What carbon accounting is, and why you can’t ignore it

What is carbon accounting?

Carbon accounting is similar to financial accounting. Only instead of being concerned with converting an organisation’s activity into money, and recording and reporting that, it’s concerned with recording and reporting the greenhouse gas (GHG) emissions that activity caused.

Why does carbon accounting matter?

The UK has made a legal commitment to reach net zero GHG emissions by 2050 at the latest (2045 in Scotland). There is also a ‘softer’ target to halve emissions by 2030. Achieving these goals will require a significant change to the way organisations record and report their emissions.

Put simply, we will not be able to reach net zero unless we know exactly what and how much GHGs we’re emitting. Timely, transparent and accurate data is vital to the success of this process. And ultimately, to avoiding catastrophic climate change.

How are GHG emissions classified?

GHG emissions are divided into three parts or ‘Scopes’ by the Greenhouse Gas Protocol – the body that supplies the most widely applied GHG accounting standards.

These are known as Scope 1, Scope 2 and Scope 3. Scope 1 emissions are those caused directly by the organisation’s operations. Scope 2 emissions are mainly those associated with the energy used by the organisation.

Scope 3 emissions are those associated with the organisation’s supply chain. These fall into upstream emissions, associated with production and transport, and downstream emissions. Downstream emissions are concerned with the use of the organisation’s products or services, and with what happens to them at the end of their life.

Scope 1 and 2 emissions are much easier to record and report than Scope 3 emissions. And therefore much easier to mitigate.

But it’s estimated that as much as 90% of any organisation’s total emissions fall under Scope 3. So it’s vital that these are recorded, reported and reduced. Only then can organisations take action to ensure that they are mitigated too.

Who does carbon accounting affect?

In short, everyone. In time, all organisations will be required to account for their emissions. Currently, the UK’s carbon reporting legislation is driven by the Streamlined Energy and Carbon Reporting (SECR) policy. This requires the following types of organisations to share information in their annual reports about their use of energy and their GHG emissions:

• Companies listed on a public stock exchange
• Large unquoted companies
• Large Limited Liability Partnerships (LLPs)

Organisations are considered to be ‘large’ if they meet two of the following three criteria:

• a turnover of £36 million+
• a balance sheet of £18 million+
• 250+ employees

However, as the deadlines for net zero come closer, more and more smaller organisations will be required to account for their emissions.

This is particularly true for any small business involved in providing products or services to larger customers. These may already require suppliers to give information about their GHG emissions as part of their own Scope 3 accounting.

And any organisation bidding for government contracts for a contract worth £5 million or more is already required to give details of a carbon reduction plan (driven by carbon accounting). This is regulated by Procurement Policy Note 06/21 (PPN06/21).

This Carbon Reduction Plan must cover all UK Scope 1 and Scope 2 emissions, plus five areas of Scope 3 emissions.

• Business travel
• Employee commuting
• Waste generated in operations
• Upstream transportation and distribution
• Downstream transportation and distribution

The Crown Commercial Service now applies this policy to all organisations bidding for government work. So carbon accounting is an essential requirement for anyone with a business that wants to do any work for government.

What are the benefits of carbon accounting?

As well as the obvious benefits of enabling us to reach net zero, carbon accounting can also help your organisation to identify energy use hotspots. These could be part of your Scope 1 or Scope 2 emissions, or stem from your own suppliers’ activities as part of your Scope 3.

We’ve also seen that complying with carbon accounting is becoming more and more part of the ‘cost of doing business’ for any organisation. So just as it could be impossible to pitch for new business if you can’t provide accurate and transparent financial information, it could soon be very difficult to grow without carbon accounting.

Where can I find support with carbon accounting?

We can help you on your journey to set up carbon accounting programmes for your organisation. We can also support you as you seek to mitigate your GHG emissions.

Through our partner, Notch (formerly CBN Expert), Drax customers can access the UK’s first carbon accounting energy tariff. One of the leading Carbon Accounting software platforms, Notch has been designed to make it easy for you to measure, track and report the carbon emissions in your business and supply chain.

Customers also get exclusive access to free Net Zero training, worth £2,500, designed to develop the skills of your employees to become drivers of Net Zero action.

Please get in touch to find out more.