Having insight into company emissions is of utmost importance, given the intricate and expansive nature of greenhouse gases (GHG). Organizations must familiarize themselves not only with the classification of GHG but also with their sources, emission output, corporate carbon footprint, reporting timelines and areas and reduction strategies. This article navigates the fundamental concepts of GHG emissions, how to compile a precise emissions inventory, and presents a summary of the best reporting practices.
What Is a Carbon Footprint?
A carbon footprint represents the aggregate greenhouse gases produced by an entity through its activities. Individuals, businesses, countries, products and services can all have a carbon footprint. Knowing your carbon footprint and its contributing factors is critical not only for our economy and the planet’s sustainability but also for regulatory compliance.
Regulatory agencies instruct businesses to disclose their GHG emissions in some form, such as the U.S. SEC, EU CSRD, CS3D and more. Customers and business partners, who are bound by law to report their emissions, are increasingly requesting carbon footprint information from their counterparts.
Greenhouse Gasses Contribute to Climate Change
Greenhouse gases (GHG) present in the Earth’s atmosphere trap heat, leading to a greenhouse effect which results in climate change and global warming. The major culprits causing this effect include carbon dioxide, methane, nitrous oxide, hydrochlorofluorocarbons (HCFCs) and hydrofluorocarbons (HFCs), among others, with carbon dioxide being the chief contributor, accounting for 79% of GHG, per the EPA.
- Carbon Dioxide – Produced by the burning of fossil fuels like coal, natural gas and oil.
- Methane – Produced during the production and transport of coal, natural gas and oil, livestock and other agricultural practices, land use, and by the decay of organic waste.
- Nitrous Oxide – Produced from agricultural and industrial activities, the combustion of fossil fuels and solid waste and treatment of wastewater.
- Fluorinated Gases – Produced by household, commercial and industrial applications and processes.
Steps to Measuring Your Carbon Footprint
Corporate activities contribute as significantly as individual activities to greenhouse gas emissions in the Earth’s atmosphere. Corporations should undertake mitigation strategies to manage their carbon footprint. While assessing and tracking a company’s carbon footprint is a comprehensive and time-consuming process, it is imperative for an effective ESG strategy. Below are specific steps you can take to determine your company’s carbon footprint.
Step 1: Identify GHG Emissions
GHG emissions are similar to ripples originating from a center point, expanding and covering an increasingly larger area. Businesses quantify emissions and identify measurement standards with GHG scopes. Emissions are allocated into three categories – Scope 1, Scope 2 and Scope 3 – based on types of emitters and emission sources, which, when combined, make up the carbon footprint.
The most straightforward of the emissions, Scope 1 GHGs, are direct emissions that result from the burning of fossil fuels from devices owned by the company such as boilers or vehicles. Energy use-related emissions that are not produced onsite but are attributed to an organization are Scope 2 GHG emissions. Examples include electricity, steam, heating or cooling purchased by the organization.
The supply chain-related emissions originating from both upstream and downstream activities outside the control of the organization are the Scope 3 GHG emissions. Corporate travel, distribution, transportation and employee commutes are examples. It’s worth noting that for most companies, Scope 3 emissions are the principal contributor to the carbon footprint and the hardest to measure.
Reporting and disclosure entities are fiercely debating Scope 3 emissions due to the difficulties surrounding the collection of this data. Regulatory agencies struggle to balance mandating around Scope 3, which could represent 75% of the company’s entire emissions while dealing with the enormity of their request and the strain it puts on corporation. Businesses are rightly worried about the potential costs of measuring and managing data while still recognizing the long-term benefits.
Step 2: Use Carbon Footprint Calculation Tools
A data collection crisis is facing many US mid-market and public companies. Even with SEC regulations in sight, we estimate that 3,800 public companies alone have yet to begin measuring GHG emissions. To efficiently manage GHG emissions, it is recommended to utilize software specifically developed for recording, tracking and measuring GHG inventory.
While standalone GHG calculators are useful for quick calculations, they are not ideal for a long-term ESG plan. To establish an effective long-term plan, it is best to incorporate comprehensive ESG and GHG emissions software. This provides an all-in-one solution, eliminating costly data entry hours, manual calculations and opportunities for human error.
Benefits of Using Software to Calculate a Carbon Footprint
Utilizing software to calculate your carbon footprint can provide a host of benefits for your organization. By adopting this approach, you can achieve consistency, comparability and a trackable progress timeline for your data analysis, while also maintaining data assurance readiness. It can also split data automatically into Scope 1, 2 and 3 emissions, serve as a repository for information and highlight any opportunity areas for improvement. With the possibility of automated data collection, this approach can save time and resources for your company.
Step 3: Prepare Your GHG Emissions Calculations for Reporting and Assurance
The reporting and assurance of ESG and GHG emissions continue to evolve, presenting a shifting landscape for corporations, regulatory agencies and auditors alike. Despite the challenges, compliance with global standards necessitates timely reporting and verification. The SEC has also entered the mix, emphasizing the importance of accurate and comprehensive GHG emission reporting and management. Examples of reporting GHG emissions standards:
Currently, it is highly recommended that organizations select the most suitable reporting framework. One of the most viable options is The Taskforce on Climate-related Financial Disclosures (TCFD) framework, now the leading model for climate-related disclosures and complying with the SEC reporting requirements. Additionally, the GHG inventory report should be audit-ready, approved by either an auditor, engineer or consulting firm.
Step 4: Set Emissions Goals and Targets
To reduce GHG emissions and lower the carbon footprint, one must begin by acquiring accurate emissions data. A reporting software can then be utilized to identify areas in the footprint that need collaboration in cutting emissions. Organizations can utilize various resources such as SBTI and RE100 which promote emission reduction initiatives. Joining supportive environmental networks will encourage you to achieve sustainability and carbon neutrality. Nonetheless, calculating carbon footprints can be challenging and a realistic, achievable goal-setting approach will be beneficial in attaining ESG team targets related to GHG emissions.
Calculate Your Carbon Footprint with Withum
With a rising global focus on ESG initiatives and tightening regulations surrounding GHG emissions, it’s more important now than ever before to fully recognize your company-wide carbon footprint. To ensure future economic stability, it’s crucial to partner with a provider that can both support and guide you in adapting to changes in calculating and reporting these emissions.