Why should businesses care about carbon accounting?
January 11, 2024
Photo by Jason Goodman
Accounting for this, accounting for that, what’s the point of just measuring your carbon - is that really going to solve the climate crisis?
We’ve heard this often. You’re right, accounting for your carbon alone won’t solve the climate crisis, but it is a key unlock for climate action. Businesses that account for their climate impact will find that it provides them with more than just a number… read on.
The usual - compliance, managing greenwashing risks
Regulators worldwide are increasingly mandating businesses to report their carbon emissions. Certain listed and large companies in territories such as New Zealand, Europe, Australia, California are already mandated to report on their climate impacts from as early as 2024.As these regulations continue to be phased-in an increasing number of businesses will be required to report in the next few years. Even if your business might not be required to report its emissions currently, the trend is clear: legislation on climate impact reporting is continually expanding to include more businesses. We believe, one day it’ll be the same BAU as filing your tax returns.
In territories where the effective dates for regulation have been announced, many businesses are already preparing for these new requirements. Often this will mean doing an initial GHG inventory as their baseline, or to identify gaps in their knowledge or existing data collection practices.
You want to make sustainability related claims online or in your marketing materials, for example: "we're low carbon, carbon negative, environmentally friendly, a lower carbon option". It's greenwashing if you have no evidence to back this up.
Over the last year we’ve seen more and more companies being called out for greenwashing, whether it was intentional or not. As regulators around the world become more focused on greenwashing, companies without supporting data for their green claims are at risk of facing consequences.
If your business sells a product that is differentiated based on its sustainability credentials, mitigating greenwashing risk can be a key driver for why you would engage in robust and auditable carbon accounting. Consumers need to have the confidence that the products they are being marketed live up to their sustainability claims. If you are contemplating making a green claim to consumers, making sure you have your carbon numbers ahead of time will help you manage the risk.
Unlocking the value of carbon accounting for businesses
Carbon accounting is not just a means of fighting climate change, it can also be a source of strategic competitive advantage for companies.
Efficiencies and Cost Savings
Accounting for your carbon emissions will provide a comprehensive view over your entire businesses’ activities and value chain, and by doing so, you’ll be able to understand:
The amount of carbon emissions produced by your business
The hot spots across specific suppliers and value chain activities
What divisions, facilities or product and services are responsible for the most emissions
Opportunities to reduce your emissions
The relevant efficiency of business process in terms of both carbon and dollars and cents
By identifying and understanding a business's emission sources and opportunities, businesses can make informed decisions on where to target and optimise for efficiency and cost reductions, as well as emission reduction, becoming another lens to view efficiency within your business.
Some decarbonisation initiatives can save businesses money as well as reducing their emissions. By carbon accounting at a detailed level businesses can identify these win-win opportunities and do well while doing good.
For Sumday users we provide an extensive set of business case templates to assist users in understanding both the financial and carbon impact of initiatives within their businesses.
Supply Chain Resilience
Majority of a business’ total emissions come from the scope 3 emissions category, which refers to the indirect greenhouse gases emitted across a company's value chain.
By having a complete GHG inventory with high levels of primary data from suppliers and customers, a business can pinpoint where the risks and opportunities lie, particularly in areas where carbon-intensive activities occur or a supplier’s emissions intensity exceeds that of its competitors.
For example, suppliers with high carbon outputs will likely be more susceptible to regulatory changes. Alternatively, some suppliers may face heightened exposure to climate-related risks, such as extreme weather conditions or scarcity of resources.
With the insights gleaned from carbon accounting, businesses can create strategies for reducing emissions - like reorganising their supply chain or relocating manufacturing closer to home. This not only enhances efficiency across the value chain but also builds resilience against future risks.
Measuring carbon emissions is crucial for companies that want to offer a low-emission or carbon-positive alternatives in the market. This can be a significant differentiator, especially in industries where consumers are increasingly seeking environmentally-friendly options. Such positioning can justify premium pricing for their products or services, as customers are often willing to pay more for sustainable alternatives. Take H2 Green Steel for example, an innovative Swedish startup committed to reducing emissions from steel production, have secured a contract to supply Porsche with reduced-emission steel that have been produced using renewable energy.
Additionally, having a clear understanding of their carbon footprint can make companies more attractive to investors who prioritise environmental responsibility. With increased focus on sustainability in the investment community, companies that can demonstrate a commitment to reducing their emissions may find that they have increased access to capital.
Building brand value
Consumers, investors, employees, and other stakeholders are becoming more and more interested in sustainability and how sustainable a business is operating. They want to know and they will be asking questions.
Businesses that are reducing their emissions have an authentic sustainability story to tell, and it needs to be measured to be able to tell that story. Your carbon numbers and your story becomes a tool to market your point of difference, which can increase brand value and customer loyalty.
Not only that, undertaking carbon accounting can also have benefits when it comes to talent retention, especially in industries like accounting that are facing skills shortages. Engaging in meaningful and impactful work such as carbon accounting can increase job satisfaction and loyalty among employees. When staff members can see the tangible impact of their work on environmental sustainability, it fosters a sense of purpose and commitment, thereby aiding in retaining valuable talent in the company.
Aside from all this business chat, in the end, taking all of this into account will leave you with better business decisions and doing business that's better for the planet and people.
But I’m an SMB - do I need to care?
Compliance obligation or not, even small and medium businesses are feeling the pressure. The fact is, around 90% of a company‘s emissions come from those they buy from or invest in. For companies that are mandated to report, they’ll need their suppliers and portfolio companies to provide emissions data to understand their own footprint, and they need that data to the same audit-ready standard.
Here are some common reasons, if any of these have crossed your mind, carbon accounting properly can be increasingly important.
You want to make sustainability related claims online or in your marketing materials "we're low carbon, carbon negative, environmentally friendly, a lower carbon option" for example. It's greenwashing if you have no evidence to back this up.
You supply goods or services to larger organisations, you may be asked for this data to meet changing procurement policies.
You want to provide your carbon emissions as a point of difference so customers know you're taking this seriously.
You want to apply for grants to access funding for sustainability initiatives, it's becoming a common question.
You want to understand who of your suppliers are taking sustainability seriously and accounting for their emissions.
You want to be able to tell the story of your progress around emission reduction year on year.
As a business, what can I do?
You may be thinking - How can companies afford to do this though? Who can help them meet those standards?
Well fortunately, every company, large and small, already has a climate hero that can make that happen…sometime they’re called accountants 🦸♀️ And they’ve been doing it with financial accounting for centuries.
Sumday firmly believes the world of carbon accounting is on the cusp of change and we believe it will simply become an extension of normal accounting and reporting for all companies. In doing so, carbon accounting becomes meaningful and can fast track reduction efforts. This allows businesses to start understanding their impact and rely on their trusted advisors to guide them in making informed decisions regarding their impact, considering both financial and carbon returns.
We’re on a mission to make this possible, leading with education, transparency and trust every step of the way. Our education first approach with Sumday Academy makes it possible for these balance sheet warriors to just get on with it for their clients or the companies they work in.