As a small or medium-sized business, keeping up with climate accounting can seem daunting.
This guide breaks down the key concepts in simple terms, providing a step-by-step framework for integrating climate accounting into your existing operations.
You'll learn practical techniques to measure and reduce your carbon footprint, meet global climate accounting standards, earn sustainability certifications, and effectively communicate your climate commitment.
Introduction to Climate Accounting for SMEs
Climate accounting can seem daunting for small and medium-sized enterprises (SMEs), but it doesn't have to be! By measuring your company's carbon emissions and taking steps to reduce that impact, you are investing in a sustainable future.✅
Why Climate Accounting Matters
- It helps you identify the biggest sources of emissions from business operations. You can't fix what you don't measure.
- Reporting and documentation keeps your company compliant as climate regulations increase globally.
- Sustainability appeals to today's conscious consumers and helps attract top talent.
Key Benefits for SMEs
- Cost savings: Emissions are closely tied to energy, materials, water and waste. Setting climate targets drives resource efficiency.
- Competitive edge: Sustainable brands outperform competition by up to 10% in profitability over time.
- Risk mitigation: Stricter regulations, carbon pricing and supply chain disruptions threaten future resilience. Accounting creates transparency.
How to Get Started
Follow this simple checklist to implement basic climate accounting:
- Calculate your carbon footprint using emissions factors or dedicated software like EcoHedge.
- Set a baseline using 1-3 years of historical emissions data.
- Define a science-based target aligned to the Paris Agreement and your capability.
- Monitor progress by updating your carbon accounting data quarterly or annually.
With regular measurement and benchmarking, you'll be on the path towards net zero! Reach out to EcoHedge for personalised guidance.
What is climate accounting?
Climate accounting, also known as carbon accounting, refers to the process of measuring, reporting, and reducing an organisation's greenhouse gas (GHG) emissions and overall climate impact. Much like financial accounting tracks monetary transactions, climate accounting provides visibility into a company's carbon "balance sheet" by quantifying carbon dioxide equivalent (CO2e) emissions from operations, supply chains, and products or services.
With rising stakeholder expectations and tightening regulations around climate risk disclosures and net-zero commitments, climate accounting has become an imperative for businesses of all sizes. By enabling more accurate emissions measurement and informed carbon reduction strategies, climate accounting helps organisations mitigate climate impact, improve sustainability performance, and boost transparency.
For small and medium-sized enterprises (SMEs), the prospect of conducting complex climate accounting can seem daunting. However, modern software solutions are making the process simpler by automating data collection and providing customised analysis and reporting. By integrating such solutions into existing business workflows, SMEs can efficiently account for emissions across all scopes and value chain activities. This allows them to identify "hot spots” for reductions, establish science-based targets, engage stakeholders meaningfully on progress, and contribute positively towards urgent global decarbonisation efforts.
What is the role of an accountant in climate change?
Accountants play a crucial role in helping organisations understand and respond to climate change. As experts in measuring, reporting, and analysing financial and non-financial information, accountants can support companies in several key ways:
Risk Assessment
Accountants can conduct climate risk assessments to identify vulnerabilities, quantify exposure to physical and transition risks, and assess adaptive capacity. This provides an understanding of potential financial, operational, and supply chain impacts.
For example, they can model different carbon pricing scenarios and estimate costs, helping devise adaptation strategies. Accountants can also stress test balance sheets to evaluate resilience.
Valuation
By quantifying risks and opportunities, accountants enable economic valuation of climate adaptation efforts. This demonstrates potential cost savings and future cash flows from investments in decarbonisation, energy efficiency, resilient operations, etc.
Life cycle cost analysis and net present value analysis are commonly used to value climate adaptation options and inform capital budgeting decisions.
Disclosure
Accountants play a key role in disclosing climate-related risks and opportunities through sustainability reports as per established frameworks. This helps demonstrate climate governance, targets, and performance to investors and stakeholders.
By integrating climate considerations into planning and reporting processes, accountants enable organisations to better manage climate risks and unlock sustainability opportunities.
How do you do GHG accounting?
GHG accounting, also known as climate accounting, refers to measuring a company's greenhouse gas emissions across all aspects of its operations. This data is crucial for companies to set science-based emissions reduction targets and transition to net-zero in line with the Paris Agreement.
There are two main approaches to climate accounting:
Spend-Based Accounting
The spend-based method works by multiplying the financial value of something a company purchases by the amount of carbon dioxide or greenhouse gas emissions it emits to produce. This provides a rough estimate of emissions.
For example, if a company spends $1,000 on air travel, and air travel emits 0.15 kg of CO2e per dollar spent, the estimated emissions would be 150 kg CO2e. While easy to calculate, this method lacks accuracy.
