How to improve carbon accounting methods and standards
Carbon accounting is not enough
Imagine I said to you the only financial data you get to run your business is the annual financial statement? You’d tell me I was crazy and that you would also need a profit and loss account/income statement on a monthly basis, and cash flow of course. How could you possibly run a business on summary financial data for the previous year? How could you possibly course-correct, make tactical decisions and influence the outcome without it?
Carbon Accounting methods
This is precisely the trouble with the current approach to carbon accounting methods. You either employ consultants to assemble your data into a carbon footprint for the previous year, or you employ some carbon accounting software that takes in your energy and supply chain spend and gives you your carbon footprint. While this is very reasonable, it gives you what your carbon footprint was, not what it is or will be.
As the eminent management theorist Peter Ducker used to say, “you can’t change what you can’t measure”. It is our experience that this should be expanded to “you can’t manage what you can’t control and you can’t control what you can’t measure”.
Sticking with the accountancy analogy for carbon, we need to think about how we get on top of not just annual (carbon) reports and (carbon) balance sheets but (carbon) management accounts too.
As a company, you have likely set some decarbonisation goals, more often than not using Science Based Targets. To do this, of course, you have had to baseline your carbon footprint for the previous year. You have your scope 1 (direct production), and scope 2 (energy you buy) measured. And you have a plan in place to reduce things (electrification of heat is a good place to start). You have also realised that 90% or more of your emissions are scope 3 (indirect) and the majority form the supply chain. And that the measurement of those is mostly through analysing supply chain spend and applying emissions factors. So you have your goals and last year’s “carbon balance sheet” but now what?
Carbon Accounting Standards
The point of measuring your carbon footprint isn’t for an annual report, it is to do something about it. Whether it is scope 1, 2 or 3, the feedback loop from taking action to seeing the results, or spotting a problem and mitigating it for that matter, needs to be short enough to properly manage. An annual carbon account is not good enough. You need to be measuring your carbon footprint, at very least, on a monthly basis and from real data, not emissions factors. Ideally, you need to be measuring half-hourly energy data from your activities and your suppliers. You need more than carbon accounting standards - you need carbon (decarbonisation) management.
Carbon accounting examples
So how do you get a carbon income statement and produce really great carbon accounting examples?
1.Start with your scopes 1 & 2
Get your own house in order first. Remember, your scopes 1 & 2 are your customers scope 3. Make sure you have half-hourly energy data available through a cloud service. Sub-meter where you can as this will allow for insights you can turn into savings. If you are a manufacturer you can also bring in process and production data.
2. Bring in scope 3 data from your suppliers
This is the most complicated bit. You need to map your supply chain and understand the materialities of your supplier emissions. Next, you need to engage your tier 1 suppliers in the process of emissions data capture, then the tier down from that, and so on. You also need to assess the confidence in the numbers you have - the lowest being emissions factors, through supplier bill data to directly measured emissions.
3. Visualise your full carbon footprint in real-time
Now you can bring together all that data into an overall carbon footprint. But not an annual carbon account, a proper carbon income statement that you can manage by. One where you can quickly see trending progress, spot problems, and opportunities and sew the results of any actions. 4. Collaborate internally and with your supply chain to take action
Now you can measure, you can control and you can manage. You can collaborate internally on a decarbonisation programme and see how those interventions affect your carbon as they happen. You can also do the same with the key components of the supply chain that you are engaging for direct measurement.
5. Educate employees and suppliers in decarbonisation
It is important to ensure that you bring all your stakeholders with you on your journey. According to the Carbon Commitment Report, 74% of employees have no idea what their organisation’s carbon reduction targets are - even when they exist. Commitment to engaging the hearts and minds of your workforce, and your suppliers’ workforces, are critical for success.
How CoolPlanet can help your company with carbon accounting
If you would like to find out more about how CoolPlanet can help you on your decarbonisation journey towards net zero please get in touch.
Let’s make zero the most profitable number.