Greenhouse Gas Emissions Accounting Simplified for SMEs

published on 16 December 2023

As an SME looking to understand greenhouse gas emissions, it's challenging to know where to start with carbon accounting.

Luckily, this guide breaks down the essentials of GHG emissions tracking specifically for small and medium enterprises. You'll learn the fundamentals of putting together your organisation's first greenhouse gas inventory report following authoritative standards.

We'll cover everything from an introduction to emissions accounting concepts, step-by-step instructions for calculating your carbon footprint across Scopes 1, 2 and 3, leveraging reporting tools, and most importantly - how to turn newfound emissions insights into impactful climate action.

Greenhouse gas (GHG) emissions accounting is crucial for small and medium-sized enterprises (SMEs) seeking to reduce their carbon footprint. By measuring emissions and setting reduction targets, SMEs can contribute significantly to global climate change mitigation efforts. This section introduces some best practices for SMEs new to emissions accounting.

Understanding the Role of SMEs in Climate Mitigation

Collectively, SMEs account for a large portion of global emissions. Although individual SME impacts seem minor, widespread adoption of emissions accounting across many SMEs can drive great progress in meeting larger climate goals. Early adoption also allows SMEs to lead in their industries.

The Basics of Greenhouse Gas Inventories

A GHG inventory quantifies emissions using accepted global standards. It serves as a baseline for setting reduction targets and tracking performance over time. Common emissions sources for SMEs include energy use, transportation, waste, and more.

Getting Familiar with the GHG Protocol Corporate Standard

The GHG Protocol provides a robust and globally recognised standard for tracking SME emissions. It covers key concepts like organizational boundaries, direct/indirect emissions, and more. SMEs should understand these fundamentals before collecting data.

Adopting a Strategic Approach to Carbon Footprint Tracking

Emissions accounting should align with broader environmental goals across SME operations. By taking a strategic approach, SMEs can maximise value - improving market position, identifying reduction opportunities, and mitigating regulatory risks.

What is the accounting of GHG emissions?

Greenhouse gas (GHG) emissions accounting refers to the process of measuring and reporting the amount of greenhouse gases emitted from an organisation's operations and activities. This involves quantifying emissions across all relevant sources and scopes as defined by reporting standards such as the Greenhouse Gas Protocol.

GHG emissions accounting serves several key purposes for businesses and other organisations:

  • Identifying the largest sources of emissions to prioritize reduction efforts

  • Tracking performance over time to evaluate progress towards emissions targets

  • Disclosing emissions data to stakeholders for sustainability reporting

  • Complying with regulatory emissions monitoring and reporting requirements

  • Facilitating carbon offsetting to mitigate residual emissions

The key activities in the GHG accounting process include:

  • Establishing organisational and operational boundaries

  • Collecting activity data on emissions sources

  • Choosing appropriate emissions factors

  • Calculating emissions using methodologies aligned with reporting standards

  • Managing and storing emissions inventory data

Robust GHG accounting helps provide the crucial emissions datasets and carbon insight needed to drive science-based climate strategies and net zero-aligned business plans.

What are the methods of GHG emissions accounting?

Greenhouse gas (GHG) emissions accounting refers to the process of measuring and reporting on the GHGs emitted from an organisation's operations and activities. There are a few common methods used for emissions accounting:

Spend-based Method

The spend-based method estimates emissions by taking an organisation's spending on goods and services and multiplying that by emissions factors associated with those purchases. For example, if a company spent £100,000 on air travel in a year, that spend amount would be multiplied by an emissions factor for air travel to estimate the GHG emissions produced.

This method provides a straightforward way to account for emissions, especially for small businesses without complex operations. However, it tends to be less accurate than other methods since it relies on industry averages rather than organisation-specific data.

Measurement-based Method

The measurement-based method directly measures and calculates emissions based on activity data specific to the organisation such as fuel consumption, refrigerant leaks, and more. This often requires organisations to implement emissions tracking processes and tools.

While more resource intensive, this method provides greater accuracy by relying on primary data sources. It aligns well with GHG protocol standards for corporate inventories.

Hybrid Method

Some organisations use a hybrid approach that combines both spend-based and measurement-based emissions calculations. This allows them to directly measure emissions where feasible, while estimating the remainder based on financial data.

The hybrid methodology helps balance accuracy with practicality, making GHG accounting more accessible for small and mid-sized companies. However, it still requires organisations to collect and manage emissions data to power the measurement component.

