Carbon Accounting: What It Is and How to Measure Your Business Footprint

Contents:

• What is carbon accounting
• Why is carbon accounting important?
• Scope emissions explained

• Your first carbon footprint: Four-step process
• Common methodologies (GHG Protocol, ISO 14064)
• How Pulse simplifies the process
• Next steps: from measurement to action

What is carbon accounting?

We all know the importance of financial accounting across any business, whether you’re a multinational corporation or a small local business, recording all financial transactions is non-negotiable.

Every business will be making sales as well as having expenses to pay, which is why recording every transaction is necessary because it allows you to successfully produce financial reports. Whether it’s your income statement or balance sheet financial accounting is crucial in any business. 

The overall goal is to provide that clear picture of how a business is performing from a monetary standpoint. Carbon accounting share’s similarities, but how it works (i.e. what you report on), and what it achieves, is much different.

The key difference being you’re reporting on CO2 emissions, not money coming in and out of your business. In this article we’ll be breaking down what carbon accounting is, why it matters in today’s business environment, explaining the three different emission scopes and how to measure your first carbon footprint using a four-step process. 

Why is Carbon Accounting important?

Financial accounting is extremely important to do because it allows you to demonstrate business performance to directors, board members and potential investors. The knock-on effect is potentially securing key investments to help further business growth.  

Carbon accounting is just as important in today’s world,  because there are multiple reasons why it shouldn’t be overlooked. One of the growing reasons why it’s important to act is pressure from customers and supply chains, the UK Net Zero Business Census 2024 found that 46% of all organisations (and 37% of SMEs) have received requests for carbon data from customers. 

Source: 2024 UK Net Zero Business Census Report

The shift in client and customer demands is only going to continue, with 66% of consumers now considering sustainability in purchasing decisions, according to a McKinsey study. 

Source: Decarbonizing logistics: Charting the path ahead

So, for those organisations that are already doing something to demonstrate their sustainability efforts, they’re creating a competitive advantage for themselves. Suppliers who have robust Scope 3 emissions reporting and management in place have created a competitive edge over their peers.  

The regulatory landscape has experienced a massive change over the past few decades, with the number of climate related laws increasing by 20-fold. 

Back in 1997, there were only 60 climate related laws in place, but during early 2017, the number of laws and policies had grown to over 1,200. Then as of September 2022 there are over 2,860 climate-related laws and policies. 

Sources: The London School of Economics and Political Science. & Global trends in climate change legislation and litigation

Governments across the world have introduced much stricter emissions reporting schemes, the UK specifically, introduced the Streamlined Energy and Carbon Reporting (SECR) back in 2019. This is a mandatory scheme which requires businesses who qualify to report their energy consumption and carbon emissions in their annual reports.

Carbon accounting is imperative if you are required to comply with SECR in the UK. If you are actively accounting for emissions across every aspect of your business, then producing your report for SECR, will be straightforward.

Not only can carbon accounting make your business achieve compliance quickly whilst avoiding any potential headaches, but it can contribute to improving its reputation and help attract the right people, whether it’s potential investors or new staff.  

One final reason why carbon accounting is important is the potential cost saving opportunities that come off the back of a business getting to grips with their environmental impact. We’ve seen it first hand with a client of ours, who started their carbon accounting journey, and were able to achieve over £750,000 worth of savings, these savings came off the back of major energy carbon reductions across the site. This client achieved over 180,000+ kWh savings from LED lighting upgrades, along with 430,000+ kWh in heat savings.

From a business perspective, carbon accounting is a significant process which opens a plethora of opportunities, whether it’s complying with mandatory legislation, identifying cost savings or improving your reputation across the market/industry you operate in. You should now be clear as to why it’s important. 

Scope emissions explained

There are three scope emission categories in which your business accounts for, known as Scope 1, 2 and 3 emissions. These are different in what emission types fall under each scope, but ultimately to understand your carbon footprint you need to consider all three scope emissions. 

Scope 1 emissions 

Scope 1 are direct GHG emissions from sources that are owned or controlled by an organisation.

