Key Takeaways:
- 2024 was the first calendar year ever recorded with global temperatures 1.5°C above pre-industrial levels, making the time to act now.
- Any companies ignoring Scope 3 entirely are failing to take accountability for their most drastic climate liability. It includes upstream emissions (before production) and downstream emissions (after sale).
- Verification is increasingly mandatory, with auditors rigorously checking the sources of your data, the calculations and the methods used.
- Carbon regulations will only become stricter in the future, making it a smart move to prepare sooner rather than later.
Building a carbon inventory is the essential first step for any business serious about tackling climate change and global warming.
It’s a complete GHG inventory of your greenhouse gas emissions, using emission factors to convert raw emissions data into the foundation for meaningful reduction, regulatory compliance and a credible net zero strategy.
Our latest article outlines exactly how one can approach a carbon inventory, from initial measuring to action-led reporting.
In a world of new regulations, rules and policies, we break down what a carbon inventory is in simple terms, and why it’s a highly strategic step for all manners of companies to undertake.
What Is a Carbon Inventory?
A carbon inventory is usually a snapshot in time of a company’s emission data and figures, usually covering a calendar or financial year.
It’s a complete record of all greenhouse gas (GHG) emissions produced by a business, from CO₂ and methane to nitrous oxide.
Today, carbon fees are increasingly significant. Not knowing your emissions now means not knowing how much you’re being taxed.
Why Building a Carbon Inventory Matters
2024 was the first calendar year ever recorded with global temperatures 1.5°C above pre-industrial levels, making the time to act now.
Carbon inventories matter for one simple reason: you can’t reduce what you can’t measure.
Conducting a thorough analysis of all business activities from top to bottom, from head office to the furthest rung of a global supply chain, is essential before meaningful reduction can take place.
Define Your Inventory Scope
There are 3 main scopes you must tackle when collecting a carbon inventory, usually within the following order:
Scope 1: Direct Emissions
Scope 1 emissions are where you have the most direct control, making them both the easiest to measure and the most straightforward to reduce.
Quite simply, it’s anything that you own or burn directly (think company vehicles, furnaces, generators, boilers, and so forth).
Unlike the other 2 scopes, these emissions come from your own operations, and are often the clearest starting point when undertaking reduction efforts.
Scope 2: Indirect Emissions from Energy
Following Scope 1, you’ll want to collect Scope 2 emissions. These are from purchased energy, not energy that you’ve burnt yourself.
While the electricity heats up your office or keeps your lights on, the emissions actually occur back at the power station or grid, making them Scope 2.
Because of this, your geography has an inadvertent impact on your emissions level. A local grid in Poland can have 70% of its electricity still coming from coal. Whereas one in Norway could have 90% from hydroelectric power.
Scope 3: Other Indirect Emissions
With Scope 1 and 2 being borderline straightforward, Scope 3 is not.
It accounts for everything else, with a BCG/CDP report finding Scope 3 emissions 26 times greater than 1 and 2 combined in 2023.
Despite its scale, only 15% of 300 large public companies disclosed their Scope 3 emissions in 2024.
A large part of Scope 3 is upstream emissions (before production) and downstream emissions (after sale).
Set Boundaries and Organisational Structure
Operational Boundaries
Operational boundaries are what you measure, so which emission sources count towards your inventory.
This is because a company can’t realistically be held responsible for every single emission it’s tangentially connected to.
For instance, not counting the emissions from a supplier’s supplier’s supplier’s… supplier.
As a result, these boundaries sculpt and carve exactly what ends up in the final carbon inventory.
Organisational Boundaries
Organisational boundaries determine which parts of your business you’re counting.
Surely the whole business, right? Well, a big company might not just be one thing, when you factor in offices, subsidiaries, warehouses, and part-owned sites.
You could do an equity share, i.e. we own a third of this factory so we are responsible for a third of its emissions.
Or you could do it by operational control, meaning if you’re making the day-to-day decisions on-site, its emissions are your responsibility.
Identify Emission Sources
All companies are different, and will have unique sets of emission sources in order to take a carbon inventory.
Energy Consumption
A prevalent emission source is energy consumption.
It’s the most auditable, most documented, and most actionable source of emissions, with the data readily available.
Heating and cooling actually accounts for around half of all global final energy consumption, more than transport and electricity combined.
Transport and Logistics
Transport accounted for the largest proportion of US emissions in 2022, and grows fast as other countries develop and mass-produce vehicles.
With transport CO₂ having risen nearly 80% since the start of the 90s, trucks and cars are the main driver of this surge.
Cars largely involve employee commutes, falling under Scope 3, and trucks will practically all be commercial business: Scope 1 if their own fleet, or Scope 3 if a third-party.
Waste and Water
Water and waste, AKA bins and taps, are quite easily overlooked within carbon inventories.
While energy and travel data is readily available, waste, water, and disposal require more proactive tracking down.
Organic waste breaking down in landfill produces masses of methane. While CO₂ largely populates current discourse, methane is actually 80 times more potent.
Purchased Goods and Services
Not uncommonly, purchased goods and services can account for the biggest chunk of emissions within a carbon inventory.
When purchasing something, you purchase the carbon footprint attached to it, also inheriting all emissions from its production processes.