In summary, GHG emissions accounting leverages different techniques to quantify an organization's carbon footprint. As regulations and stakeholder demands for climate transparency grow, advanced methods like measurement-based accounting will likely become the norm despite higher initial effort.

How do you account for CO2 emissions?

Accounting for carbon dioxide (CO2) emissions can seem daunting, but breaking it down into a few key steps makes the process more manageable:

Gather Activity Data

The first step is to collect activity data from across your operations. This includes information like:

  • Energy usage (electricity, gas, etc.) per year

  • Fuel consumed per year

  • Miles travelled per year

Pull this data from utility bills, fleet fueling records, and other internal sources.

Convert into Emissions

Next, you'll convert the activity data into emissions using a carbon calculator. The US EPA provides a free and simple calculator for this purpose.

Input your activity metrics to determine the annual CO2 emissions. Make sure to record both Scope 1 emissions (from owned sources like vehicles and generators) and Scope 2 emissions (from purchased energy).

Track and Report

Now that you have your emissions numbers, you can track them over time to monitor progress. And by reporting through frameworks like the GHG Protocol, you can clearly communicate your carbon footprint to stakeholders.

The key is starting with solid activity data and conversion factors. From there, you have the foundation to account for emissions on an ongoing basis.

What is the GHG Protocol for carbon accounting?

The Greenhouse Gas (GHG) Protocol provides globally recognised standards for measuring and managing greenhouse gas emissions from private and public sector operations, value chains, products, cities, and policies.

Developed through a partnership between the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD), the GHG Protocol aims to help companies and governments tackle climate change through accurate carbon accounting and reporting.

Some key things to know about the GHG Protocol:

  • It offers the world’s most widely used greenhouse gas accounting standards for tracking and reporting emissions at the corporate, product, project, city, and national levels. Over 90% of Fortune 500 companies that report to CDP use the GHG Protocol.

  • The GHG Protocol provides standards and guidance for measuring greenhouse gases across an organisation's operations and entire value chain. This includes direct emissions from owned sources (Scope 1), indirect emissions from purchased electricity/heat (Scope 2), and other indirect emissions across the supply chain (Scope 3).

  • It enables credible and consistent measurement and reporting of emissions that facilitates meaningful comparisons over time and across industries. Standardised carbon accounting builds transparency and drives informed business and policy decisions.

In summary, the GHG Protocol is an essential framework for understanding, quantifying, and managing greenhouse gas emissions. It provides the accounting platform for companies to measure their carbon footprint, set emission reduction targets, and track performance over time. Following GHG Protocol standards signals a credible commitment to climate action.


Greenhouse Gas Protocol: A Comprehensive Guide for SMEs

The Greenhouse Gas (GHG) Protocol is the leading global framework for measuring, managing, and reporting greenhouse gas emissions. Developed through a multi-stakeholder partnership convened by the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD), the GHG Protocol has set the standard for corporate and product level accounting and reporting.

With the growing focus on environmental sustainability, the GHG Protocol provides a practical methodology SMEs can adopt to understand, quantify, and report their organisation's carbon footprint. By facilitating accurate and consistent emissions measurement, it enables companies to set emission reduction targets, track performance over time, and comply with regulatory and stakeholder disclosure requirements.

Introduction to the Greenhouse Gas Protocol

The GHG Protocol encompasses a suite of standards, tools, and training to help companies inventory their emissions and develop effective climate strategies. The two cornerstone standards are:

  • GHG Protocol Corporate Accounting and Reporting Standard: Provides requirements and guidance for companies to inventory their organisational carbon footprint across direct emissions sources (Scope 1), energy indirect emissions (Scope 2) and other indirect emissions (Scope 3).

  • GHG Protocol Product Life Cycle Accounting and Reporting Standard: Defines requirements to account for emissions across a product's lifecycle from raw material extraction, production, transportation, use phase, and end-of-life. Enables tracking of embodied carbon in products.

Adhering to the GHG Protocol delivers the following advantages:

  • Standardisation - Allows for consistent measurement and performance benchmarking across companies.

  • Transparency - Supports credible public reporting to demonstrate climate action to stakeholders.

  • Informed decisions - Identifies the largest emission sources to help prioritise reduction opportunities.

As a globally recognised standard, the GHG Protocol can streamline sustainability planning for SMEs through simplified but thorough carbon accounting.

