Introduction to carbon footprint accounting
Carbon footprint accounting is the process of measuring all greenhouse gas (GHG) emissions associated with a business’s operations. By translating energy use and other activities into a common unit—carbon dioxide equivalent (CO₂e)—this practice provides a clear picture of a company’s environmental impact. Although not always legally required, many small and medium-sized enterprises (SMEs) have started carbon accounting to satisfy supply-chain requirements and to boost their environmental performance. This initiative not only meets client demands but also strengthens the business case for sustainability. (See also: Quantifying sustainability: a complete guide to carbon accounting)
Why carbon accounting matters for SMEs
Meeting client requirements and regulations
Large customers and government agencies increasingly demand that their suppliers report on CO₂ emissions and share reduction plans. In some cases, such as UK government contracts exceeding £5 million, a formal Carbon Reduction Plan is mandatory (learn more about PPN 06/21 requirements here). By tracking their carbon footprint, SMEs not only secure critical contracts but also ensure they are prepared for emerging regulations.
Improving efficiency and reducing costs
Accurate carbon accounting helps businesses identify inefficiencies in their energy use and operations. These insights enable SMEs to implement cost-saving measures that also reduce emissions—benefiting both the bottom line and the environment.
Boosting credibility and future-proofing
Documented carbon accounting builds trust with customers, investors, and other stakeholders by demonstrating a genuine commitment to sustainability. Proactively measuring emissions can also provide a competitive edge in tenders and RFPs, ensuring that SMEs remain ahead of regulatory changes and industry expectations.
Key concepts and terms
Before diving into the practical steps, it’s essential to understand several foundational concepts:
- Carbon footprint:
The total amount of GHG emissions (including CO₂, methane (CH₄), and others) directly and indirectly produced by a business, expressed as CO₂e. This standardized unit accounts for the different global warming potentials of various gases. - Greenhouse gas protocol:
The most widely adopted standard for corporate carbon accounting. It categorizes emissions into three scopes:- Scope 1: Direct emissions from sources owned or controlled by the company (e.g., on-site fuel combustion, company vehicles).
- Scope 2: Indirect emissions from purchased energy, such as electricity or steam.
- Scope 3: All other indirect emissions in the value chain, like those from suppliers, business travel, or product use.
- CO₂e and emission factors:
To calculate CO₂e, different greenhouse gases are converted into the equivalent amount of carbon dioxide using global warming potentials (explained in What's it all about with CO2?). Emission factors (e.g., kilograms of CO₂ per kWh) are then applied to activity data to compute the emissions.
Getting started: Measuring your carbon footprint
For SMEs starting from scratch, the following step-by-step roadmap can simplify the process:
Step 1 – Set your boundaries
Define both your organizational and operational boundaries. Start with the most straightforward categories—typically Scope 1 (direct emissions) and Scope 2 (energy use)—before advancing to more complex Scope 3 emissions.
Step 2 – Data collection
Gather data from all emission sources within your defined boundaries. Common sources include:
- Electricity and gas bills (office energy consumption)
- Fuel consumption (vehicles, generators)
- Business travel records (flight distances, car mileage)
- Waste, water usage, and other relevant metrics
A simple spreadsheet or template can help you log this data efficiently.
Step 3 – Calculation
Multiply your activity data by the relevant emission factors to compute your CO₂e. Use reputable sources—such as government databases or the GHG Protocol—to ensure your calculations are accurate (learn about choosing the right method here). This step can be performed manually or by leveraging digital tools.
Step 4 – Leverage tools & calculators
Take advantage of online carbon footprint calculators or specialized carbon accounting software. Many free tools exist for SMEs that provide a quick estimate of your emissions. As your data collection becomes more sophisticated, consider software solutions to automate and refine your calculations.
Tools and resources for carbon accounting
To make the process smoother, SMEs can utilize a range of practical resources:
- Online Carbon Footprint Calculators: Search for tools designed for businesses that allow you to input energy use, travel, and other activity data.
- Carbon Accounting Software: As your data needs evolve, software can automate calculations and generate comprehensive reports.
- Templates & Guides: Utilize existing GHG inventory spreadsheets and guides available from climate organizations or government websites.
- Expert Help: When possible, consult with sustainability experts or carbon accounting consultants to set up your processes—though many SMEs successfully start with a DIY approach.
CO₂ emissions reporting and documentation
Once you have calculated your carbon footprint, the next step is to compile and communicate your results effectively.
Crafting a carbon footprint report
- Report Structure:
Include total emissions, a breakdown by scope (Scopes 1, 2, and relevant Scope 3), and key emission sources (see an example structure here). If available, show year-over-year comparisons. - Methodology & Assumptions:
Clearly document your data collection methods and calculation approaches. Transparency in your methodology builds credibility with clients who review your report. - Visualizing Data:
Utilize charts or tables to present your emissions data by category, making it easier for stakeholders to understand. - Tailoring for Clients:
Adapt the report to meet specific client requirements, particularly if they require information for regulatory compliance or tender documentation.