Direct Emissions Accounting
More accurate is measuring direct emissions from owned or controlled sources like facilities, vehicles, equipment, and production processes. This involves directly monitoring energy use and emissions. Companies can install sub-meters, sensors, automation systems, and data analytics to quantify GHG emissions per process, product, or service.
Specialised climate accounting software like EcoHedge Express can interrogate utility data and automate emissions calculations as per global reporting protocols. This eliminates manual data collection and provides verified GHG inventories for credible disclosure.
Accurately measuring your company's carbon footprint is the vital first step to reducing emissions. Climate accounting software makes this easy by seamlessly tracking emissions across scopes 1, 2, and 3. Understanding exactly where emissions originate allows for targeted abatement strategies.
What is the difference between GHG accounting and carbon accounting?
Although the terms "GHG accounting" and "carbon accounting" are often used interchangeably, there is an important distinction between the two.
Carbon Accounting
Carbon accounting can sometimes be used to refer to specifically to the measurement of carbon dioxide (CO2). It is used to quantify an organisation's carbon footprint - the total amount of CO2 emissions caused directly or indirectly by its activities.
For many small and medium-sized enterprises (SMEs), carbon accounting is an accessible first step towards understanding and reducing climate impact. Popular carbon accounting standards like the Greenhouse Gas Protocol provide sector-specific guidance on calculating carbon inventories.
GHG Accounting
GHG accounting takes a broader approach by measuring all greenhouse gas emissions, not just CO2. Along with CO2, it accounts for methane, nitrous oxide, hydrofluorocarbons, and other heat-trapping gasses.
Complying with comprehensive GHG accounting introduces additional complexity. However, it provides a complete view of an organisation's contribution to climate change. As stakeholders demand more climate transparency, SMEs should be prepared to expand their accounting scope.
Looking Ahead With ESG
As "Environmental, Social & Governance" (ESG) performance becomes mainstream, climate accounting is just one piece of the sustainability puzzle. ESG reporting requires disclosing a company's environmental impact alongside metrics for social responsibility and ethical governance.
For SMEs new to sustainability, beginning with carbon or GHG accounting lays the groundwork. As ESG disclosures become standard practice, climate accounting data will be integral for benchmarking and demonstrating progress over time.
Understanding Climate Accounting and Its Significance
Climate accounting refers to measuring, reporting and reducing your company's carbon footprint. It allows businesses to understand, take ownership, and communicate their environmental impact. This demonstrates social responsibility and commitment to sustainability to all stakeholders.
As climate change continues to pose existential threats, there is increasing scrutiny on business practices and their real-world impact. Investors, customers, regulators and even employees now demand ethical operations and transparency. Climate accounting provides the data and insights needed to make informed decisions, set science-based targets, and craft engaging sustainability communications.
Done right, it can strengthen brand reputation, unlock funding, drive efficiencies, and give a competitive advantage. Implementing climate accounting signifies your business is ready to own its footprint, shrink its emissions, and contribute towards urgent climate action.
Core Concepts of Carbon Accounting
- Carbon accounting - The process of measuring your company's total greenhouse gas (GHG) emissions. This allows you to monitor, report on and reduce your carbon footprint over time.
- Scope 1, 2 and 3 emissions - Emissions are categorised into three scopes by the internationally recognised Greenhouse Gas Protocol:
- Scope 1 covers direct emissions from owned or controlled sources like vehicles and machinery.
- Scope 2 covers indirect emissions from purchased electricity, steam, heat and cooling.
- Scope 3 includes all other indirect emissions across the full value chain.
- Carbon neutrality – Achieving net zero carbon emissions by balancing emitted GHGs with equivalent carbon removal. Offsetting remaining difficult-to-eliminate emissions is typically required.
- Science-based targets - Emissions reduction targets grounded in climate science, like those aimed at limiting global warming to 1.5°C above pre-industrial levels.
As evidenced above, climate accounting relies heavily on specific terminology and global standards. Proper application is crucial for accurate measurement, strategic goal-setting and transparent reporting.
Business Advantages of Climate Accountability
- Tax incentives - Many governments now offer tax relief and credits for investments in energy efficiency and emissions reduction.
- Investor requirements - Institutional investors increasingly require disclosure of climate risks and demonstration of sound sustainability practices as part of their ESG investment criteria.
- Brand reputation - Committing to climate action allows you to tap into growing consumer demand for ethical brands, boosting customer acquisition and retention.
- Cost savings - Efficiency gains from analysing carbon hotspots often directly translate into reduced operating expenses over time.