Exploring Greenhouse Gas Protocol Scope 1, 2, and 3

A core concept underpinning the Corporate Accounting Standard are emissions classified into three 'scopes':

  • Scope 1 accounts for direct emissions from owned/controlled sources like fuel combustion in facilities, vehicles and fugitive refrigerant leaks.

  • Scope 2 captures indirect emissions from imported electricity, heating and cooling.

  • Scope 3 represents other indirect emissions across the company's value chain from activities not owned but influenced by the organisation. This constitutes the greatest share of an organisation's carbon footprint on average across most sectors. Scope 3 categories range from emissions from raw material extraction, transportation services, waste disposal, employee commuting, product use phase, and others.

For SMEs starting the sustainability journey, scoping emissions allows businesses to incrementally expand their carbon inventory as data quality and internal resources permit over time. As capabilities grow, SMEs can obtain a more comprehensive view of climate risks and opportunities.

Alignment with GHG Protocol Reporting Template

To streamline emissions data collection and structuring, SMEs can leverage a free Excel-based template aligned to the GHG Protocol Corporate Standard. This automates key calculations, provides data visualisations, and contains separate tabs to record emissions for current and prior years across each scope. For those reporting to CDP, the template is fully compatible allowing for efficient data transfer.

Using such a template removes the complexity of managing manual spreadsheets, while enabling small teams to easily compile and analyse their company and value chain emissions data. Over time, this positions SMEs to set science-based targets, demonstrate performance against goals, and communicate their carbon footprint accurately.

Case Studies: SMEs Implementing the Greenhouse Gas Protocol

The flexibility built into the GHG Protocol means that small and medium businesses across various sectors have benefitted from its adoption. For instance:

  • An IT consulting firm used the standard to expand their emissions inventory to include employee travel and office energy use. This supported more comprehensive carbon reporting to stakeholders.

  • A food trading company leveraged the Corporate Standard to calculate and label the carbon footprint of exported produce. Creating this level of supply chain transparency helped attract ethically minded institutional buyers.

  • An electric vehicle charging start-up set product life cycle based emissions targets underpinned by the GHG Protocol methodology. Quantifying embodied carbon in charging station components informed design changes that lowered the company's overall emissions.

As illustrated through these real-world examples, the Greenhouse Gas Protocol empowers SMEs to effectively measure, understand and communicate vital climate information both internally and to external stakeholders. The globally recognised set of standards lends credibility while the flexible framework ensures customisation to an organisation's unique operating context.

The Process of Compiling a Greenhouse Gas Inventory Report for SMEs

Compiling a comprehensive greenhouse gas (GHG) emissions inventory serves as the foundation for SMEs to understand, track, and reduce their carbon footprint. By following key GHG accounting and reporting protocols, SMEs can streamline the inventory process.

Starting with Scope 1: Direct Emissions Inventory

Scope 1 covers direct emissions from sources owned or controlled by a company. For SMEs, this may include:

  • Fuel combustion from boilers, furnaces, vehicles, generators, etc.

  • Fugitive refrigerant leaks from AC units and refrigerators

  • Industrial process emissions

To calculate Scope 1 emissions:

  • Identify all applicable emission sources

  • Collect activity data like fuel/material consumption

  • Multiply activity data by verified emissions factors

  • Report in metric tons of CO2 equivalent (CO2e)

Streamlining data collection and using automated software simplifies this process for SMEs.

Scope 2: Accounting for Indirect Energy Emissions

Scope 2 covers indirect GHG emissions from purchased electricity, steam, heating and cooling. Steps to account for Scope 2:

  • Obtain annual energy consumption data per energy type

  • Identify appropriate emissions factors based on energy mix

  • Calculate emissions using the activity data and emissions factors

  • Report Scope 2 emissions separately from Scope 1

Choosing electricity suppliers committed to renewable energy can dramatically reduce Scope 2 emissions.

Scope 3: Navigating Indirect Value Chain Emissions

Scope 3 emissions encompass indirect emissions across a company's upstream and downstream value chain. While often the largest share of an SME's carbon footprint, Scope 3 can seem daunting to measure and report. Strategies like:

  • Prioritising the most significant Scope 3 categories

  • Seeking supplier engagement

  • Using spend-based calculations

  • Applying secondary data sources

can simplify the process. Robust tools like EcoHedge help SMEs efficiently account for Scope 3 emissions.