For contracts that require a Carbon Reduction Plan, ensure your report includes actionable steps for reducing emissions (relevant for requirements like the UK Carbon Reduction Plan).
Strategies to reduce your carbon footprint
Once you know your numbers, it’s time to take action. Here’s how to use your carbon footprint data to drive meaningful reductions:
Setting targets
Establish clear, measurable goals such as a 20% emissions reduction by 2025 or a long-term net-zero target by 2050. Science-based targets can guide your strategy and align with industry benchmarks.
Implementing reduction initiatives
Several strategies can help lower your footprint (see also 6 tips to reduce the carbon footprint of your organisation):
- Energy Efficiency: Upgrade lighting, HVAC systems, and streamline operational processes.
- Renewable Energy: Consider switching to renewable energy sources like solar or green electricity.
- Logistics Optimization: Reduce travel emissions by optimizing routes and encouraging remote meetings.
- Waste Reduction: Implement recycling programs and other measures to cut waste and associated emissions.
Engaging employees
Create a culture of sustainability by involving employees in energy-saving initiatives and encouraging suggestions for further improvements.
Tracking progress
Regularly monitor your emissions—quarterly checks and annual recalculations can help track improvements and adjust strategies as needed.
Optional – offsetting
For emissions that cannot be reduced, SMEs can consider purchasing carbon offsets. However, primary focus should always be on reducing actual emissions (understand the role and limitations of offsetting here).
Advanced carbon accounting topics
For SMEs ready to move beyond the basics, several advanced topics can further enhance your sustainability efforts:
Comprehensive scope 3 accounting
Assess emissions beyond your direct operations by analyzing supply chain activities, product use, and end-of-life disposal. Although challenging, many large clients now expect detailed Scope 3 data.
Life Cycle Assessment (LCA)
For product-based companies, an LCA quantifies emissions from raw material extraction through product disposal. This comprehensive analysis is increasingly demanded by customers looking for product-level sustainability data.
Verification and certification
Third-party verification (e.g., audits against ISO 14064-1) adds credibility to your carbon reports. Certifications such as B Corp Climate or the CO₂ Performance Ladder (notably used in the Netherlands) can enhance your competitive advantage in public tenders.
Science-based targets & net-zero commitments
Ambitious SMEs may set science-based targets or commit to net-zero emissions. These initiatives signal leadership in sustainability and require thorough and ongoing carbon accounting.
Climate disclosure frameworks
Familiarize yourself with frameworks like TCFD (Task Force on Climate-related Financial Disclosures) or CDP reporting. Although primarily aimed at larger companies, these frameworks increasingly influence supply chain requirements and client expectations.
Navigating regulations and compliance
SMEs must be aware of various regional and international regulations impacting carbon reporting:
European Union
- Corporate Sustainability Reporting Directive (CSRD):
While directly affecting large companies, CSRD (learn about the link to carbon accounting) drives demand from big clients for accurate carbon data from all suppliers. - EU carbon initiatives:
Programs like the EU Emissions Trading System and the Green Deal signal increasing pressure on businesses to track and reduce emissions.
United Kingdom
- Streamlined energy and carbon reporting (SECR):
Although SMEs are often exempt, rapidly growing companies may soon fall under these requirements. - Public procurement requirements:
UK government contracts over £5 million require a Carbon Reduction Plan, making carbon accounting essential for SMEs bidding on public tenders.
United States
- EPA GHG reporting:
Targets large emitters but manufacturing SMEs should be aware of the 25,000 metric ton CO₂e threshold. - SEC climate disclosure rule:
New rules for public companies may eventually trickle down to supplier data requests. - Federal supplier requirements:
Proposed rules for federal contractors emphasize the importance of having a robust carbon footprint inventory.
Other regions and international standards
Countries such as Canada and Australia are also increasing their focus on climate disclosures. Adhering to international standards like ISO 14064 or the Science Based Targets initiative can ensure your reporting meets global expectations.
Conclusion and next steps
Carbon footprint accounting is a journey—from understanding and measuring emissions to implementing reduction initiatives and preparing for future regulatory demands. For SMEs, starting with even a basic carbon footprint calculation can provide valuable insights into energy use and operational inefficiencies. As you build your reporting capabilities, consider formalizing your process, setting clear reduction targets, and exploring advanced frameworks.
Action plan:
- Begin with the basics: Use a simple CO₂ emissions calculator to estimate your footprint.
- Expand gradually: Incorporate more detailed data and consider Scope 3 emissions as your process matures.
- Report and communicate: Develop a clear carbon footprint report to share with clients and stakeholders.
- Reduce and improve: Set targets and implement initiatives that lower emissions and cut costs.
- Stay informed: Leverage available tools, guides, and expert advice to keep up with evolving regulations.
By embedding carbon accounting into your business strategy, you not only ensure compliance and operational efficiency but also demonstrate leadership in sustainability. This proactive approach can enhance your competitiveness, meet client demands, and ultimately contribute to broader climate goals.