In summary, embracing climate accounting unlocks financial, competitive and reputational advantages while demonstrating your dedication to building a resilient, net-zero future.
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Step-by-Step Guide to Climate Accounting
Climate accounting can seem daunting for small and medium-sized enterprises (SMEs), but following a step-by-step approach makes the process manageable. As key stakeholders like investors and customers demand climate action, SMEs that get ahead of regulations and reporting requirements will build resilience. This guide breaks down simple, practical steps any SME can take to understand, track, and reduce their carbon footprint.
Measuring Your Carbon Footprint
The first step is taking an emissions inventory to understand your company's carbon footprint. Focus first on scope 1 and 2 emissions:
- Scope 1 covers direct emissions from company facilities and vehicles. Document energy used for heating, manufacturing, shipping, etc.
- Scope 2 covers indirect emissions from purchased electricity and steam. Check utility bills to calculate this.
Free carbon calculators and software like EcoHedge Express simplify this inventory process. For SMEs, these two scopes often represent over 80% of emissions.
Establishing Your Emissions Baseline
Once you've measured your carbon footprint, establish a baseline year to track progress over time. Best practice is to choose:
- The earliest reliable, consistent data set available. Too old and data quality suffers.
- A year that represents "business as usual." Avoid outlier years with acquisitions, divestments etc. that skew data.
For example, an SME starting climate accounting in 2023 would likely choose 2022 or 2021 as a baseline. Track and record emissions annually to compare performance. Publicly sharing this journey helps engage stakeholders.
Practical Emissions Reduction Techniques
With a baseline established, target areas to cut emissions. Some options:
- Energy efficiency: LED lighting, optimised HVAC, equipment upgrades all reduce scope 1 and 2 emissions.
- Renewable energy: Solar, wind, or renewable power purchase agreements avoid fossil fuel emissions.
- Supply chain: Partner with low-carbon materials and logistics suppliers to reduce scope 3 emissions.
- Offsets: Fund verified carbon reduction projects to offset what can't yet be eliminated internally.
Taking even small steps here bolsters an SME's climate credibility and resilience. For hands-on guidance, EcoHedge Lifecycle provides more customised decarbonisation plans.
Tackling sustainability can boost reputation and profitability. This climate accounting primer helps SME professionals take charge of their carbon footprint. Let us know in the comments what reduction strategies have worked for your company!
Adhering to Climate Accounting Standards with the Right Tools
As businesses of all sizes wake up to the climate crisis, there is growing pressure to accurately measure and reduce greenhouse gas (GHG) emissions across operations and supply chains. Adhering to accepted global climate accounting standards has become crucial for credible sustainability reporting. Combining these best practices with user-friendly software can make the process smooth and affordable for small and medium-sized enterprises (SMEs).
Adopting Global Climate Accounting Standards
The Greenhouse Gas (GHG) Protocol provides the world’s most widely used climate accounting standards for calculating organisational carbon footprints. Its Corporate Accounting and Reporting Standard helps quantify Scope 1, 2 and 3 emissions, while the Corporate Value Chain (Scope 3) Standard does the same for indirect supply chain emissions.
Compliance with these global GHG Protocol standards lends credibility to public emissions disclosures and sustainability reports. Another recognised framework is the Science-Based Targets initiative (SBTi), which approves corporate climate action plans aligned with climate science. Adopting such standards signals seriousness about decarbonisation to stakeholders.
Selecting Climate Accounting Software
While climate accounting principles provide the guidelines, putting them into practice requires the right tools. A growing array of software-as-a-service (SaaS) solutions can automate data collection and carbon calculations as per latest protocols.
When selecting software, key aspects for SMEs to evaluate include cost, functionality, and ease-of-use. Entry-level platforms start under £100 per month, providing basic carbon accounting and reporting. Mid-range systems costing around £200-500/month add features like supply chain analyses, scenario modelling and stakeholder engagement. Top-end enterprise software packages offer the most extensive capabilities but carry much higher price tags.
Leading climate accounting systems emphasise simplicity, allowing sustainability managers to measure emissions across direct operations and supply chains without needing specialist expertise. Automating manual processes saves significant time and cost. As climate risk reporting becomes mandatory in more countries, such SaaS tools are becoming invaluable for SMEs seeking affordable compliance.
Earning Recognition through Climate Certification
Gaining reputable sustainability certifications and eco-labels is an excellent way for SMEs to showcase their climate achievements to customers and stakeholders. As climate change impacts become more apparent, third party endorsements of environmental performance build trust and demonstrate tangible action.
The Journey to B Corp Sustainability Certification
B Corp certification recognises businesses that balance profit and purpose. To become a Certified B Corporation, companies undergo a rigorous assessment of their impact on workers, community, environment, and customers.