Ensuring Accuracy and Completeness in Your GHG Inventory

With careful data collection and calculation methodologies, SMEs can develop a rigorous GHG inventory. Key recommendations include:

  • Adhering to GHG Protocol principles

  • Verifying data points through internal audits

  • Using the highest-tier calculation methods possible

  • Tracking emissions year-over-year consistently

  • Pursuing third-party assurance as feasible

Documenting inventory procedures, data sources, and quality checks also improves accuracy. By compiling high-quality GHG inventories annually, SMEs gain better visibility into risks and opportunities to reduce their greenhouse gas emissions accounting over time.

Practical Steps to Measure and Manage SME Emissions

Outlines actionable steps for SMEs to measure their greenhouse gas emissions accurately and implement management strategies for reduction.

Developing an Emissions Baseline

Establishing a base year is an important first step for SMEs looking to track and reduce their greenhouse gas emissions. This provides a reference point to compare future emissions measurements and reduction efforts against.

When choosing a base year, it's best to select a year with good data quality and representative business activities. For many SMEs, the most recent full year of operations data is a logical starting point.

Once the base year is set, SMEs need to calculate their total emissions for that year across relevant sources. This includes direct emissions from owned sources like vehicles and equipment (greenhouse gas protocol scope 1), as well as indirect emissions from purchased electricity and heat (scope 2).

With the baseline established, SMEs can start measuring current emissions and tracking performance against the base year. Reductions can then be clearly demonstrated.

Best Practices for Emissions Data Collection

Consistent, accurate data collection is crucial for tracking emissions over time. SMEs should establish processes to record activity data from emissions sources at least annually.

For fuel and energy use, collecting consumption data from supplier invoices is an efficient approach. Mileage logs, equipment runtime hours, and refrigerant top-ups can also inform calculations.

Sticking to measurement methodologies over time, rather than switching approaches, also ensures consistency. Where changes cannot be avoided, rebase-lining previous years may be required to allow for accurate comparisons.

Utilising Technology for Enhanced Emissions Tracking

Software tools can greatly simplify emissions data collection and analysis compared to manual spreadsheets. GHG Protocol-compliant online calculators walk SMEs through creating full organisational greenhouse gas inventories and tracking performance against base years or targets.

Sophisticated platforms can even pull data straight from utility accounts, vehicle telematics, sensor networks and more via automation. This reduces the reporting burden while improving accuracy.

As the measurability of emissions keeps improving, SMEs can tap into ever more advanced IoT technologies to monitor energy, fuel use, and emissions at their source.

Benchmarking and Setting Reduction Goals

Once a detailed understanding of current emissions is achieved, SMEs can identify areas to target for reductions. Comparing or "benchmarking" against industry best practices can help guide prioritisation.

SMEs can utilise free online tools from government bodies and NGOs to set science-based carbon reduction targets aligned with climate goals. When integrated into business strategy, measurable goals drive accountability and progress.

Publicly sharing reduction targets and annual sustainability achievements through GHG protocol reporting templates also allows SMEs to demonstrate "green" credentials to stakeholders.

Communicating Your Emissions Profile

Communicating sustainability initiatives effectively to key stakeholders can strengthen reputation and unlock new opportunities. Major reporting frameworks like CDP and GRI enable comparability and transparency on environmental performance.

Selecting Relevant Reporting Platforms

Major frameworks like CDP and Global Reporting Initiative (GRI) enable companies to disclose emissions and sustainability actions using standardised metrics. This ensures consistency and comparability.

Consider leveraging these programs if:

  • Investors or customers request sustainability disclosures through them

  • Competitors benchmark progress using them

  • Seeking third-party credibility on climate and ESG commitments

Tailor responses to highlight strengths and mitigate risks relevant to specific stakeholders.

Incorporating into Existing Reports

Seamlessly integrating greenhouse gas data into financial statements, annual reports and websites makes it readily accessible to stakeholders.

Best practices include:

  • Summarising key emissions statistics and trends

  • Linking to comprehensive inventory reports

  • Discussing related risks, opportunities and strategic priorities

This demonstrates how sustainability is intertwined with operations and governance.

Leveraging for Reputational Benefits

Proactively communicating sustainability initiatives builds brand value and trust:

Employees: Inspires talent to support emissions reduction efforts and unlocks recruitment/retention benefits.

Customers: Satisfies and retains increasingly climate-conscious consumers supporting brands that share their values.

