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Carbon Accounting for Corporations & Scope 1,2,3 Emissions

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Carbon Accounting and How Scope 1, 2, and 3 Emissions Work

Carbon accounting, also known as Greenhouse Gas (GHG) accounting, refers to the process of quantifying the amount of carbon dioxide and other greenhouse gases that a company or country emits as part of its business operations.

Why is Carbon Account Important for Businesses?

Carbon accounting assists companies in understanding their impact on global warming and climate change as well as assisting them in setting goals to reduce emissions. In other words, it encourages climate action, corporate sustainability and moving towards net-zero emissions. Additionally, carbon accounting helps to plan the emission reduction strategy as it becomes easy to identify which areas of a business’ operations are a source of emissions.

What is Enterprise Carbon Accounting (ECA)?

Enterprise Carbon Accounting or Corporate Carbon Footprint is a quick and cost-effective approach to helping businesses gather, summarize and report enterprise and supply chain greenhouse gas inventories. Greenhouse gas inventories are lists of emission sources, as well as the associated emission, which are quantified using standardized methods. Carbon accounting and monitoring will generate different results for each business.

Enterprise Carbon Account systems require the following characteristics to be successful:

What are the types of emissions?

There are three types of emissions as listed below:

Scope 1

Also known as direct emissions, these GHG emissions are produced directly by companies through burning purchased fuel on-site. Examples include natural gas, diesel, and propane. Purchasing carbon offsets helps with offsetting Scope 1 emissions.

Scope 1 emissions can be divided into 4 areas: stationary combustion, mobile combustion, fugitive emissions and process emissions.

Stationary Combustion: This includes power plants, combined heat and power production plants, industrial combustion plants, district heating plants as well as small plants.

Mobile Combustion: This refers to emissions which are from the transportation of materials, waste, products, and employees that result from the combustion of fuels in company-owned or controlled mobile combustion sources.

Fugitive Emissions:  These emissions are unintentional and undesirable leakages and discharges of gases or vapours from pressure-containing equipment or facilities. Additionally, they may also come from components inside industrial plants such as pumps, storage tanks or compressors.

Process Emissions: These include emissions from the chemical transformation of raw materials and fugitive emissions.

Scope 2  

Scope 2 emissions are indirect GHG emissions that are associated with the purchase of secondary sources of energy such as electricity, steam, heating, or cooling. These emissions are accounted for in an organization’s greenhouse gas inventory since they are a result of the organization’s energy usage.

The Greenhouse Gas Protocol provides guidance for various scenarios and circumstances to assist with identifying Scope 2 emissions and to avoid double-counting emissions between Scope 1 and Scope 2 emissions.

For example, if an instance of consumed electricity comes from owned or operated equipment from the same entity, it would not be reported as a Scope 2 emission since the emissions from power generation should have been reported in Scope 1.

Scope 3

These are emissions that the organization is indirectly responsible for upstream and downstream of its value chain. For example, this includes emissions related to buying products from suppliers as well as the emissions associated with customers using products.

Overall, scope 3 emissions (also known as value chain emissions) often represent the majority of an organization’s total GHG emissions according to the United States’ Environmental Protection Agency.

Below is a list of emission factors relevant to Scope 3 emissions as provided by the GHG Emissions Factors Hub:

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Infographic: How emission scopes 1, 2, and 3 work (Image: EnergyRates.ca)

How to Do Carbon Accounting

Below, we’ll outline carbon accounting in corporations:

How to tackle Scope 1 and Scope 2 emissions

Both Scope 1 and Scope 2 emissions revolve around assets that are owned by or used by a company. When it comes to Scope 1 emissions, think about every possible source of carbon emissions within your company – common examples are buildings, vehicles, air conditioning units among others. With this done, you can then examine the energy consumption information on your utility bills.

When it comes to Scope 2 emissions, think about energy that is purchased by your organization that doesn’t come from assets owned by your business. For example, consider your electric bill and heating bills. You can also find information about Scope 2 emissions from your utility bills.

Next, you’ll want to use the appropriate reporting factors for your Scope 1 and Scope 2 emissions – you can learn more about reporting on this page published by the Government of Canada. There is also further guidance available on reporting from Environment and Climate Change Canada.

If you require assistance or clarification with reporting your Scope 1 and Scope 2 emissions, our team at EnergyRates.ca can assist – they can be contacted via form or telephone at 1-780-628-1861.

