Why Carbon Accounting is Important for Businesses
Carbon accounting, or Greenhouse Gas (GHG) accounting, refers to the process of quantifying the amount of carbon dioxide and other greenhouse gases that commercial or national institutions emit as part of their operations.
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. This encourages climate action and corporate sustainability in meeting their net-zero emission targets. Additionally, carbon accounting helps in planning an emission reduction strategy by making clear which areas of a business’ operations are the primary sources of emissions.
What is Enterprise Carbon Accounting (ECA)?
Enterprise Carbon Accounting, or Corporate Carbon Footprint, is a quick and cost-effective approach to help businesses gather, summarize and report enterprise and supply chain greenhouse gas inventories. Greenhouse gas inventories are lists of emissions and their sources, which are quantified using standardized methods. Carbon accounting and monitoring will yield different results for each business.
To be successful, your Enterprise Carbon Account requires the following characteristics:
- Comprehensive: Incorporates scope 1, 2, and 3 emissions.
- Periodic: Allows for regular updates and comparisons across reporting periods.
- Auditable: Transactions are traceable and allow for independent reviews for compliance.
- Flexible: Uses data from various approaches to life cycle analysis.
- Standardized: Accommodates existing accepted standards and emergency standards.
- Efficient: Delivers data in a prompt timeframe.
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, such as natural gas, diesel and propane. Purchasing carbon offsets helps mitigate Scope 1 emissions.
Scope 1 emissions can be further divided into 4 categories:
- Stationary Combustion: Power plants, combined heat and power plants, industrial combustion plants, district heating plants and small plants.
- Mobile Combustion: Emissions from the combustion of fuels in company-owned or controlled mobile combustion sources during the transportation of materials, waste, products and employees.
- Fugitive Emissions: Unintentional and undesirable leakages and discharges of gases or vapours from pressure-containing equipment or facilities. They may also come from components within industrial plants such as pumps, storage tanks or compressors.
- Process Emissions: 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 use.
The Greenhouse Gas Protocol provides guidance for various scenarios and circumstances to assist with identifying Scope 2 emissions 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 be reported in Scope 1.
Scope 3
Scope 3 emissions, otherwise known as value chain emissions, are those that the organization is indirectly responsible for upstream and downstream of its value chain. This includes emissions related to buying products from suppliers and those 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:
- Upstream transportation and distribution.
- Downstream transportation and distribution.
- Waste generated in operations.
- End-of-life treatment of sold products.
- Business travel.
- Employee commuting.
How to Perform Carbon Accounting
Mitigating 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. Regarding Scope 1 emissions, consider every possible source by a company such as buildings, vehicles, air conditioning units, among others. You can then examine the energy consumption information on your utility bills.
For Scope 2 emissions, consider energy purchased by your organization that doesn’t originate from assets owned by your business. For example, 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 from the Government of Canada or Environment and Climate Change Canada page.
Our team at EnergyRates.ca can assist with clarification and reporting of Scope 1 and Scope 2 emissions. We can be contacted via form or telephone at 1-780-628-1861.
Mitigating Scope 3 Emissions
While Scope 3 emissions may be more difficult to track than Scope 1 and Scope 2 emissions, Scope 3 disclosure is still crucial.
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 addition to other actions that contribute to Scope 3 emissions.
As with Scope 1 and 2 emissions, our team 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 managing them. After a company audits its own greenhouse gas emissions, it can examine the sources of waste or inefficiencies. In the long term, greenhouse gas accounting benefits the environment through lowered emissions and a business through diminished financial costs.
Tracking your GHG Emissions
If your business is ready to work towards being carbon neutral and reduce its environmental impact but you’re not sure where to start, our team at EnergyRates.ca can help guide you through the process.
After examining your scope using power purchasing 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.
What is ESG, and how does it impact companies?
ESG stands for Environmental, Social and Governance. They represent criteria of sustainability and ethical impact of investing in a company. As such, ESG reporting promotes transparency with customers while encouraging long-term growth.
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:
- waste and pollution.
