With carbon being the leading driver of climate change, businesses have a critical responsibility to acknowledge and address their impact.
This article explores why carbon accounting is not just a key action for businesses worldwide, especially those of scale, but also highlights the rich benefits it can offer.
From future-proofing your company, boosting profitability and unlocking opportunities to simply reducing energy consumption, we will delve into the transformative effects of measuring, tracking, and reporting your carbon footprint for a business.
And, Gaia’s out of the box software can help your business embrace carbon accounting and take meaningful strides to invest in your future.
What is Carbon Accounting?
Carbon Accounting (CA) is where a business hires an in-house consultant, develops in-house systems, or—most commonly—uses specialised carbon accounting software software like Gaia’s.
In the same vein as financial accounting, it allows them to track, measure and report business-wide greenhouse gas (GHG) emissions.
It leads to a widespread shift in business activities; identifying inefficiencies in the supply chain, enacting social responsibility and encouraging net zero. It’s becoming more widespread with enhancing legislation combined with intensifying emphasis on corporate environmental responsibility.
Roles such as ‘Head of Sustainability’ and ‘ESG Officers’ are now common, with a sole focus in achieving and maintaining a company’s environmental targets, when 10 years ago this was rare. The pressure on companies to address sustainability proactively is only growing.
CA allows a business to understand their carbon footprint and exactly what is contributing to carbon emissions, crucially recognising the strongest contributors and determining key areas to reduce.
Following the GHG protocol, Scope 1 covers direct emissions, Scope 2 covers indirect emissions from energy, and Scope 3 covers other indirect emissions produced across the value chain.
CA allows for corporate transparency, and to project to their clientele, audiences, stakeholders and employees that they are socially responsible for their carbon footprint.
Why Carbon Accounting is Important
Carbon emissions are the primary contributor to global warming. They add layers of greenhouse gas to the atmosphere and trap heat, raising the planet’s surface temperature, and causing extreme weather, rising sea levels, droughts, biodiversity loss and ocean acidification.
One person can make a positive environmental impact by reducing carbon emissions, but the scale at which businesses operate holds immense potential to significantly help preserve the planet’s atmosphere.
‘Large’ companies in the UK (with over 250 employees, £36 million in turnover, or £18 million in balance sheet total), must meet carbon accounting standards by law, under the SECR (Streamlined Energy and Carbon Reporting) framework.
Beyond this, carbon accounting crucially prevents green-washing and other misleading claims regarding environmental responsibility, with optimal reduction efforts then streamlined reporting tools for transparency.
The Benefits of Carbon Accounting
Regulatory Compliance
A primary benefit of carbon accounting is that it allows companies to comply with enhancing carbon regulations, fostering risk mitigation against penalties or fines for breaking regulations like SECR or the EU Emissions Trading System (ETS) (which can be millions of pounds).
Carbon accounting positions the company well for any future regulations. By accurately monitoring and measuring them, it’s easy to install reduction measures to meet new legislation.
In compliance with carbon regulations, companies enacting carbon accounting can further strengthen relationships with regulators like the UK Environment Agency, while also supporting eligibility for government incentives like Enhanced Capital Allowances (ECAs).
Sustainable Business
When businesses operate sustainably, such as by accurately carbon accounting, they future-proof the company for thriving in the long term.
With a reduced environmental impact, sustainable businesses better comply with regulations such as Net Zero targets and SECR. This is more enticing to consumers, especially those younger, who are increasingly seeking to support brands with transparent sustainable practices. Conscious carbon accounting can make it more likely to secure long-term customer loyalty.
Furthermore, sustainable business is more efficient and can mean financial savings. This could be energy efficiency swaps like LEDs or HVACs, avoiding carbon taxes or lower operating costs. Sustainable business also strengthens investor relationships, encouraging funding, and can lead to tax incentives of governmental grants for successful carbon reduction.
Brand Identity
Strong carbon accounting efforts are synonymous with a strong brand identity. Clearly and regularly communicating a business’s reduction efforts is a fast-track way to solidify customer and stakeholder trust.
Leading branding initiatives with well-backed, certified sustainability claims is an excellent method of marketing, allowing businesses to stand out from the crowd as dedicated climate-conscious operators.
Companies achieve low carbon, and finally carbon neutrality, after various reduction strategies. When this happens they are granted immense branding opportunities. PAS 2060 or Carbon Trust Standard are primary examples—allowing the brand to add their logos, highlight this in sustainability reports, or showcase the certifications within client pitches.
They are widely recognised by the public as granted to companies who have made an immense climate effort through extensive, thoughtful carbon accounting.
Accountability
Carbon accounting demonstrates accountability by enabling a company to clearly report its carbon footprint in granular detail. Every company contributes to global warming through GHG emissions—those accountable are those owning up to how much they emit, and showcasing the subsequent steps being taken to offset it.
Setting and sharing targets makes it clear to stakeholders that regimented efforts are in place, and allows them to easily check on their progress in hitting these; strengthening trust and relationships.
Many carbon accounting software options, such as Gaia’s, make it swift and easy to download sleek reports to share with stakeholders. These contain clear data on emissions, progress monitoring in line with targets, and the showcasing of offsetting methods in action. This provides a comprehensive and efficient way to demonstrate accountability through a single, streamlined document.
Prevent Unintentional Greenwashing
While carbon legislation is no doubt enhancing, it’s nowhere near it needs to be. A lack of strict, hard-set laws allows for vague and misleading statements to be twisted at times by marketers.
Complex supply chains with multiple stages—such as extraction, manufacturing, transporting, and distributing – can make it impossible for consumers to validate a “Fully sustainable!” statement.