How to tackle Scope 3

While Scope 3 emissions may be more difficult to track than Scope 1 and Scope 2 emissions, Scope 3 disclosure is still important.

Guidance for calculating Scope 3 emissions is available here from the Greenhouse Gas Protocol. For example, you can find information on various methods to calculate emissions from business travel in this document in addition to other activities and actions that contribute to Scope 3 emissions.

As with Scope 1 and Scope 2 emissions, our team at EnergyRates.ca is here to help if you need any clarification or assistance with your Scope 3 emissions. They can be contacted via form or telephone at 1-780-628-1861.

What is the GHG protocol?

The Greenhouse Gas Protocol provides the global standard for companies and organizations to measure and manage their GHG emissions. As such, it provides GHG accounting and reporting standards, sector guidance, calculation tools and training for businesses and national governments.

What are the benefits of measuring a GHG footprint?

Measuring greenhouse gas emissions is the first step to being able to manage them. After a company measures its own greenhouse gas emissions, it can examine where there is excessive waste or inefficiencies occurring. In the long term, greenhouse gas accounting benefits the environment through lowered emissions and a business through lessened financial costs.

What is ESG, and how does it impact companies?

ESG stands for Environmental, Social and Governance. They represent criteria that help measure the sustainability and ethical impact of investing in a company. As such, ESG reporting helps promote transparency with consumers in addition to encouraging growth in the long term.

As of July 2022, over 90% of the companies in the S&P 500 have created annual ESG reports. In essence, ESG reporting proves an indispensable tool for investors to communicate with companies to understand if their values align.

Below are examples of each criterion as defined by Market Business News.

Environmental criteria examine how mindful a business is of its environmental impacts and looks at:

Social criteria look at how a company treats people and examines:

Governance criteria looks at a corporation’s self policies and how it is governed. It examines:

How to conduct ESG Reporting?

ESG reporting is important, as it communicates data relevant to the added value or potential harm a company may be responsible for in the environmental, societal, and corporate governance realms. ESG reports contain a summary of relevant quantitative and qualitative information, with an analytic report to provide insight into the work the business has done among these three factors.

The first step is the creation of an ESG strategy. The ESG strategy should consider all aspects of the three categories, as well as establish both short-term and long-term goals for the company. All teams and divisions within the company, as well as shareholders, should be up to date on these goals and the changes that will be made to meet them.

Next, the reporting will need to be completed. The ESG report requires a lot of information regarding the company’s operations, but much of that data will likely be collected internally already.

It is best practice to identify one or more ESG reporting frameworks to adhere to. Governments overall have not taken it upon themselves to develop standards on how to report the impact a company may make, so a number of organizations have worked with governments, companies, and investors to develop different frameworks of reporting, so the information shared and the change committed are valid and positively impactful.

Some of the most common ESG reporting frameworks include the Sustainability Accountability Standards Board (SASB), Global Reporting Initiative (GRI), Science-based target initiative (SBTi) and more (we will touch on the first three individually later).

Transparency along the entire process is essential. Transparency upholds the validity of your data in your report and will be essential in ensuring that your ESG reporting and the measures your company takes are trusted by shareholders and the public. It is advisable to ensure that the metrics you use are SMART (Specific, Measurable, Achievable, Realistic, and Time-bound) so you can clearly indicate where you have met your goals, well-exceeded your goals, or where your company will need to put in more work.

Now that you have done the work in completing an ESG report, including collecting all the pertinent data and using one of the accepted formats or reporting, you can now share it. Talk about your environmental, social, and governance goals, and how they align with the other goals of your business. Be transparent and describe what you are doing that will make a difference, and what difference that will make exactly.

Tracking your GHG emissions

If your business is ready to work towards being carbon neutral and reduce its environmental impacts but you’re not sure where to start, our team at EnergyRates.ca can help guide you through the process. After examining your scope emissions, we can make suggestions to offset or limit your carbon emissions such as using power purchase agreements, joining other businesses in energy aggregation or purchasing RECs and carbon offsets. Our team can even help you look at a greener energy plan that’s suitable for your organization’s needs. To get started, you can contact our team via this form or call 1-780-628-1861.