- resource depletion.
- greenhouse gas emission.
- deforestation.
- climate change.
Social criteria look at how a company treats people and examines:
- employee relations & diversity.
- working conditions, including child labour and slavery.
- local communities; seeks explicitly to fund projects or institutions that will serve poor and underserved communities globally.
- health and safety.
- conflict.
Governance criteria looks at a corporation’s internal policies and how it is governed. It examines:
- tax strategy.
- executive remuneration.
- donations and political lobbying.
- corruption and bribery.
- board diversity and structure.
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 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 business has done regarding the three factors.
Develop your ESG strategy
The first step is to create an ESG strategy. This should consider all aspects of the three categories and establish both short 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 implemented to meet them.
Select your reporting framework
To complete the report, it is best practice to identify one or more ESG reporting frameworks to adhere to. The ESG requires a lot of information regarding the company’s operations, but much of that data will likely be collected internally already. Governments overall have not developed standards on reporting the impact a company may have, so some organizations have worked with government, enterprises and investors to develop different frameworks of reporting, so the information shared, and the changed 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 others. We cover these three in greater detail further down.
Transparency throughout the process is essential. Transparency upholds the validity of the data in your report and ensures that your ESG reporting and the measures your company undertakes are trusted by shareholders and the public. Ensure that the metrics you focus on are SMART (Specific, Measurable, Achievable, Realistic and Time-bound) so you can clearly indicate where you have met or exceeded your goals, or where your company will need to put in more work.
Share your report
Now that you have done the work of completing the work in completing an ESG report, including collecting all the pertinent data and using one of the accepted formats, you can now share it. Report on your environmental, social, and governance goals and how they align with the other goals of your business. Be transparent in describing what you are doing that will make a difference, and what difference you expect it to make.
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 global ecology. Canadians are looking for ways to support initiatives that reduce emissions and achieve a more sustainable future. Similarly, Canadian investors are looking to support sustainability in their investments 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 sustainable investing is here to stay.
Regarding the types of sustainable businesses these investors are looking for, 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. Investors are prioritizing new technologies that can reduce emissions towards carbon neutral targets, but also those with more robust commitments to the environment and sustainability goals. The same considerations of market-rate returns with minimal risk still apply; but they are now desired in conjunction with companies that meet their environmental, social and governmental obligations, as well.
How CPP Sustainable Investing work
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.
Building on the principles of ESG, the CPP is moving towards prioritizing sustainable investments. This has two primary benefits: it helps 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 of 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 the SASB works
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 across 77 industry sectors, with the understanding that these standards should create value for the enterprise and that different industries will have environmental, social and governmental impacts.
The SASB has many different tools for ensuring effective ESG reporting, including their own Materiality Finder tool that generates a“visual representation 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 and innovation, and leadership and governance. SASB has downloadable standards for over 170 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 the Global Reporting Initiative (GRI) works
The Global Reporting Initiative is a non-profit organization that seeks to establish a framework for communicating about and reporting on environmental impacts of companies.
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 disclosures 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 the SBTi works
The Science Based Target initiative is an ESG framework that aims to illustrate the path towards environmental conservatism with scientifically derived targets that satisfy the guidelines set by the Paris agreement.
The SBTi introduced the first corporate Net-Zero Standard, with guidance, recommendations and criteria that companies require to reach net-zero emissions.
The SBTi is a result of collaboration between CDP, WRI, WWF & UN Global Compact.
Getting started with Carbon Accounting
For businesses who are new to developing a sustainability strategy, clarifying the sources and quantity of your emissions and pollution will give you insight into the most productive use of resources to meet your environmental goals. Our team assists in quantifying and reporting emissions data to help you get started.
Our Carbon Management Services
After consulting with us, we’ll work with you to define the boundaries of the emissions data to determine what’s needed for your selected framework. From there, we collect the data and quantify the emission’s sources and scopes. Then, we assist you in reporting data, so you gain a head start on hitting your net-zero targets.
You can reach us via webform or calling us at 1-780-628-1861.