The complex process of measuring this emission source can be simplified: spend data per supplier can be multiplied by an existing emissions factor for that good or service.
Other Relevant Sources
While these are the most significant, many other emission sources exist.
For instance, this could be capital goods, financed emissions, leased assets or use of sold products.
Collect Data
After all emission sources have been identified, data collection must begin.
While Scope 1 and Scope 2 are relatively straightforward, Scope 3 poses complications, requiring zooming into and analysing the entire value chain.
It must be treated with the same severity as financial accounting, as poor data turns into greenwashing, penalties, and regulatory issues.
Calculate Emissions
The data must then be turned into a number. This frequently uses a similar formula, of: Activity data × emission factor = CO₂e. All carbon inventories in the world will utilise this calculation in one form or another.
Pre-built conversion factors exist for scenarios where measuring the emissions exactly is practically impossible.
Using Standard Protocols
Without standard protocols, comparison, verification and regulation would be impossible as carbon inventories would vary wildly.
The GHG Protocol is the world’s default standard, outlining Scopes 1, 2 and 3 which predominantly categorise carbon accounting.
It tells you how to calculate your carbon emissions, and goes hand in hand with ISO 14064, which tells you how to prove that your calculations are correct via a third-party auditor.
Tools and Software Options
Carbon accounting software such as Gaia’s automates the entire process, from data collection and emissions calculation across Scopes 1, 2 and 3, to audit-ready reporting for frameworks like SECR, CSRD and B Corp, all without spreadsheets or consultants.
Analyse and Interpret Results
Highlight Major Emission Sources
A carbon inventory reveals the emission “hotspots” within your business that must be targeted first.
They can often be something unexpected, such as a law firm’s data centre dwarfing its office energy.
Identify Trends and Hotspots
Surprises can live in Scope 3, such as pension funds, cloud computing, business insurance. Any companies ignoring Scope 3 entirely are failing to take accountability for their most drastic climate liability.
Report Your Inventory
Internal Reporting
Internal reporting involves sharing the carbon inventory within the business to catalyse action.
For instance, Microsoft shares carbon dashboards internally and holds each division accountable for their own footprint.
External Reporting Standards
CDP
Carbon Disclosure Project (CDP) is a global non-profit platform for companies to disclose emission data.
Measuring and reporting forces accountability, leading to meaningful climate action. In turn, companies gain tangible commercial benefits by having a higher CDP score.
GRI
The Global Reporting Initiative (GRI) is the world’s most-used framework for reporting ESG impacts from human rights to corruption.
71% of the world’s largest 5,800 companies voluntarily use GRI, with emissions disclosure a core part of its reporting requirements.
Validate and Improve
Carbon inventories gain credibility through verification, which is where independent auditors come in.
Verification is increasingly mandatory, with auditors rigorously checking the sources of your data, the calculations and the methods used. The approach is the same as a financial audit.
They spot any gaps, inconsistencies and errors, prompting improvement and optimisation.
Setting Reduction Targets
A carbon inventory lets you gauge exactly how many emissions you’re responsible for, and then set targets accordingly.
Whether it’s net zero by 2050 or reducing your top 5 emission hotspots by 50%, the inventory highlights the best route of action towards making your business sustainable.
Without the numbers to report, there’s no way to know if you are breaching thresholds or breaking regulations. The carbon inventory can quickly highlight this to rectify it, avoiding fines or penalties.
Integrating Carbon Inventory into a Business Strategy
Investing the money, time and effort into a carbon inventory is invaluable far beyond a simple compliance tactic.
Carbon regulations will only become stricter in the future, making it a smart move to prepare sooner rather than later.
Customers are more loyal to businesses prioritising sustainability, so they can grow and evolve in identification with a forward-thinking company.
Optimising the supply chain improves margins by cutting inefficiencies, such as unnecessary travel, wasteful processes, excessive water use or inefficient packaging.
Overall, it’s an essential first step for companies in today’s climate looking to both strengthen business, and take meaningful accountability for their impact on the planet.
Whether you’re setting emission reduction targets or looking to meet regulatory requirements, Gaia’s Carbon Management Software provides everything you need to stay ahead in the race to net zero. From sophisticated API integrations and automated data collection, to audit-ready reports at the click of a button. Start your free trial or book a demo today.
More Information
https://www.iea.org/reports/renewables-2020/renewable-heat
https://www.epa.gov/greenvehicles/fast-facts-transportation-greenhouse-gas-emissions
https://greenly.earth/en-us/blog/company-guide/why-carbon-tracking-is-essential-to-stay-accountable
FAQs
What are Scope 1 emissions?
Scope 1 emissions are where you have the most direct control, making them both the easiest to measure and the most straightforward to reduce.
What are Scope 2 emissions?
These are from purchased energy, not energy that you’ve burnt yourself.
Why is Scope 3 so difficult?
With Scope 1 and 2 being borderline straightforward, Scope 3 is not. It accounts for everything else, with a BCG/CDP report finding Scope 3 emissions 26 times greater than 1 and 2 combined in 2023.
Why should a business integrate a carbon inventory into its strategy?
Investing the money, time and effort into a carbon inventory is invaluable far beyond a simple compliance tactic.