Applicants must achieve a minimum verified score of 80 out of 200 points on the B Impact Assessment that examines governance, workers, community, environment, and customers. Questions range from employee benefits and supply chain monitoring to energy usage and waste reduction. Climate accounting helps provide accurate emissions data to score well on the environment portion of the assessment.
The certification process can take 6-12 months and costs range from £500 to £50,000+ depending on company size. The fee covers auditing expenses.
Benefits of being a certified B Corp include:
- Attracting and retaining talent who support sustainability values
- Standing out to consumers who increasingly make purchase decisions based on social causes
- Better positioning for public tenders requiring suppliers to have external social or environmental certifications
- Accessing a supportive community of peers and experts for collaboration
Having B Corp status signals that an SME takes sustainability seriously and looks after stakeholder interests. Tracking emissions facilitates getting certified and communicating achievements.
Communicating Your Climate Commitment
Communicating sustainability efforts effectively with stakeholders is crucial for businesses aiming to achieve climate goals. As environmental issues become a top priority, companies must showcase commitment through comprehensive reports and integration into overall branding. This builds trust and demonstrates concrete progress on emissions reductions.
With climate accounting tools like EcoHedge software, preparing thorough reports is simplified. By tracking greenhouse gas emissions and performance versus science-based targets over time, the data and insights needed to communicate your climate commitment are centralised and automated.
Crafting Impactful Sustainability Reports
An impactful sustainability report conveys progress on environmental initiatives to stakeholders. It demonstrates strategic importance of sustainability using key elements:
Materiality Assessment
- Determine most important ESG impacts, risks, opportunities based on business operations and stakeholder concerns. This guides report focus areas.
Data-driven KPIs and Targets
- Include Key Performance Indicators (KPIs) specific to your company's climate impacts with historical data/future targets. Example: tCO2e emissions reduced by __% since 20xx toward net zero goal by 20xx.
Formatting for Accessibility
- Use easy-to-read design with engaging graphics summarising key metrics and achievements. Ensure accessibility for all users.
Spotlight Success Stories
- Showcase environmental projects and their measurable impacts through case studies. Put faces to the work by featuring teams.
Compliance with Reporting Standards
- Follow established ESG reporting frameworks like GRI to ensure consistency, comparability across peer companies.
Promoting Your Green Business Practices
Integrating sustainability achievements into branding and communications makes the commitment tangible to customers:
Leverage Credibility of Certifications
- Display eco-labels, B Corp, Science Based Targets initiative badges on website/products. They instantly signal meeting verified external green standards.
Destine Website Real Estate to Sustainability
- Devote homepage imagery, about pages, banners to environment programs. Include emissions performance metrics prominently.
Repurpose Content Across Channels
- Coordinate unified messaging on sustainability in owned media, email, social campaigns. Amplify reach by sharing media releases.
Relay Values in Customer Touchpoints
- Feature climate commitment in packaging, retail displays, newsletters. Consistent branding across customer journey.
Utilise Employee Ambassadors
- Equip staff to share how company priorities benefit the environment. Build authentic connections.
With climate action growing as an imperative, strategic communication of sustainability initiatives can strengthen corporate identity, reputation and relationships. By following these best practices, your company can clearly demonstrate walking the walk to customers and stakeholders.
Expert Assistance in Advanced Climate Accounting
As SMEs embark on their sustainability journey, they may reach a point where in-house resources are insufficient for executing advanced climate accounting strategies to achieve net zero emissions. Engaging specialist consultancy services can provide the expert assistance needed to overcome these challenges.
Engaging with Sustainability Consultants
SMEs ready to take their climate action to the next level can benefit greatly from sustainability consultants. These professionals have extensive experience across areas like:
- Comprehensive climate accounting methodologies for calculating complete enterprise carbon footprints
- Complex data analytics to model decarbonisation pathways aligned to 1.5°C climate scenarios
- Cutting-edge technologies for tracking supply chain emissions across Scope 3
- Robust strategies for engaging stakeholders to progress towards approved science-based targets
Their strategic input supplements internal teams, providing tailored advice and solutions grounded in the latest sustainability best practices.
Consultants help SMEs translate high-level net zero commitments into executional climate strategies fitting their specific operations and growth objectives. Their specialised expertise allows comprehensive tracking and reductions of carbon emissions while ensuring continued business resilience.
With mounting stakeholder expectations on climate action, the hands-on guidance of consultants enables SMEs to fulfil expanding ESG responsibilities confidently.
