigating the multitude of available online conversion databases can be challenging, as no single database may cover all the products, materials, and services your company utilizes. It’s crucial to select databases that align closely with your specific business operations for precise carbon footprint assessments. **For example in waste disposal emissions vary with the method used, which often depends on your location — be it incineration, recycling, or landfills. Therefore, it's important to identify and apply conversion factors that reflect the disposal practices where your offices and production sites operate, ensuring precise environmental impact measurement.
However, sourcing and applying these conversion factors is often a daunting and time-consuming task. With the diversity of databases and their associated costs, finding the right fit for your company demands significant effort. This is where BeWo can streamline the process. By automating the data integration, BeWo seamlessly aligns your data with the appropriate conversion factors. This automation not only spares you the hassle of manually searching and paying for multiple databases but also ensures that each aspect of your operation is matched with the correct conversion factor.
Ultimately, with all the relevant conversion factors at hand, you can combine the resulting CO2 emissions to get the total CO2 emissions of your company, leading to a more accurate and efficient carbon accounting process.
4. Reporting the resulting CO2 emissions
Now it is time to transform your calculated CO2 emissions into a coherent report. According to the CSRD guidelines, your report should categorize emissions into scope 1, 2, and 3, along with a summary of total emissions. Present all emissions in metric tons of CO2. Notably, you have to include total emissions in two formats: one considering market-based scope 2 emissions and the other location-based.
In your report, elaborate on the Double Materiality Analysis and explain the reasons for excluding certain categories. You can also demonstrate your commitment to reducing emissions by analyzing your data to identify potential savings and outlining these opportunities for future improvements.
Before releasing the report, ensure it fulfills all CSRD requirements and follows the Greenhouse Gas Protocol principles: Relevance, Completeness, Consistency, Transparency, and Accuracy. This thorough approach will ensure your report is both compliant and impactful.
Ready to take the next step?
As you navigate the complexities of Carbon Accounting and strive for CSRD compliance, remember that accurate and efficient reporting is within reach. BeWo's platform simplifies the entire process, from data collection to having data ready for the final reporting, ensuring your business not only meets regulatory standards but also paves the way for you to get an overview of where you can reduce your carbon footprint. Book a demo with us and see how it works!