Understanding carbon accounting and why it's important

Our sustainability webinar series aims to break the complex world of sustainability down into digestible pieces to help you get on top of the fundamentals and start driving change in your organisation. At our April 2024 event, Aletta Boshoff and Kevin Frohbus shared an overview of carbon accounting, exploring why it's essential for organisations today. Here, we share the key takeaways.

What is carbon accounting?

Carbon accounting is the process of measuring the carbon dioxide equivalent of the amount of greenhouse gas (GHG) emissions an organisation produces throughout its operations and supply chain.

So, carbon accounting is a measurement calculation exercise—but not the debit or credit you might expect to see in your general ledger or your trial balance.

In Australia, the National Greenhouse and Energy Reporting Act 2007 (NGER Act 2007) provides the framework for measuring your carbon footprint.

Globally, the GHG Protocol is the highly respected and widely accepted framework for the standardised measurement of an organisation's carbon emissions. It is considered framework agnostic—designed to provide consistency and transparency—allowing its use alongside whichever sustainability reporting framework organisations choose. So, it's no surprise many organisations use the GHG Protocol.  

The GHG Protocol has also been mandated to measure the carbon footprint within the International Sustainability Standards Board's (ISSB) Sustainability Disclosure Standard, IFRS S2 Climate-related disclosures.

What gets measured in a carbon footprint?

Direct and indirect emissions are considered to be part of a carbon footprint measurement and are divided into three categories:

Direct emissions

• Scope 1 emissions – The reporting organisation's direct GHG emissions

Indirect emissions

• Scope 2 emissions – The reporting organisation's emissions associated with the generation of electricity, heating/cooling, or steam purchased for its consumption
• Scope 3 emissions – The reporting organisation's indirect emissions, other than those covered in Scope 2.

Under the NGER Act in Australia, only Scope 1 and 2 emissions are considered. Organisations wanting to measure their carbon footprint can refer to the GHG Protocol for Scope 3.

What are the steps in measuring carbon emissions?

1.  Determine the boundaries

The first step to measuring carbon emissions is to consider boundary setting. The boundary provides the foundations for the entity's carbon footprint, defining the measurement's inclusions and exclusions. It's a crucial step that shouldn't be rushed past.

2.  Identify sources of emissions

For some, Scope 1 and Scope 2 will be the initial focus based on mandatory reporting, with the view to calculate Scope 3 later. For others, Scope 3 will be strategically important from the start.

3.  Select calculation approach

Determine whether the organisation is best suited to follow the NGER Act 2007 or the GHG Protocol.

4.  Collect data and choose emissions factors

A significant step, this is where the data is collated. Then, combined with the relevant emissions factors, the calculation can begin.

5.  Apply calculation tools

Whether it's through sophisticated software, or an excel spreadsheet, the tool selected will play an important role in managing the data, records and ultimately, production of the carbon footprint.

6.  Roll data up to the corporate level

Where relevant, organisations should roll the data up to the corporate level to provide an overall carbon footprint.

Why is carbon accounting important for organisations?

There are two key drivers of carbon accounting within organisations these days: strategic or compliance imperatives.

Strategic imperatives

For organisations driven by the strategic imperative, it's all about access. That is:

• Access to capital. Whether funded by investors, super funds, owners, or providers of debt – the organisations and people granting funds are acutely aware of the importance of the carbon footprint in today's market and the risks of not measuring or acting on this.
• Access to markets.Customers and supply chains alike are increasingly asking organisations about their carbon footprint.
• Access to people. From a talent retention and acquisition perspective, people are becoming more aware of carbon footprints and, notably, concerned with the plans and actions organisations are taking to minimise them.

Wherever your organisation fits into the economic system, your key stakeholders are likely demanding to know your carbon footprint, targets, transition plans, and any progress you're making towards this future state to enable them to continue doing business with you.

Compliance imperatives

Alternatively, many organisations are driven by a compliance imperative, or regulatory requirements. While the details and final timing of the incoming mandatory reporting in Australia is being finalised, organisations mustn't wait until the last minute to meet their compliance obligations.

For many organisations, voluntary compliance with the Task Force on Climate-related Financial Disclosures (TCFD) framework will provide a significant stepping stone to prepare for mandatory reporting when it is introduced in Australia.

Here to help

Our national team of sustainability reporting experts can also help you understand what's needed for your organisation. Contact us today.