Naturally, these are the easiest emissions to measure and monitor, because they occur within your organisation’s boundaries. 

For example, direct emissions from burning fuel, whether that’s gas boilers for heating office spaces or fuel from your company vehicles, these types of emissions fall under Scope 1.

Scope 2 emissions 

Scope 2 are indirect GHG emissions from the purchase of energy, whether that’s electricity, heating, steam or cooling which is used throughout an organisation. 

A simple example is when a company purchases electricity to power its offices with lighting, computers, and air conditioning. The purchased electricity is generated at a power plant, which is where the emissions occur, but the company must account for them as they’re associated with the company’s energy consumption taking place at the offices. 

Scope 3 emissions

Scope 3 emissions are all indirect GHG emissions (not captured by Scope 2), which occur across an organisations value chain.  

Two examples of scope 3 is the emissions generated by transporting raw materials to a factory or building site. On the other hand, scope 3 emissions can be when a customer is using and then disposing of a product after it’s been purchased. 

It’s important to know that every company’s total emissions will be spread across the three different scopes, but it’s dependent on your business type and what you do. Scopes 1 & 2 may account for three quarters of your total emissions, but for a logistics company their emissions breakdown is likely to be dominated by Scope 3. 

Your first carbon footprint: Four-step process 

In this section, we have mapped out an easy to-follow four-step process, that’s if you’re wanting to get started with calculating and understanding your companies carbon footprint.

Step one is to gather all your energy bills together. If you have them stored in one place already, then great, this step will be straightforward. This step will cover all Scope 2 emissions associated to your business.  

Step two you need to gather all fuel related receipts from across the business. This step helps with accounting for Scope 1 emissions associated to your business. Similar to step one if you’re actively collecting receipts and keeping them stored somewhere this step shouldn’t be too onerous.

Step three is slightly different and is where it gets trickier, but you must bear in mind this is potentially where the lion share of your impact hides. During this step you’ll need to estimate your businesses key Scope 3 categories, this will include emissions from your supply chain, business travel, employee commuting, and even waste. This step can be quite overwhelming at first. 

Top tip: Focus on your biggest, most material categories and build from there. 

Step four you need to identify and use a tool to calculate your first footprint. Once you’ve done this step you’ll have your first carbon footprint, moving forward this will act as your baseline year so you can track the progress as you continue to reduce your organisations footprint.  

Common Methodologies (GHG Protocol, ISO 14064)

Once you’ve gathered your data, it needs to be measured and reported in line with accepted frameworks. The two most common are:

GHG Protocol 
The Greenhouse Gas Protocol is the global gold standard. It defines Scope 1, 2, and 3 emissions, and gives clear guidance on how to measure each one. Most companies and regulations tend to refer to and follow this structure.

ISO 14064 
This is an international standard that builds on the GHG Protocol but adds additional requirements for verification and auditing. It’s particularly relevant for organisations looking to gain formal certification or integrate carbon reporting into wider ISO systems. 

Using these standards ensures your reporting is credible, consistent, and comparable. 

How Pulse simplifies the process 

If you read step four of the carbon footprint process and thought “I don’t know of any carbon tools or software”, then that’s fine, ideally you want to avoid doing manual calculations, which is where Pulse would come in.  

Pulse is our very own carbon and energy management software, developed in-house, and by using Pulse you can: 

• Upload energy and fuel data for instant carbon calculations 

• Track Scope 1, 2, and 3 emissions with year-on-year comparisons 

• Automatically apply up-to-date emissions factors 

• Export compliant reports for ESOS, SECR, and more

Next Steps: from measurement to action 

Carbon accounting allows you to understand where you’re at today, but the key to sustainability success is to act on the insight.

What matters next is using your newly established footprint to explore things like:

• Setting science-based targets that align with your sectors net zero goals and the wider business ambitions 

• Identify reduction opportunities — including small actions such as behavioural interventions to promote cost and carbon savings as well as investment grade capex actions to reduce cost and carbon over a longer term

• Build a roadmap that connects sustainability with cost savings and risk reduction