What is carbon accounting?

What is carbon accounting?

Carbon accounting involves measuring and reporting the amount of greenhouse gas (GHG) emissions your business generates. It is a crucial first step in your business’s sustainability journey as it enables you to identify emissions hotspots and discover opportunities to reduce your environmental impact. 

Once you’ve measured your business’s carbon footprint, you can set carbon reduction targets, and track your progress towards achieving your goals. This transparency is crucial in today’s business environment as big businesses and governments are increasingly making companies that are part of their value chain report on their climate impact. 

How carbon accounting works

There are many different sources of greenhouse gas emissions, so calculating a business’s carbon footprint can be complex. Businesses need to collect data on business activities and process this data using emissions factors. 

Step one: Collecting data

This involves collecting data on businesses' direct and indirect carbon emissions. Direct emissions (also known as Scope 1 emissions) include any greenhouse gases emitted from your own business activities, e.g. the carbon emissions emitted from a company vehicle. This information can be collected from spending data or activity data. 

Indirect emissions include carbon emissions associated with the energy you purchase (Scope 2) or any greenhouse gases in your value chain (Scope 3), e.g. the carbon emissions generated by an employee commuting to work. Indirect emissions are harder to measure, in fact, impossible at times. So don’t let imperfect calculations stop you from taking climate action. Even rough estimates can help you identify areas for improvement. 

If this is your first time hearing about Scope 3 emissions, head to this blog to learn more. 

Step 2: Calculating emissions

Next, the data needs to be converted into a measure of carbon emissions. This is done by using emissions factors, which measure the amount of carbon emissions released into the atmosphere as a result of a specific activity, process, or purchase. There are two different methods for measuring emissions:

The spend-based method essentially takes the financial cost of a product or service and multiplies it by an emissions factor (AKA the amount of emissions produced per financial unit). 

The emissions factors are calculated from environmentally extended input-output (EEIO) models that use ‘economic flows’ (the flow of resources across different sectors) to calculate the average amount of emissions associated with each unit of money paid to a company in a specific industry and region. 

The activity-based method counts the units of a company’s purchased product, like litres of fuel, and multiplies this by emissions factors. 

The activity-based method is generally more accurate, but the information is hard to obtain and can be very time-consuming. 

Introducing carbon accounting software 

Wondering how you’re going to calculate your business’s emissions? Luckily, you don’t have to. Carbon accounting software like Cogo’s Business Carbon Manager generates automatic, real-time calculations for businesses. We categorise your purchases and use market-leading emissions factors to deliver accurate carbon calculations, all you need to do is connect to Xero, and we take care of the rest. Interested? Sign up here. 

Why carbon accounting is important for your business

Mitigate climate change 

Carbon accounting empowers you to measure, understand, and ultimately reduce your business’s carbon footprint. While we need bigger businesses and governments to drive action from the top, the collective impact of small businesses should not be underestimated. In fact, SMEs make up 99% of the business population and contribute around 30% of the UK's total emissions.

Save costs

Small businesses are facing rising energy, fuel, materials, and operational costs. While many view sustainability as an additional expense, carbon accounting can help businesses identify where they are wasting energy and money. Tools like Cogo’s Business Carbon Manager also recommends high-impact climate actions businesses can take to reduce carbon emissions and their costs. It’s a win-win! 

Stay ahead of reporting regulations 

Large corporations are facing regulations (e.g. SECR) and demanding businesses in their supply chain to report their carbon emissions. SMEs need to report or risk losing business. 

Furthermore, the regulatory environment is always changing, and it won’t be long til SMEs have to report their carbon emissions by law. The savviest businesses are already adopting carbon accounting to ensure they are prepared. 

Beat the competition 

Green Innovation: Customers are increasingly prioritising sustainability over price. Developing and marketing green products and services can help businesses tap into this growing demand and gain a competitive edge. 

Brand reputation: Using carbon accounting to take demonstrable climate action and share your progress towards science-based targets will help you build brand equity and protect your business from greenwashing accusations. 

‍Attract top talent: 65% state they are more likely to work for a sustainable business. Don’t lose out on top talent. Hire the best and be the best. 

Introducing Cogo’s carbon accounting software 

Cogo’s Business Carbon Manager is more than a carbon calculator. We’ve conducted extensive research to better understand the challenges SMEs face when taking climate action. This knowledge has helped us build a product that fulfils SMEs' unique needs. We provide businesses with personalised action plans and engaging features to help them reduce their carbon footprint. 

Also, our carbon footprint calculations are aligned with GHG protocol and other major reporting standards and frameworks. So you can confidently report and share your climate progress with key stakeholders, at a fraction of the cost of using a consultant.  

Ready to take climate action?

Our new carbon accounting tool for SMEs will be launching on the 5th of September, in the UK, via the Xero marketplace. Sign up to stay up to date with the latest developments and get notified when we go live.