Now that you’ve got your head around some of the basic questions like ‘what are carbon emissions’ and some of the key terminology in sustainability, it’s time to start looking at your own carbon footprint.
The key to your company’s sustainability journey is measuring the impact you’re making. If you don’t know the quantity or source of your greenhouse gas emissions, then how can you do anything to reduce your carbon footprint? Continuously tracking and reporting your progress will be essential to making significant improvements over time.
Before you can start delving into your Impact Sustainability software to measure your company’s impact and implementing changes that will reduce your carbon footprint, you need to have an understanding of some of the basic principles of carbon accounting and scope 1, 2 and 3 emissions.
WHAT IS CARBON ACCOUNTING?
All business operations vary in the way they’re structured legally and organisationally. They could be wholly owned operations, incorporated and non-incorporated joint ventures, subsidiaries, and so on.
For financial accounting, a business is treated according to a set of established rules that will depend on the structure of the organisation and the relationship between all the parties involved.
It’s the same for carbon accounting. A company will choose how they’re going to consolidate their greenhouse gas emissions and apply that across the business so they can monitor and report their emissions.
There are two approaches to carbon accounting: the equity share approach and the control approach. Deciding which approach suits your company will depend on how the business is structured.
1. Equity share approach
Generally, the equity share approach applies to large multinational companies that have joint partnership operating facilities.
Under the equity share approach, the company will account for the emissions created by their operations according to its share of equity in that particular operation. In other words, they’ll report and a portion of those emissions, equal to their economic stake in that activity.
If my company is a 50/50 owner of a clothing factory, under the equity share approach we would include 50 percent of the emissions created by that facility in our overall emissions report.
2. Control approach
The control approach is the most common form of measurement. Under this approach a company will account for 100 percent of the greenhouse gas emissions from any operations over which it has control.
WHY IS CARBON ACCOUNTING IMPORTANT?
To put it simply, if a business didn’t do any financial accounting there’d be no way of tracking money coming in, money going out, and whether it’s profitable or making a loss. There’d be no direction for the company in terms of things like sales budgets or wage expenses. It’s the same with carbon accounting. Knowing what emissions are going out, what off-sets you’re making to counter them, and tracking where there’s room for reductions is going to be the key driver of your business’ sustainability strategy.
SCOPE 1, 2 AND 3 EMISSIONS
Once you know how you’re going to report your company’s emissions, you need to know what to actually report, so it’s important to have an understanding of the different types of emissions you could be making.
There are three different categories of carbon emissions known as Scope 1, Scope 2, and Scope 3 emissions. An emission is categorised under a particular scope based on its source and whether it’s been created directly or indirectly by your activities.
Scope 1: Direct emissions
Scope 1 emissions occur from sources that are owned or controlled by the company – i.e. the emissions that have been created as a direct result of your activity. They can include things like combustion from boilers, furnaces, and vehicles; or emissions from chemical production in your process equipment.
Scope 2: Electricity emissions
Scope 2 emissions are the emissions generated by the electricity your company purchases and consumes. They’re classed as “indirect” because there’s a separation between the actual burning of the fossil fuels that creates the emission (which happens at the power plant) and the business who physically turns the lights on at their facility.
The company has some level of control over this because the amount of demand from users will drive the supply, but it doesn’t have direct control over what energy mix is in the grid for the day.
Scope 3: Other indirect emissions
Scope 3 refers to all other indirect emissions that are not related to electricity use. These are emissions that are generated as a consequence of the company’s activities, but come from sources that are not directly owned or controlled by the company.
For example, scope 3 emissions could be activities such as air travel, extracting and producing materials you’ve purchased, transporting purchased fuels, and a third party using the products and services your company has provided.
WHAT EMISSIONS SHOULD I BE REPORTING ON?
In short, it depends on your company.
All businesses can see significant reductions in their carbon footprint by making improvements along every stage of the value chain. Accounting for your greenhouse gas emissions throughout the chain will reveal opportunities for better efficiencies and lower costs.
As an example, if you’re dealing with materials that are greenhouse gas intensive (e.g. cement, aluminium), you might want to look at whether there are opportunities to reduce your consumption of the product or switch to an alternative material that generates lower levels of greenhouse gases.
If you’re a commodity or consumer product company, you might want to account for the emissions that come about as a result of transporting raw materials, products and waste.
Business travel might be something that a service sector company reports on because it forms a large percentage of their emissions. But a large construction company may decide not to report on it because it only represents a small fraction of their total emissions.
Need help getting started with reporting? Our sustainability consultant can help guide you through the process to set you up for sustainability success.
- Online Training – Getting Started in Sustainability
- Need a guide for getting started with your reporting? GHG Protocol has developed a Corporate Accounting and Reporting Standard that provides an overview of requirements and guidance for organisations on reporting greenhouse gas emissions
- Read more about tracking and reporting greenhouse gas emissions in Australia from the Department of Industry, Science, Energy and Resources
- Learn more about energy, greenhouse gases and scope 1, 2 and 3 emissions from the Australian Clean Energy Regulator