ResponsibleBusiness
Holding emissions to account
Carbon accounting is key for companies to gain trust by being transparent over their climate impact, but there are still many barriers to overcome. Helena Vallely reports
Image: iStock
Carbon accounting is the requirement for companies to track and record all emissions to improve transparency about their environmental impact. This includes measuring and reporting greenhouse gas emissions from both the company and its suppliers. As Jonny Riggall, associate director at environmental data analysis expert Aether, explains: “It’s the mathematics of the stuff you’re buying or burning.”
On an international level, carbon accounting is supported by guidelines such as the Paris Agreement, the Greenhouse Gas (GHG) Protocol, and ISO 14064. For the largest emitters, such as power stations and global corporations, these are the baseline carbon accounting standards and policies that they need to follow.
For smaller businesses, there is no obligation to follow the guidelines yet. However, Della Hudson FCA, founder of Minerva Accountants, says she and some of her small business clients are nevertheless starting to look at compliance. She says: “As owner-managed businesses, our personal values form part of our business values and carbon reduction is important to us. It’s the right thing to do.”
Why is carbon accounting so important?
Hudson says the key benefit of implementing carbon accounting across all companies is simple: “A better planet and a future for our kids.”
Carbon accounting is essential for monitoring companies’ progress towards meeting the climate commitments many countries have made, such as achieving net-zero emissions by 2050. It can help businesses identify risks, spot opportunities and set reduction targets.
Sharing emissions data also demonstrates businesses’ accountability for their environmental impact, building trust with investors and other stakeholders, and giving them a competitive edge with the increasing pool of eco-conscious customers.
There are so many reasons to make carbon accounting work but many companies are coming up against some challenging barriers to entry.
Who is in charge?
One key problem for companies is the current confusion about where the responsibility for carbon accounting falls.
Companies will have different teams responsible for collecting carbon accounting data. The final numbers could look significantly different depending on the expertise of the team collecting it and their method. Riggall says that traditionally environmental teams have taken on the responsibility, but it can be difficult for them to locate the information they need within the company.
For example, some companies will need to report accurate data on the amount of diesel used by teams travelling for work. This could be a very difficult, time-consuming and potentially manual task for an employee in the environmental team. However, an employee in the finance team will likely already have access to that information for tax purposes, making the process much more efficient and the data more accurate.
Guidance, guidance, guidance
Another key barrier to entry is the sheer amount of guidance on how to comply with the key international standards.
The level of complexity of carbon accounting can vary significantly between sectors. For example, a global manufacturing company with a lot of suppliers may find it challenging to track all of its Scope 3 emissions. This has led to a plethora of guidance across different sectors, which all eventually stems back to the GHG Protocol and ISO 14064.
Riggall believes that the divergence in guidance could be causing some cognitive dissonance among those who are supposed to be taking responsibility for carbon accounting, causing confusion and the tendency to leave it to someone else.
‘Green hushing’
As it becomes more widespread, the increase in scrutiny surrounding emissions reporting is causing a fear of companies being accused of greenwashing. This is leading to so-called ‘green hushing’, where sustainability efforts are downplayed to avoid criticism.
Data accuracy is paramount in these circumstances, and this is where input from accounting professionals can be valuable to bolster companies’ confidence in their reporting. For Riggall, we need to overcome the greenwashing “finger pointing” to allow companies to feel secure in sharing their reduction targets. “We can’t allow the pursuit of perfection to get in the way of doing good,” Riggall says. “As long as they are showing their working, does it matter if companies have different answers?”
Standards aren’t built for everyone
For small businesses, Hudson says the time and effort required in measuring their carbon emissions can be disproportionate to the impact. In home-based businesses, for example, there are no clear reporting standards yet and many small businesses she works with are at the beginning of their carbon accounting journey.
However, Hudson says this shouldn’t stop them doing something. “We know if our actions will make ‘the number’ go up or down, even if we don’t know exactly what ‘the number’ is,” she says.
What’s the solution?
The key to the success of carbon accounting is making sure the accountability rests in the hands of the right people. An important step towards making carbon accounting a success is opening the silos within companies and combining the expertise of environmental teams with accountancy teams.
From business travel to electricity and hot water in the office, accountancy teams already hold a large part of the information you could need for carbon accounting for tax purposes. Better cross-departmental communication would eliminate the need to duplicate figures, saving considerable time and money while improving data accuracy.
Riggall says he is already working more and more with clients’ financial departments and outsourced accountants rather than environmental teams on carbon accounting. As accounting professionals have to go through rigorous training and handle complex data daily, they can be trusted to get it right while injecting an air of gravitas to carbon accounting. Riggall says: “When finance teams get involved, things happen.”
Hudson agrees that finance professionals are best placed to lead on carbon accounting. She says: “We love numbers and have the exact skillset for understanding regulations, standards and measurement. If not us, then who?”
She adds that there is also an incentive for accounting professionals at firms. In a world where much of our traditional compliance is now assisted or reduced by technology, there is an opportunity for accountants to broaden their compliance work to increase potential fees.
Just the start
For Riggall, carbon accounting comes down to two simple principles: “Stop burning fossil fuels and put the trees back where they find them. All the complexity comes from the world currently being set up to do the opposite.”
As companies face increasing pressure to demonstrate their sustainability efforts and address climate challenges, getting carbon accounting right will become even more important in the future.
More transparency can only be a good thing. Having a better idea of the emissions produced by companies will increase their own understanding of their emissions, increasing their accountability. Making sure the data they are basing these decisions on is collected and reported in an accurate and clear manner is vital.
Companies should focus on breaking down silos within their departments to make data more accessible for both financial and carbon accounting. Not only can this save time and reduce costs on a company level, but it can improve the accuracy of the data that underpins decisions on setting and tracking meaningful emissions targets, contributing to a more sustainable and responsible future for everyone.