How sustainability impacts investor relations

Concerns over global warming’s impact on the environment are shared by millions of Canadians. For many, making changes in their everyday lives is not just a personal commitment to the environment, but a way to preserve the world’s current existence. Canadians are looking for ways to expand their support for initiatives to reduce emissions and live for a more sustainable future. Similarly, Canadian investors are similarly looking to expand their support for sustainability in their investment decisions as well.

According to a 2022 report by Fidelity International, two-thirds of surveyed North American analysts saw a growing emphasis to implement and communicate ESG policies among the companies they worked with. An impressive 90% of European analysts saw these trends too. As these numbers continuously increase, it seems that sustainable investing is here to stay.

What types of investments are these “sustainably-minded” investors looking for? Well, for starters, there is a growing demand that companies do not just look for environmentally conscious investment opportunities, but also consider the social and governmental policies of the companies they invest in too. Investors are looking to invest in new technologies that can reduce emissions toward carbon neutral targets, but also are beginning to consider companies with more robust commitments to the environment and sustainability goals over those that do not.  The same things that investors have wanted for ages still apply – investors are looking for market-rate returns with minimized risk, while also looking for companies that meet not only their environmental requirements but social and governmental requirements too.

What is sustainable investing?

Sustainable investing is investing that considers aspects of sustainability along with other investment considerations, such as risk and projected returns. As people realize their actions have an impact on the world around them, people also realize the businesses they support and invest in having a major impact on the world too.

More and more investors – retail and institutional alike – have realized that considering corporate sustainability is a valuable tool in finding strong investment opportunities while often having less risk associated with environmental or social problems of the company’s doing.

The major considerations fall into three categories: environmental, social, and governmental. These three are the core principles of ESG investing.

How does CPP Sustainable Investing work?

CPP doesn’t require any introductions, but for those who want a refresher: The Canadian Pension plan is a retirement pension that allows Canadians to replace part of their income when they plan to retire. The government takes CPP contributions and makes investments to give Canadians the pension they need to retire with minimal risk of loss.

Building on the principles of ESG, the CPP is moving towards more sustainable investments. This has twofold benefits. Not only does this investment strategy help Canadians approach net-zero emissions, but also offers more perceived stability of the investments “to maximize long-term investment returns without undue risk of loss,” (Newswire).

The CPP has aligned with the Sustainability Accounting Standards Board (SASB) and the Task Force on Climate-related Financial Disclosures (TCFD) to disclose the relevant ESG information on the companies the CPP invests in.

ESG reporting frameworks: SASB, GRI, SBTi

How does the SASB work?

The Sustainability Accounting Standards Board is an ESG guidance framework that sets standards for the disclosure of sustainability information that is financially material (or relevant to a company’s financial performance). The SASB standards differ by sector, across 77 sectors of industry, with the understanding that these standards should create enterprise value and that different industries will have different environmental, social, and governmental impacts.

The SASB has many different tools for ensuring effective ESG reporting, including their own Materiality Finder tool that generates investors a “visual representation[s] of their portfolio’s exposure to specific sustainability risks and opportunities”.

The SASB identifies five dimensions of sustainability that it reports on: environmental, social capital, human capital, business model + innovation, and leadership + governance. SASB has downloadable standards for over 170 of the world’s countries.

SASB standards are maintained by the Value Reporting Foundation, “a global non-profit organization that offers a comprehensive suite of resources designed to help businesses and investors develop a shared understanding of enterprise value.”

How does the Global Reporting Initiative (GRI) work?

The Global Reporting Initiative is a non-profit organization that seeks to establish a framework for communicating about and reporting on environmental impacts companies cause.

The GRI’s Modus operandi is stated on its website: “GRI (Global Reporting Initiative) is the independent, international organization that helps businesses and other organizations take responsibility for their impacts, by providing them with the global common language to communicate those impacts.

The GRI’s main goal is to develop a framework of communication that allows for transparent comprehensive disclosure of ESG impacts a company may make. For this reason, GRI is not only compatible with other frameworks that look at other factors but synergistic with some including the SASB.

How does SBTi work?

The Science Based Target initiative is an ESG framework that aims to illustrate the path towards environmental conservatism with science-based targets. “Science-based,” defined as clearly defined targets that meet the necessary guidelines to meet the goals of the Paris agreement.

The SBTi introduced the first corporate Net-Zero Standard, with guidance, recommendations, and all the criteria companies will need to reach net-zero emissions.

The SBTi is a result of the collaboration between CDP, WRI, WWF & UN Global Compact.