Leveraging CDP Reporting Expertise
As climate disclosure frameworks like CDP grow increasingly mainstream, SMEs must meet intensified questionnaires to showcase progress on sustainability KPIs. CDP-accredited consultants well-versed in these reporting processes can optimise such compliance requirements.
By leveraging their extensive understanding of CDP's detailed questions and methodology, consultants help SMEs showcase climate achievements accurately through robust data analysis and evidence-based documentation. The expert feedback helps identify overlooked emissions sources, driving continuous improvement.
Their CDP reporting guidance gives SME management reliable insights for long-term environmental strategy while satisfying investor demands for climate transparency. Streamlining disclosures this way saves considerable time and resources.
With skilled consultants assisting climate and carbon accounting complexities, SMEs can meet sustainability expectations reliably despite limited internal bandwidth. Their specialised assistance allows smaller businesses to access the same calibre of net zero strategies as enterprise corporations.
Innovations in Climate and Carbon Accounting
Climate change is an urgent global challenge, and businesses play a critical role in driving solutions. However, measuring and reducing carbon emissions can be complex for companies, especially small and medium-sized enterprises (SMEs). That's where innovations in climate accounting come in.
Emerging climate accounting standards and software aim to simplify carbon measurement while expanding accountability across companies' full value chains. These innovations will shape sustainability efforts in the years ahead by enabling businesses to set bolder decarbonisation goals aligned with global climate objectives.
Exploring Scope 4: Value Chain Accountability
Under the predominant Greenhouse Gas (GHG) Protocol, companies currently track carbon emissions in three "scopes" - Scope 1 covers direct emissions from owned sources like vehicles and equipment, Scope 2 accounts for indirect emissions from purchased energy, and Scope 3 includes indirect emissions from activities like business travel, waste disposal, etc.
However, even Scope 3 fails to capture the full climate impact of large enterprises across their vast supplier and distribution networks. That's why concepts like "Scope 4" tracking aim to expand emissions accountability across entire value chains. By attributing embodied carbon in purchased goods and services to the companies that procure them, Scope 4 reporting incentivises engagement with partners to drive broader decarbonisation.
For SMEs just embarking on climate accounting under existing standards, Scope 3 offers a meaningful starting point to assess and reduce value chain impacts. As innovations like Scope 4 reporting mature, they will bring sharper value chain focus - enabling businesses to align sustainability efforts with partners, spur collective climate action across industries, and fully realise the potential of climate accounting to accelerate economy-wide decarbonisation.
Investing in Carbon Removal Solutions
Alongside driving rapid emissions reductions, businesses also need solutions to counteract their residual climate impacts if global net-zero goals are to be met. This is propelling innovations in carbon removal and "insetting" solutions, which enable companies to invest directly in projects like reforestation that actively eliminate carbon dioxide from the atmosphere to balance out ongoing emissions.
Carbon accounting standards are expanding to integrate these investments through the inclusion of new offset types and protocols focused specifically on financing and quantifying carbon removal outcomes. As these standards develop, they will help businesses on their decarbonisation journeys contribute positively to global climate goals. Early movers investing in these solutions today stand to gain reputational value and competitive advantage.
In summary, innovations across climate accounting standards, software tools, and carbon removal solutions are converging to simplify sustainability measurement while expanding business accountability for driving economy-wide decarbonisation. SMEs can leverage these innovations for smoother alignment with global climate objectives, while realising strategic benefits from an early focus on setting and meeting bold net-zero targets.
Embarking on Your Net Zero Journey
As a small or medium-sized enterprise (SME), embarking on a net zero emissions journey may seem daunting. However, with the right climate accounting tools and guidance, achieving decarbonisation goals is within reach. Here's a quick guide to get started:
Understand Climate Accounting
Climate accounting refers to measuring, reporting, and reducing your company's carbon footprint over time. It involves tracking greenhouse gas (GHG) emissions across your operations and supply chain. Robust climate accounting is key to setting science-based targets, identifying high-impact reduction opportunities, engaging stakeholders, and monitoring progress.
Adopt Relevant Standards
Familiarise yourself with leading climate accounting standards like the Greenhouse Gas Protocol. Consider certifying your inventory through recognised programs like Science Based Targets initiative (SBTi). This ensures your accounting methodology and reduction targets are robust and credible.
Automate Tracking with Software
Manual data collection and carbon calculations can be extremely tedious. Automated climate accounting software like EcoHedge takes the hassle away. Our user-friendly platform seamlessly integrates real-time emissions data across your business to provide accurate, transparent climate reporting.
With the right climate accounting approach, SMEs can effectively contribute to global decarbonisation while future-proofing their business. Reach out to learn how EcoHedge can accelerate your net zero journey today!