This can include spinning things strategically to make things appear sustainable. They can get away with this by purposefully hiding areas of the manufacturing process from consumers. By contrast, carbon accounting leaves no room for this: it categorises by Scope 1, 2 and 3, providing a deep overview of each stage of the supply chain, then presenting it to audiences in a widely-recognised, esteemed framework with no need for embellishing.
This simplified reporting bridges the public knowledge gap, whereas greenwashing proactively wedges it open by leaving bits of information out while emphasising others.
Supply Chain Efficiency
When calculating emissions, Scope 3 covers all areas of the supply chain in detail. This allows you to quickly spot which suppliers are more sustainable than others, and make impactful ‘green’ swaps.
Although certain company practices may face more scrutiny than others, consumers increasingly value transparency throughout the entire production process—from sourcing materials to final delivery. This strengthens consumer trust and engages more forward-thinking stakeholders.
By doing this, you can optimise and streamline entire production processes by identifying bottlenecks that cause unnecessary emissions.
When assessing Scope 3, most businesses using fossil fuels will be urged to switch to renewable sources to cut masses on their emission levels, driving significant improvements in corporate sustainability.
Energy Savings
More energy use generally equates to more emissions emitted, hence carbon accounting can lead to masses of energy saving when companies are trying to meet reduction targets. As a result, operational costs lower and energy bills shrink.
Carbon accounting crucially justifies switching to renewables or investing in renewable energy sources, like solar panels and wind turbines. Though costly, in the future, the positive impacts of renewables can pay off the initial investment tenfold.
Carbon accounting also illuminates areas gone amiss where energy had been wasted, such as inefficient lighting, idle equipment and poor insulation.
Improving Profitability
Carbon accounting quite simply makes a business more profitable.
A dutiful, responsible brand image is maintained when a company accurately reports their emissions, and when targets such as carbon neutrality are met, widely-known certifications are publicly awarded. This brings in whole new revenue streams from environmentally conscious consumers.
Optimising the supply chain also improves margins by cutting inefficiencies, such as unnecessary travel, wasteful processes, excessive water use or inefficient packaging.
Carbon accounting can instead call for local suppliers, virtual meetings, reducing water consumption, or switching to sustainable packaging companies—lowering emissions and saving heaps of money in the long run.
Market Differentiation
Customers are more likely to show loyalty to businesses prioritising sustainability, meaning they can crucially grow and retain climate-conscious consumers.
Companies under the size threshold, especially, gain a valuable competitor advantage from carbon accounting as they demonstrate dedicated, actionable environmental thought. Carbon accounting, backed by other sustainable practices, wholly justifies pushing sustainability to the front of your marketing.
Amidst swathes of eco-claims, your business stands out when backed by robust carbon accounting and genuine reduction strategies and efforts. This clear, verifiable commitment elevates your credibility above the rest, making you the obvious choice for a range of benefits.
Recruitment
Sustainable businesses succeed, and employees are conscious of this when committing to their companies. Businesses committed to actionable climate-change initiatives can unlock vastly more opportunities, hence employees are incentivised to remain loyal and employee retention improves.
In the same vein, top candidates scouting for new employers—especially Gen Zs and Millennials—are enticed more by sustainable businesses setting themselves up for future success.
Initiatives like carbon accounting represent a company looking to strike positive change and mitigate climate impacts. It presents a powerful ethos, more attractive to potential employees than those purely profit-based. This can feel more meaningful to work for and drive hard work and passionate commitment to shared sustainability goals.
Attracting Investment
Investors are significantly more inclined to accord funding to forward-thinking companies. It lessens their risk of losing money, such as when a company expands to meet the mandated requirement for carbon accounting and has not prepared for this in any way.
It’s about making the change—extensive reduction costs may be required to achieve carbon neutrality, but, once met, the systems are then in place to foster a streamlined system of maintenance. They then easily meet investor demands and continuously demonstrate long-term viability.
Future Proofing the Business
As lightly covered, one of the most integral benefits of carbon accounting for your business is future-proofing. By allowing your business’s emissions to go unreported, you’re implicitly signalling that you don’t believe in your company’s growth—that it won’t reach a size where it could be scrutinised for irresponsible greenhouse gas emissions or fall under legal requirements for carbon accounting.
Carbon regulations will only become stricter in the future, making it a smart move to prepare sooner rather than later. Additionally, embracing carbon accounting now can significantly accelerate your company’s growth, as sustainability is increasingly valued by investors, partners, and consumers alike.
Use Carbon Accounting Software from Gaia
Ready to start? At Gaia, we offer one of the strongest AI-powered carbon accounting software for UK businesses.
It’s aligned with the Greenhouse Gas Protocol framework as the leading industry standard, including the annual UK GHG conversion factors provided by DEFRA and DESNZ. This allows you to calculate your carbon emissions while ensuring best practices.
You can generate compliance reports in one click, such as the SECR (Streamlined Energy and Carbon Report). Furthermore, you can forget the admin burden linked to collecting and reporting with our AI-powered data collection features, which offer the easiest way to measure Scope 1, 2 and 3 emissions.
What’s more, you can integrate seamlessly with your favourite apps with the data-sync feature, or import from a spreadsheet for a streamlined experience. Track and report your reduction progress, with Gaia’s out of the box compliance reports. Pull comprehensive insights from our advanced analytics dashboard to help you make data-driven decisions that boost sustainability efforts.
Whether you’re setting emission reduction targets or looking to meet regulatory requirements, Gaia provides everything you need to stay ahead in the race to net zero.
More Information
https://www.sustain.life/blog/why-is-carbon-accounting-important
https://www.zevero.earth/blog/benefits-of-carbon-accounting
https://www.experian.co.uk/blogs/latest-thinking/guide/carbon-accounting
https://greenly.earth/en-gb/blog/company-guide/carbon-accounting-all-you-need-to-know-in-2022