The Biggest Challenges with Carbon Accounting for Businesses

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As climate change concerns intensify, businesses face mounting pressure to measure and reduce their carbon emissions. Carbon accounting has become a crucial tool, but it's not without its challenges.

This article examines the key hurdles in carbon accounting and how businesses can leverage technology to navigate these challenges efficiently.

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What is Carbon Accounting?

Carbon accounting is the process of measuring and reporting an organisation's greenhouse gas (GHG) emissions. It involves tracking the gases that contribute to global warming, similar to how financial accounting tracks economic activity.

For businesses, carbon accounting is more than an environmental responsibility. While compliance is a key driver for carbon accounting, its benefits extend far beyond regulatory requirements. By identifying emission hotspots, businesses can optimise operations and reduce energy consumption, leading to significant cost savings.

Understanding your carbon footprint can help anticipate and mitigate climate-related risks to your business. Alongside this, demonstrating strong environmental performance can attract environmentally conscious customers and investors.

As environmental regulations tighten and stakeholders become increasingly concerned with environmental impact, effective carbon accounting is no longer optional—it's a necessity.

Key Challenges in Carbon Accounting

Implementing effective carbon accounting is no small feat. Challenges arise from data collection issues, defining scopes and boundaries, to navigating complex regulatory landscapes. However, understanding these obstacles is the first step to overcoming them.

Data Collection and Accuracy

One of the most significant challenges in carbon accounting is ensuring data accuracy. Businesses, particularly those with complex supply chains or multiple locations, often struggle to gather comprehensive data across all operations.

Inaccurate data can lead to flawed reporting and misguided sustainability strategies, creating risks not only of regulatory non-compliance but also reputational damage.

For many businesses, manually gathering data from disparate sources is time-consuming and susceptible to inaccuracies. This is where technology plays a crucial role. Advanced software solutions can automate data collection, extracting information directly from primary documents, reducing the need for manual input and improving overall data accuracy. This also cuts down the time spent on tasks, allowing teams to focus on strategy rather than administrative processes.

Scope and Boundary Definition

Defining the scope of emissions to include in carbon accounting is another major hurdle. The Greenhouse Gas Protocol defines three scopes of emissions:

• Scope 1: Direct emissions from owned or controlled sources, such as fuel combustion in company vehicles or on-site operations.
• Scope 2: Indirect emissions from purchased energy, including electricity, heat, and cooling used by the business but generated elsewhere.
• Scope 3: Indirect emissions across the value chain, encompassing everything from supply chain activities to product use and disposal, as well as business travel and employee commuting.

Setting the right boundaries for carbon accounting requires understanding your regulatory requirements in addition to investor, commercial and internal pressure.

Scope 3 emissions, which include all indirect emissions in a company's value chain, are often the most challenging to account for. They typically represent the largest portion of a company's carbon footprint, sometimes up to 90% of total emissions. However, gathering accurate data for Scope 3 emissions is complex, as it requires information from suppliers, customers, and other external parties.

While mandatory Scope 3 reporting is only beginning to be implemented under frameworks like the EU Corporate Sustainability Reporting Directive (CSRD), many companies are proactively including Scope 3 emissions in their carbon accounting. This comprehensive approach provides a more accurate picture of a company's total environmental impact and can reveal significant opportunities for emissions reduction.

Region-specific Requirements

Carbon accounting regulations vary significantly by region, adding another layer of complexity for multinational companies. Each country or region may have its own reporting standards and formats, which businesses must adhere to in order to remain compliant.

For example, in the UK, businesses are required to report Scope 1 and Scope 2 emissions under the Streamlined Energy and Carbon Reporting (SECR) framework.

In the EU, the CSRD expands reporting requirements to include Scope 3 emissions for some companies, while in the US, there are proposed updates but no current Federal mandate for carbon reporting.

Navigating these diverse frameworks requires businesses to stay informed and agile, adapting their carbon accounting processes to meet regional demands.

Technology can simplify this by generating region-specific reports that automatically meet compliance requirements for multiple jurisdictions, saving both time and resources.

How to Effectively Measure and Report GHG Emissions

Accurate measurement and reporting of greenhouse gas (GHG) emissions are fundamental to effective carbon accounting. Yet, businesses must grapple with complex calculation methodologies, emission factors, and ensuring the reliability of data sources.

The complexities of measuring and reporting GHG emissions arise from the need to account for both direct and indirect emissions, often across vast and diverse supply chains. Software solutions can be instrumental in addressing data collection and analysis complexities. These advanced platforms can automate the collection and calculation of emissions data, ensuring accuracy and compliance with global standards like SECR, CSRD, and CDP.

Direct vs. Indirect Emissions

One of the key distinctions in carbon accounting is between direct (Scope 1) and indirect (Scope 2 and Scope 3) emissions. Direct emissions are easier to account for because they come from a company's own operations, such as its facilities and vehicles, where it has full control over the data.

Accounting for indirect emissions is particularly challenging because it requires reliable data from external sources, often across a global supply chain. Here, the right software can automate the data-gathering process, streamlining the collection of emissions data from external partners, and ensuring that both direct and indirect emissions are captured accurately.

Supply Chain Emissions

For many businesses, the largest proportion of their carbon footprint comes from supply chain emissions, or Scope 3. However, as mentioned above, tracking emissions across a global supply chain is notoriously difficult, as businesses must rely on data from suppliers who may not have the same reporting capabilities or standards.

Despite these difficulties, measuring supply chain emissions is essential to building a complete picture of a company's carbon footprint. By integrating technology into the carbon accounting process, businesses can streamline the collection of supply chain data, improving both accuracy and efficiency.

Automating GHG Emissions Reporting

Automating the GHG emissions reporting process can significantly reduce the administrative burden of carbon accounting. By using advanced platforms that automatically calculate emissions data and generate region-specific reports, businesses can ensure compliance with frameworks such as SECR, CSRD, and CDP.

These platforms can also offer real-time insights, allowing businesses to make data-driven decisions to further reduce their carbon footprint.

Why now?

Carbon accounting requirements and expectations are only growing. The future of carbon accounting will likely see more stringent regulations and increased demand from stakeholders for transparency around emissions and sustainability practices.

It’s important to address the challenges of current carbon accounting requirements in order to set foundations that will make overcoming future expectations easy. But the benefits don’t stop there. By getting ahead of the curve, you’ll be able to position yourself as an industry leader.

Investors and consumers are paying close attention to environmental responsibility, and businesses that fail to act risk being left behind. By demonstrating sustainability, you not only ensure compliance, you can differentiate yourself in competitive markets.  

The right technology can make a substantial difference. Scalable, tech-driven solutions simplify carbon accounting. Automating data collection and report generation not only ensures compliance but also provides you with valuable insights to reduce your carbon footprint and future-proof your operations.

At Climatise, we help businesses achieve this every day. Spend less time calculating your carbon footprint and more time reducing it. Get in touch to find out how we can streamline your carbon accounting processes, allowing you to focus on implementing actionable insights that reduce your environmental impact.