Investors: Reduces perceptions of risk by showcasing climate resilience, unlocking access to growing pools of sustainable finance.

Suppliers: Enables benchmarking against customer expectations and industry best practices on environmental sustainability.

Frequently updating stakeholders using tailored messaging and channels sustains engagement over time.

Turning Insights into Climate Action

Analysing Your Emissions Profile

Conducting a hot-spot analysis of your greenhouse gas emissions inventory allows you to pinpoint the most carbon-intensive activities across your organisation and supply chain. This provides visibility into the key drivers of your emissions footprint and opportunities to reduce it.

Start by categorising your emissions data by source, such as facilities, transportation, purchased goods and services, etc. Then, identify the top contributors within each category. For example, you may find the largest share comes from purchased materials or business travel. Comparing year-over-year trends can also highlight areas where emissions are increasing rapidly.

With these insights, you can then drill down further to understand the underlying factors. What specific goods or services make up the hot spots? Which facilities or transport modes dominate? The more granular your analysis, the better targeted your reduction initiatives can be.

Setting Science-Based Targets

Science-based targets provide companies with a clearly defined path to reduce greenhouse gas emissions in line with climate science. Targets are considered "science-based" if they are in conformance with the level of decarbonisation required to meet the goals of the Paris Agreement - limiting global warming to well-below 2°C above pre-industrial levels.

The Science-Based Targets initiative (SBTi) enables companies to develop science-based emissions reduction targets, providing resources such as target-setting methods and criteria. For example, the SBTi Sectoral Decarbonisation Approach (SDA) helps determine the depth of reductions needed across a company's operations and value chain based on its industry's transition pathway.

Companies can choose from various target timeframes aligned to science such as near-term (5-10 years), mid-term (10-15 years), and long-term (more than 15 years). Ambitious science-based targets can serve to future-proof business growth while reducing climate risk and driving innovation.

Embedding Sustainability into Operations

With clear emissions reduction targets defined, companies can embed sustainability considerations into everyday business decisions and processes to systematically work towards these goals.

For example, procurement policies can be updated to account for suppliers' sustainability performance and carbon footprints. Investment criteria could require assessing emissions impacts. Travel policies could prioritise low-carbon transport options. Operational energy efficiency projects and renewable energy procurement also play key roles.

At higher levels, factoring in carbon pricing when evaluating projects and business plans allows trade-off decisions between emissions goals and costs. Mainstreaming climate risks into overall enterprise risk management is also crucial.

By continually linking major business plans, budgets, and operating procedures to climate objectives across departments, companies can pragmatically steer their trajectory towards science-aligned emissions pathways.

Conclusion: Embracing the Path to Low-Carbon SME Operations

Recap: The Key Pillars of GHG Emissions Accounting

Greenhouse gas (GHG) emissions accounting is essential for SMEs seeking to reduce their carbon footprint and contribute to climate change mitigation. By measuring and reporting emissions in a standardised way, as outlined by protocols like the Greenhouse Gas Protocol, SMEs gain visibility into their largest sources of emissions across Scopes 1, 2, and 3. This enables them to set emissions baselines, reduction targets, and track performance over time. Core pillars of robust GHG accounting include:

  • Adhering to accepted GHG accounting principles and guidelines

  • Accurately categorising emissions into Scope 1, 2, or 3

  • Utilising approved emissions factors and calculations

  • Following consistent reporting templates and tools

  • Verifying data and calculations through third-party audits

  • Disclosing and sharing emissions data with stakeholders

Building Resilience and Competitiveness Through Sustainability

Proactive sustainability and emissions reduction efforts can strengthen an SME's resilience to regulatory, environmental, and market risks related to climate change. Tighter regulations on carbon emissions and growing scrutiny of corporate climate action make detailed GHG inventories imperative. Further, sustainability helps attract talent, investors, and partners focused on social responsibility. By taking the lead on environmental stewardship, SMEs can gain first-mover advantage and positively differentiate their brand.

Next Steps: Resources for Advancing SME Carbon Management

Many online tools and resources exist for SMEs to continue progressing on their sustainability journey. The GHG Protocol offers sector-specific calculation tools and guidance materials tailored to SMEs. Non-profits like CDP provide frameworks for SMEs to track and disclose emissions. Government initiatives often have financial incentives and practical support systems for SME decarbonisation. With the right knowledge and solutions, SMEs can overcome hurdles on the path to maximising sustainability.

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