The world is facing a climate emergency – that is an undisputable scientific fact. Climate change is no longer a distant threat, and its impacts are already being felt worldwide. Rising temperatures, extreme weather events, and rising sea levels are just some of the consequences of our unsustainable practices. Without a concerted strategy and action plan, unsustainable behaviours will edge us closer towards irreversible damage which will disrupt the delicate balance of the world's ecosystem, threatening life on Earth. The Paris Agreement, which entered into force in 2016, aims to limit global warming to below 2 degrees Celsius above pre-industrial levels, and to pursue efforts to limit the increase to 1.5 degrees Celsius. Achieving this target requires urgent action from all sectors, including the private sector.
To this end, carbon accounting is a crucial tool for businesses to understand and reduce their carbon footprint and support climate action goals. The consequences of not doing so will be catastrophic – not only for our planet and people, but also for businesses.
Why is carbon accounting important?
For an increasing number of companies, quantifying their carbon emissions is no longer optional, but a must-have. Investors, customers, business partners, regulators and other stakeholders are increasingly demanding more transparency and accountability from companies regarding their environmental impact. Carbon accounting is also an essential step towards setting reduction targets and tracking progress towards meeting those targets.
The process of quantifying carbon emissions provides insight into the areas of a business that generate the most significant impact, whether directly (such as through fuel combustion in generators or the company fleet), or indirectly (such as through electricity consumption, business travel, employee commuting, and other emissions created in the value chain). It also highlights opportunities for emissions reductions. By understanding the carbon footprint of their operations, companies can take steps to mitigate risks, reduce costs, and enhance their reputation.
New regulatory requirements
The pressure for companies to quantify their carbon emissions is set to increase, with regulatory bodies and governments around the world introducing legislation and frameworks to drive emissions reductions.
The European Union's Corporate Sustainability Reporting Directive (the 'CSRD') is a prime example of the increased regulatory focus on emissions reductions. The CSRD introduces new mandatory requirements for large or listed companies to report on a wide range of Environmental, Social, and Governance ('ESG') metrics, including carbon emissions, in a standardised manner.
Smaller companies outside the scope of CSRD will also be indirectly impacted as the process of establishing a company's carbon footprint requires consideration of the carbon impact of its value chain – including the emissions of smaller suppliers.
Reducing risks, and seizing opportunities
Investors and other stakeholders are also placing more emphasis on the ESG performance of companies they invest in and work with. Companies that fail to measure and reduce their carbon emissions risk losing the trust of investors, missing out on business opportunities as partners raise their expectations of the companies they want to work with, and face criticism and reputational damage as the world becomes more aware of climate impacts.
On the other hand, companies that measure and reduce their carbon footprint can gain a competitive advantage by differentiating themselves from competitors and attracting environmentally conscious customers, business partners, investors, as well as employees.
Measuring a company's carbon footprint can also identify areas of wastage – for instance in respect of fuel or electricity consumption – and opportunities to reduce costs through increased energy efficiency and lower reliance on fossil fuels. This is particularly important as the price of fuels and non-renewable sources of energy rises across the world.
Decarbonising your business
Establishing your carbon footprint should be an essential component of your company's decarbonisation strategy, fitting within your broader ESG strategy. Carbon footprinting provides the data and insights necessary to set reduction targets, monitor progress, and make informed business decisions.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.